Ryman Hospitality Properties Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

There are 12 speakers on the call.

Operator

Good day, everyone, and welcome to the Ryman Hospitality Properties Third Quarter 2024 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Executive Chairman Mr. Mark Friovanti, President and Chief Executive Officer Ms. Jennifer Hutchison, Chief Financial Officer Mr.

Operator

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 will be 1-eight hundred-eight thirty nine-five thousand six hundred and eighty five with no conference ID required. At this time, all participants have been placed on a listen only mode.

Operator

It is now my pleasure to turn the floor over to Ms. Jennifer Hutchison. Ma'am, you may begin.

Speaker 1

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.

Speaker 1

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 exhibits to today's release. I'll now turn the call over to Colin.

Speaker 2

Thank you, Jen, and good morning, everyone. We are pleased to report strong Q3 2024 2024 results. Our same store hospitality segment delivered record 3rd quarter revenue and adjusted EBITDAre driven by continued strength in our group business. And our entertainment business delivered record 3rd quarter revenue driven by continued momentum in our Ole Red brand. During the quarter, we continued to make progress against our major capital investment initiatives and with many of our 2024 projects nearing completion, we're more excited than ever about the value this will create for our shareholders in the years to come.

Speaker 2

Mark will review the Q3 in more detail in just a moment. But first, I'd like to remind you how we think about some of these exciting improvements. As we first shared with you at our Investor Day, in our hospitality portfolio, we are focused continuing to grow our business through investments that are customer informed and replicable across the portfolio, resulting in at least mid teens unlevered returns. This year alone, we've undertaken a significant portion of the more than $1,000,000,000 capital program and the early results of these efforts are beginning to show in our bookings production for 'twenty six and beyond. Now, the strategy sounds simple.

Speaker 2

1, we build demand. 2, we provide the customer with great service. 3, we retain the customers and then move them across our system and then further enhance and expand the product and generate superior returns on the capital we deploy. But in reality, it's taken years to perfect this strategy, but our superior TSR is because of this disciplined approach. At the Gaylord Rockies, we've completely repositioned the entertainment spaces with beautiful sellable space that seamlessly bridge the indoor and outdoor spaces.

Speaker 2

We've also increased our food and beverage outlet seat count ahead of a potential further rooms expansion at this resort. At Gaylord Opryland, we are replicating what we've learned at the Gaylord Rockies to reposition underutilized courtyard space adjacent to our largest meeting space into a modern sports bar complex featuring an event lawn and indoor outdoor pavilion. This complex will add flexible space for group buyouts and during group low periods will provide necessary additional seats for our leisure transient guests. At the same time, we're modernizing the governors and presidential ballrooms, which together account for approximately 40% of the properties carpeted meeting space. The Gaylord Palms, we're renovating the lobby and rooms to match the 2021 expansion.

Speaker 2

When these projects conclude, nearly every group and guest facing aspect of that hotel will have been completely refreshed within the last 4 years, which is critical to our long term positioning in that market. Our entertainment business, we're wrapping up significant investments in Austin and Nashville, including opening our first venue under the Category 10 brand. Our partnership with Country Music superstar Luke Holmes arguably the most successful country music artist today is often running. Category 10 soft opens over the weekend initially with a private event for Luke's Bootleggers Fan Club and then more broadly to the public. This multifaceted entertainment venue is one of a kind in downtown Nashville and we believe it will be hugely successful with the anticipated revenue growth of tourism in the city and the East Bank development that is underway across the river.

Speaker 2

We look forward to hosting the grand opening later in 2025 following the completion of the rooftop and the Q1. We will have that rooftop done at the end of the Q1 and further expanding the brand in the years to come. Let me go off script just a second here, if you're okay with this, Mark. Category 10 is 70,000 square feet. Most of the bars and Broadway that we often get peered against the small honky tonks.

Speaker 2

By contrast, there are 5 distinct entertainment experiences within category 10. Yes, we have a honky tonk. We have this beautiful hall, which we call Hurricane Hall that can accommodate up to 1500 people, which comes with an incredible light display that replicates an intense storm. And it's one of the few places in this hall where people can actually dance. The still is a VIP area for the affluent fan that travels to Nashville.

Speaker 2

We have a sports bar that on Saturday was absolutely packed catering to the country lifestyle consumer that loves sports. And then all of this will be supplemented, as I say, in the Q1 with this best rooftop experience in downtown. And I think the whole team has done a wonderful job bringing this to fruition. And I know we're all very, very excited about the prospects of category 10. Finally, we've just announced our plans for Opry 100, our 20 25 programming around the 100th anniversary of the Grand Ole Opry, including 100 Opry debuts that we'll be making and an international exposure with a special performance at London's Royal Albert Pool in the fall of 2025.

Speaker 2

Tickets for most of the 25 shows went on sale on October 18th and sales are pacing very well. I'm also very personally excited about the impact the Opry will have in London as we work towards broadcasting that show throughout that part of the world. And in case you missed it, over the last few weeks, Icelandic Air, which has a major hub routes through Scandinavia and Air Lingus have announced direct flights into Nashville. And we believe the European tourist flow to this city is in its infancy. Taking the Opry to London will be a big long term demand generator.

Speaker 2

We're really excited about the future of our entertainment business with our major capital investments nearing completion and the opportunity to connect with more country lifestyle consumers through our activation of Opry 100, our entertainment business is poised to have a very good year in 2025. Taken together, our businesses are in the best shape they've ever been in and our company's future looks awfully exciting. Now with that, let me turn over to Mark to review the Q3 results in more detail. Mark?

Speaker 3

Thanks, Colin, and good morning, everyone. I'll provide a review of the Q3, highlight some of the trends we're seeing in our business and discuss our revised guidance ranges before handing it over to Jennifer to cover our financial position and outlook for capital expenditures. Both our businesses continue to perform well in the Q3. We finished the quarter with consolidated total revenue of $550,000,000 a 3rd quarter record up 4.1 percent year over year and record 3rd quarter consolidated adjusted EBITDAre of $175,000,000 up 2.3% year over year. Our same store hospitality segment delivered year over year RevPAR growth of 2.1% and total RevPAR growth of 4.2%.

Speaker 3

ADR of $2.45 was a 3rd quarter record, up 6.2% year over year, driven by record 3rd quarter rate in both group and transient. Same store hospitality adjusted EBITDAre of $142,000,000 was also a 3rd quarter record. Same store hospitality margin increased 30 basis points year over year to 34.4 percent despite a $4,000,000 year over year reduction in attrition and cancellation fees, which flow through to profitability at 100% after management fees. Leisure transient softness in the Nashville and Orlando markets continued into the Q3. However, continued solid group performance, robust out of room spending and operating efficiencies more than offset the profitability impact of leisure declines, again demonstrating the merits of our group centric model.

Speaker 3

In the quarter, same store group rooms revenue was a 3rd quarter record, up 6.8% year over year. Banquet and AV revenue was also a 3rd quarter record, up nearly 16% on higher contribution per group room night travel. Catering was particularly strong at Gaylord Opryland, Gaylord Palms and Gaylord Rockies. Foundational to our differentiated business model, our all under one roof offerings are uniquely positioned to capture out of room spending and drive market share gains relative to our competitors. We continue to see it in the numbers.

Speaker 3

Since the Q3 of 2019, the average total RevPAR index is measured by star for our 5 Gaylord Hotels compared to their Marriott defined competitive sets has increased more than 20 points. Looking ahead, same store bookings production metrics remain healthy. In the Q3, we booked over 581,000 gross group room nights for all future years at a record Q3 gross ADR of $2.82 an increase of 5.2% year over year. Room night production was down approximately 16% due to the timing of a few large bookings and a tough comparison against the strong prior year quarter. In October, room night production rebounded to up approximately 75% year over year at a gross ADR of $283 up 11% year over year, both representing October records.

Speaker 3

Year to date room night and rooms revenue production through October are up 3.5% year over year and 10.5% year over year respectively. As of the end of the third quarter, same store group rooms revenue on the books for 2025, 20262027 were up 2%, 12% and 10% respectively compared to the same time last year for 2024, 2025 and 2026. Notably rate growth comprises roughly 60% of the group revenue pace for 2627, which we believe is a testament to the value we're creating for our guests through our multi year investment strategy. Turning to the JW Marriott Hill Country, in the Q3, this property delivered RevPAR growth of 2.7% and total RevPAR growth of 8.5%. As with the same store portfolio, Banquet and AV revenue were up substantially due to higher contribution per group room night travel.

Speaker 3

Adjusted EBITDAre of $17,500,000 was essentially flat year over year due to increased investment in leadership, sales and banqueting and in the infrastructure to support and launch our ICE holiday programming. These investments in people, process and programming will generate returns for years to come. In addition, flow through was impacted by the timing of a $1,000,000 incentive management fee accrual adjustment that was booked in the Q3 of 2023 related to the acquisition. We continue to be very bullish on the long term potential of this asset under our stewardship. Now turning to the Entertainment segment.

Speaker 3

Despite plant construction disruption at the W. Austin Hotel at Block 21 and Category 10 in Nashville, OEG reported revenue of $83,000,000 a 3rd quarter record and adjusted EBITDAre of $22,000,000 driven by continued strong performance of our recently opened Old Red Las Vegas venue. With our major capital investments nearing completion and our planned activation around Opry 100, this business is poised to deliver meaningful growth in 2025 and beyond. We're fortunate to own some of the most iconic brands and venues and live entertainment and we look forward to reaching more consumers in the years to come. Now turning to our revised outlook for the remainder of the year.

Speaker 3

For the same store hospitality segment, we are modifying the midpoint and tightening our full year guidance ranges for RevPAR growth, total RevPAR growth and adjusted EBITDAre. Several factors are equally contributing to these adjustments. Continued leisure softness in Orlando and Nashville, incremental construction disruption to Gaylord Palms as labor shortages due to the construction of the new Universal theme park has extended our renovation timeline and lost business related to Hurricane Milton. For the JW Hill Country, we're raising the midpoint and tightening the range of our full year 2024 adjusted EBITDAre guidance. And for the Entertainment segment, we're lowering the midpoint and tightening the range of our full year 2024 adjusted EBITDAre guidance to account for incremental disruption at the W Austin Hotel.

Speaker 3

In total, we're revising the midpoint of our full year 2024 consolidated adjusted EBITDAre guidance by $5,000,000 or 0.7%. It's important to note that this revised guidance midpoint of $770,500,000 represents an 11.5% increase over last year and a record performance by our company. Finally, we're raising the midpoint and tightening the range of our full year 2024 guidance ranges for adjusted funds from operations or AFFO and AFFO per diluted share as we expect lower interest expense to more than offset the downward revision to adjusted EBITDAre. In summary, we had a terrific Q3. We remain incredibly bullish on the current performance of our businesses and we're excited about the value creation opportunities associated with our multi year investment strategy in the years ahead.

Speaker 3

And importantly, we can fund this strategy plus our growing dividend from our balance sheet and free cash flow generation. So to that end, I'll turn it over to Jennifer to discuss our balance sheet, liquidity and capital expenditures outlook.

Speaker 1

Thanks, Mark. We ended the Q3 with $535,000,000 of unrestricted cash on hand and our $700,000,000 revolving credit facility undrawn. OEG's $80,000,000 revolving credit facility had a balance of $16,000,000 outstanding. Taken together, our total available liquidity was approximately $1,300,000,000 net of approximately $4,000,000 in outstanding letters of credit. We retained an additional $36,000,000 of restricted cash available for FF and E and other maintenance projects.

Speaker 1

At the end of the quarter, our net leverage ratio based on total consolidated net debt to adjusted EBITDAre was 3.8 times. We continue to have the flexibility and liquidity to support our capital allocation priorities and the continued growth of our business. To that end, we are pleased to announce the declaration of our 4th quarter dividend of $1.15 payable on January 15, 2025 to shareholders of record as of December 31, 2024. This represents a 4.5% increase in our quarterly dividend and a 4.2% yield based on yesterday's closing price. It remains our intention to continue to pay 100% of our REIT taxable income through dividends.

Speaker 1

For the full year 2024, we expect to invest capital of approximately $400,000,000 to $450,000,000 As both Colin and Mark discussed, much of our 2024 major capital activity is nearing completion. In our hospitality business, at Gaylord Rockies, the final phase of the Grand Lodge repositioning, which includes several additional food and beverage outlets, will reopen at the end of this month. Phase 1 of this project, which opened in May, is already driving incremental out of room spend. At Gaylord Opryland, the repositioning of the currently underutilized Magnolia Courtyard into a new sports bar complex, including a group pavilion and event launch space is well underway. We expect to complete this project in early 2026 and Marriott sales teams are already selling into these improvements.

Speaker 1

Renovation of the Governor's Ballroom there and pre function space is also progressing well and we expect to complete this work in early 2025. Renovation of the presidential ballroom and pre function space is scheduled to begin later this month. At the Gaylord Palms, we expect to complete the final phase of the lobby renovation by year end and the rooms renovation in the Q1 of 2025. Colin mentioned, when these projects are completed, nearly every guest and group facing aspect of the property will have been refreshed within the last 4 years, positioning the property well as growth of the Orlando market reaccelerates. In our entertainment business, both major projects have at least partially reopened to positive early recession.

Speaker 1

At the W. Austin Hotel, the public space and food and beverage concept have reopened and the rooms renovation is expected to be completed by year end. Finally, as Colin mentioned, our first venue under the Category 10 brand soft opened over the weekend. Construction on the rooftop is ongoing and will complete in the Q1 of 2025. And with that, David, let's open it up for questions.

Operator

We'll take our first question from Patrick Scholes with Truist. Please go ahead. Your line is open.

Speaker 4

Hi, good morning, everyone. Thank you. A couple of questions here. It looks like in your full year guidance, CapEx is going up. Can you talk a little bit what is driving that?

Speaker 4

And then I have 1 or 2 more questions. Thank you.

Speaker 1

Sure. It is a modest increase in terms of the base of spending that we're estimating now a $400,000,000 to $450,000,000 range. And really that's more a function of timing of the cash spend. We've not added any incremental projects or changed the scope of projects that's caused that to increase nor have the budget estimates for our individual projects materially changed. Again, this is just largely a function of the timing of the cash payments, whether we're carrying into this year or carrying into next year.

Speaker 4

Okay. Thank you. And then on a similar topic, I've been reading some media reports about potential expansion at your Colorado property. Anything you can give us some color on that? And related to that, what type of ROIC would you target from that?

Speaker 4

It seems like it would be sort of a pod add on to an existing property. So what do you target with that? Thank you.

Speaker 2

Patrick, good morning, Colin. Pat, we've done like 3 big projects there, all of them are mid teens. So you want to just give Patrick Starz a little bit color? Sure. Yes, to

Speaker 5

Colin's point, our internal rate of return, we're targeting to be in the mid to high teens. The Grand Lodge revisions are at that level or higher. The group of $1,000,000,000 that we just opened, which both assets are meeting great success and exceeding pro formas thus far. We're both in the mid to high teens. From an expansion perspective, we've made it very known that we would like to expand that property and we continue to explore that and we'll be having conversations with our Board of Directors in the coming months around potential expansion.

Speaker 2

And the reason and Patrick, the reason Patrick Scholes, the reason why we are going to talk to our Board about this is when you look at the business on the books across our portfolio, this is the hotel that sticks out with having the most room nights on the books for 20 as a percentage of available for 2025, 26. The numbers look really, really strong for the Rockies. So we're very excited about this long term for this particular building. And I think you've heard us say before, there's no reason that over time why this building can't morph to something that physically looks like Opryland. And when you look at the geographic positioning of this hotel, the airlift, the customer reaction, I think over time, this thing this hotel can do extremely well for us.

Speaker 3

The only thing I was going to say is, Patrick, that hotel, when it originally opened had meeting space to carry the expansion. So we won't have to add additional meeting space. And with the most recent capital investments we've made, we've added about 650 food and beverage seats in that hotel. So it'll have the food and beverage capacity as well.

Speaker 4

Okay. So I mean, are you talking ballpark 200 rooms, maybe a 1,000 rooms or is it too early to give us a call on that?

Speaker 6

Yes. So

Speaker 5

hey Patrick, this is Patrick Chaffin again. What we're looking at right now is potentially a 2 phased expansion. The first expansion would be around 4 50 rooms and if that stabilizes and performs the way we would expect, we would come back and do a second expansion down the road when it makes economic sense based on how the first expansion performs.

Speaker 4

Okay. Thank you for the color. I'm going to hop back in the queue. Thank you.

Speaker 3

Thanks, Patrick.

Operator

We'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead. Your line is open.

Speaker 6

Hey, good morning, guys. Thanks for taking the questions. So really impressive rate performance in the quarter and also on the forward. And my question is, we obviously lost a little bit of a Bakken Q3 and I know that might be related to leisure. The question though is, are you at a point where you begin to consciously trade a little group arc in favor of rate?

Speaker 6

And I know there's another component to that, which is the out of room spend, but I'm just curious as to whether we should expect maybe slightly lower off levels at the next peak, but with much better rate growth than we've seen in the past.

Speaker 3

Thanks. Well, I mean, our goal is still obviously to get these hotels to an aspirational 80% occupancy running consistently. But to your point, Chris, coming out of the pandemic, we have really focused on driving the rate because with the capital investments that we made, we feel like we're delivering the value to the customer and the customers responding to these enhancements and you can see that in our bookings. So ultimately, we're trying to drive and maximize our RevPAR and total RevPAR in the yield of the hotel. But I don't I wouldn't necessarily assume that that means that we ultimately peak at a lower occupancy rate.

Speaker 3

We're in a segment that has very limited supply growth and demand continues to grow. And when you look at our assets and how they're positioned relative to our peers, we're in a pretty good position.

Speaker 5

Hey, Chris, this is Patrick. The only thing I would add to that is, I would point out that we've only seen a couple of months post pandemic where demand levels got back to where they were pre pandemic. And so you weigh that against the type of rate and occupancy future room nights that we're putting up and we're extremely pleased with how the sales teams are doing in driving room nights and especially rate. And as that demand continues to build back to where it was pre pandemic, to Mark's point, we think we're going to have the best of both worlds where you have strong rate performance based on the improved value proposition from these investments in hotels as well as similar or even better occupancy performance.

Speaker 6

Okay. Very good. Did have a quick follow-up, which is, yes, I think there's been a lot of so San Diego, let's see what this is, right, getting closer to come across the finish line. And just curious as to whether there's any updated thoughts on whether that's something your messaging has been pretty clear in the past that it can only be on the table if certain conditions are there. I'm just curious as to whether any of the conditions you look at are more likely or less likely than our last update.

Speaker 6

Thanks. Yes.

Speaker 3

You want to go? Well,

Speaker 2

you do it. But I mean, things haven't changed.

Speaker 3

Yes. I mean, our position relative to our participation in that asset really hasn't changed. I would say that again as they move closer to opening and continue to sell that hotel, we've not seen any cannibalization in our production numbers. And in fact, we're seeing room nights in groups that are originating there, booking into our part of the portfolio at a rate premium. So the operationally and how that hotel relates with the increased distribution in the San Diego market, its performance as it relates to the overall portfolio is kind of unfolding as we thought it would because it's consistent with what our experience has been historically when we've opened other properties.

Speaker 3

But in terms of us participating in our view at this point hasn't changed.

Speaker 6

Okay, fair enough. Thanks guys. Appreciate it.

Speaker 2

Thanks, Chris.

Operator

We'll take our next question from Smedes Rose with Citi. Please go ahead. Your line is open.

Speaker 4

Hi, thank you. I just wanted to ask you a little bit more about some of the leisure trends you're seeing in the trends you're seeing in the Q4. I think on your last call, you talked about maybe some weakness of the lower end consumer, but the higher end consumer was maybe hanging in there. And I was just kind of interested in any discussion around kind of any changes you've seen to that customer?

Speaker 2

Well, Smedes, as you know, our Q4 is very leisure centric. It is the biggest quarter of the year from a leisure demand perspective. Patrick, you want to give Smedes a little indication of what we're seeing on the Q4?

Speaker 5

Sure. Good morning Smedes. Let me start by saying that the trends that we've seen all year long continue. Dallas, Denver, Washington D. C.

Speaker 5

Are all doing okay from a transient perspective. San Antonio is doing well. The opportunity has always been primarily in the Orlando market with some spillover into the Nashville market. The Orlando market continues to see the greatest challenge. A lot of speculation in the market is the result of the fact that a lot of folks believe that this is the consumer waiting until Universal Studios opens their new theme park Epic next year, and that's creating a drain currently on the market.

Speaker 5

Those trends have continued staying in the same segments that we've been seeing previously. From our perspective, the metrics that we can look at is really lead indicators of how the Q4 transient performance will actualize. ICE tickets are pacing right at our expectations and have held pretty steady. Now we've only booked about 15% of the total tickets that we expect to book for the quarter, but early indicators are that we're doing exactly what we believe we will be able to do. From a transient room night packages perspective, we're pacing largely in line with our expectations.

Speaker 5

So we've built in lower expectations on the transient side that's reflected in our guidance based on the trends we've seen primarily in Orlando, somewhat in Nashville. And we are thus far holding at those expectations. Now I will caution you just to say that a lot of ICE packages and tickets are booked within 30 days of arrival and even greater portion are booked within 7 days of experiencing the event. So we'll continue to watch it closely, but right now we believe that our guidance and our forecasts are in line with what expect or where it will actualize for the quarter.

Speaker 4

Thanks. And then I just wanted to follow-up, Mark, you mentioned, I just wanted to make sure I understood that right. Not only is Trulavista not impacting any of your group bookings or cannibalizing, but you it sounds like any of your group bookings or cannibalizing, but you it sounds like you think it's

Operator

in fact benefiting your group bookings

Speaker 4

going forward? Yes. I mean, thus far, we've picked up about a little

Speaker 3

over 200,000 room nights that have rotated into the portfolio that originated from Chula Vista. So we're seeing that behavior begin. When you look historically though, what typically happens is that those people who experience the brand in a new location like that, once they've experienced it, then they book rotational business. So you would expect that percentage to increase over time as people experience the asset and the brand.

Speaker 2

This is exactly what happened in Colorado.

Speaker 3

Colorado and also the same thing happened in Washington DC when we

Speaker 5

And just to put a fine point on it, those roughly 200,000 room nights that have booked into Pacific and driven those 200,000 additional room nights for the rest the brand have come in at about 9% premium on ADR versus other multi year programs. So we've talked about this in the past when you enter into the brand in a gateway market with high rate like San Diego, those groups have a higher propensity to book through at a much higher rate. So we believe that will benefit the entire portfolio and the Gaylord brand long term.

Speaker 4

Thank you. Appreciate it.

Speaker 2

Thanks Smedes.

Operator

We'll take our next question from Dori Kasen with Wells Fargo. Please go ahead. Your line is open.

Speaker 7

Thanks. Good morning. Based on your expectations for Q4 group bookings, what group revenue pace would you expect to enter 25 with from the 2% today?

Speaker 5

Dory, I don't know that we are prepared to give that level of granularity. We'll tell you that we are expecting, we had a historic second quarter, Q3 came in exactly where we expected it to given the fact that we had the 2nd best production and revenue quarter for a second quarter ever. And we just finished October, October came in as the best October ever, both in terms of rate with the highest rate ever achieved for forward bookings and the highest October production in the history of the portfolio. So we'll watch November, December closely, but I would tell you from a funnel perspective, lead volumes are very, very promising and we believe will turn in a really solid performance both on occupancy and on rate. Where we stand right now year to date, I will tell you that it's the best revenue on the books ever in the history of the portfolio by $45,000,000 over the next best performance.

Speaker 5

So, we feel really good about where bookings are going to come in and 2025 does have the impact of some disruption from work going on in Opryland and Texan, but we're going to manage through that very effectively and believe we'll turn in really solid 2025 based on how bookings are pacing.

Speaker 7

Okay. And then just on that, can you provide a little bit more context on renovation headwinds versus tailwinds that you would expect next year? And then, I guess, I think there's been about maybe $10,000,000 to $12,000,000 of headwinds in entertainment. Would you expect those to fully reverse? And then I guess on top of that, it's the 100th anniversary that you'll receive more tailwinds for.

Speaker 7

So just provide some kind of context around the headwinds and tailwinds we should think of next year.

Speaker 2

Entertainer wise, we will have basically 0 disruption next year. And I suspect that when we deliver our guidance to you in February, you'll see decent year over year growth in entertainment. The hotel business will also show growth next year, year over year. And but as Patrick Chaffin said that we do have this major refurbishment at the Texan and also this transformation that's underway at Opryland that will absolutely pay huge dividends in 'twenty six and 'twenty seven. And I think Mark said it, when he did his piece, the room nights on the books and revenue on the books for T Plus 2 right now is tracking 10% up.

Speaker 2

As we come out of this refurbishment program that we're going to be doing, which we are underway right now in our hotel business and also next year as we come out of that, the lift will be very, very good.

Speaker 1

No, I think that's right. And just to again put a finer point on that, the data that we have given right as of right now is what's on the books for T plus 1, T+2, T+3 in terms of contracted rooms revenue. And again, we'll point to the fact that we did declare a $0.05 increase in our quarterly dividend and that has read through implications in terms of our expectations for the free cash flow that we'll generate next year.

Speaker 7

Got it. Thank you.

Operator

We'll take our next question from Shaun Kelley with Bank of America. Please go ahead. Your line is open.

Speaker 8

Hi, good morning everyone. Thanks for taking my questions. I wanted to go back to Patrick's discussion, if we could on just the leisure point and really just a clarification, but I'm still trying to get my arms around a little bit of what changed exactly on the leisure outlook. I mean as we go back to maybe April of this year, I think that's when you started to kind of comment that leisure was coming in a bit weaker. Was it really that we just didn't derisk in the Q4 and maybe there were higher expectations that ultimately actualize that things will rebound?

Speaker 8

Or was it something else that was rebound? Or was it something else that was kind of different than expected? Because again, like you said, the behavior is not that different than what you've been experiencing, but clearly that's a big enough change to impact the outlook here.

Speaker 2

You want to add on that, Mark?

Speaker 3

Yes. I mean, we've continued to see, I think, softness as we've moved through the year. To your point, it started really in the spring. And then as we moved into summer, we saw some increases. As it relates to the adjustments to the guidance, it's really there's really 3 components there.

Speaker 3

A portion of it is leisure, but we also have some incremental disruption and we also have the impacts of Hurricane Milton. So they're really kind of almost a third, a third, a third when you break the numbers down. So it's not the guidance change that we're making as we look at the rest of the year is not strictly the leisure. No.

Speaker 2

And look, the reality is that we're going to when you look at our guidance for the year and you dissect it for the Q4, the Q4 is going to show good growth over the Q4 of last year. The world is not falling apart here. These are rounding errors that we're trying to be very precise in laying out what we expect to happen in the Q4. And as Mark said, this is the modification that we're making to EBITDA is de minimis. It's when you look at the year over year growth of our company, this is a minor modification.

Speaker 2

And there's really no real substantive change in our thinking about leisure trends and group trends, which are tremendous.

Speaker 3

Yes. I mean, the other challenge for us is Q4 is so heavy leisure and it's where we have the least amount of visibility. As Patrick mentioned, most folks are booking within 30 days. So, we're sitting here today with about 15% of the business on the books. And so, we're trying to be mindful of the risk and appropriately provide the right level of guidance.

Speaker 8

Thanks for just elaborating there. And then just as a follow-up and I know I think people kind of hit on the bridge for next year a little bit in terms of question earlier about sort of group the pace that you've got on the books. If we just think about the operating cost outlook, we're starting to kind of get into that season where people are formulating budgets. Just what are you seeing out there on the kind of labor side in particular for your model and for your markets? Kind of what do you think is the right general inflationary range to be thinking about operating expenses next year?

Speaker 8

Thanks.

Speaker 2

That's a good question. You want to take the hotel side Patrick breakdown between union and non union and what we're seeing?

Speaker 5

Yes. So to Colin's point, we have one union hotel. I'm happy to report that we have finalized our negotiations with Local 25. The agreement has been ratified. So we have a new collective bargaining agreement in place.

Speaker 5

We were pleasantly we're pleased when we said that with the results. It's about a 6% CAGR over the course of 4 years. So we feel that our long range plan and our expectations for next year fully have comprehended that growth in labor and wages. On the nonunion side, we are going through the budgeting process with Marriott right now, but a much more moderate growth rate than what we've seen over the past few years. So we feel that we've made the appropriate increases in 2021, 2022 and 2023 and finishing up here in 2024, the 2025 will not see quite as steep of an increase on the wage side.

Speaker 5

So I'll give you more color when we get to February and we finalize the budgeting process with Marriott, but we feel great from a union perspective that we've got it locked in and the non union side, we don't see any significant surprises and a much lower level of growth in wages than what

Speaker 2

we've seen in the past few years. Would you also Patrick comment here to Sean on what has happened margin wise in our hotel business over the last couple of years because even though we've seen this wage pressure, we've been able to increase the margin of our business materially because we've dealt with more and more efficiencies. So maybe you would just comment on that too.

Speaker 5

Yes, there were 2 things I would call out to that. Number 1, we've done a phenomenal job and I really want to compliment revenue management teams as well as the sales teams and driving both leisure rate and you're seeing more and more of the group rates show up and that puts us in a great position to absorb a lot of these wage increases successfully and still drive margin. The second to Colin's point is we improved our wage margin even as wages were going up. So we became more and more efficient. We did that both on the management side as well as the non management side.

Speaker 5

So we held Marriott's feet to the fire and they proved to be great partners in helping us reassess and rationalize all of our management positions and hold to a agreed upon level as far as how many to add back post COVID. And I think it's fair to say we've taken great care of the stars and so we've been able to gain additional efficiencies even as wages have gone up and so both in terms of room rate and efficiencies gained in the business with the management and non management side of the business we've been able to drive margin.

Speaker 3

Yes, at the midpoint of our guidance, we're growing year over year, our margin for same store will be up 70 basis points and that's on a midpoint RevPAR growth of 0.5.3%. So the margin management has been very, very good. The team has done a terrific job.

Speaker 5

And I would add to that, we identified in early January that transient was going to be soft. And so worked with the properties to start putting in place profit improvement plans, some long term, some short term, but to make sure that we were continuing to manage the business very, very closely in light of short term headwinds and that has paid great dividends for us.

Speaker 2

If I may, I just want to add one last comment. Sean, you've been around with us for quite a while and you will have heard over the years, Mark and I talk about we want to get this business, this hotel business at a sustainable 35% margin. And we were on a tear to get that done pre COVID, COVID obviously knocked us sideways. But when you look at the consolidated EBITDA of our company in 'twenty two, we were at 33%. In 'twenty three, we were at 34.2%.

Speaker 2

And if you look at sort of the midpoint of our guidance, as Mark said, we're pushing 35% margin. So, all of this wage stuff, I think our teams have done both in our entertainment business and our hotel business a really good job.

Speaker 8

Thank you so much.

Speaker 4

Thank you.

Operator

We'll take our next question from Jay Kornreich with Wedbush. Please go ahead. Your line is open.

Speaker 9

Hi, thank you. Good morning. As you're getting those robust group bookings into future years that you outlined,

Speaker 4

can you

Speaker 9

just comment on kind

Speaker 4

of the demand segmentation you're experiencing and where you've been able to push rate the most from a month Yes.

Speaker 5

Yes, I would tell you that our focus has been across the board.

Speaker 2

And so let me give you

Speaker 5

a couple of examples. Obviously, on the corporate side, that is probably where you have the greatest success. It's the not the harder sell. Little bit tougher on the association side, but I would tell you that we've made some really tough decisions in the past 3 years and said goodbye to some of the Smurfit groups and some of the associations by sharing with them that given the value proposition improvements from all the investments we've talked about, rate was going to have to go up for some of these groups that were maybe lower rated. And we have parted ways with a few groups and told them, hey, take a look around and if you can find a better value proposition for what we offer for rate that's as low as what you're asking, good luck to you.

Speaker 5

And some of those groups have gone their own way. Some of them actually have come back to us. So it is a full court press both on corporate association and on Smurf. You obviously have tremendous success on the corporate side. It is the easier sell, but we've had great success both in association and Smurf because we have made some tough decisions recognizing our own value and how that's improving with these investments.

Speaker 3

And Jade, one of the ways to manage this with some of the more rate sensitive groups is what date they travel over. So it's not just it's not a consistent rate obviously for every travel pattern. And so one of the things that the sales teams do is work with these more rate sensitive groups to hopefully accommodate them during a travel pattern that works for us

Speaker 2

as well. I want to add something here. I want to give you Patrick Chaffin and your asset management folks. I want to give you a shout out here because I'll give you one example. We've had a group here at Opryland.

Speaker 2

I'm not going to tell you which it is. But we've had a group here at Opryland that's been with us for 20 years and they basically fill Opryland for 3 days in March. And it's an association and they have historically been low rated. And they started to choke when we pushed new rate a new rate structure for them. Patrick Chaffin brought the CEO of that association here into Nashville.

Speaker 2

And we spent a couple of hours educating these folks on all of the work that we have done at this hotel, the 1,000,000 and 1,000,000 of dollars of investment to upgrade the quality of the hotel and make it a better experience. At the end of the day, this group just booked 20,000 room nights for with us in the month of October. But our team has been individually working with these long standing groups to educate them on the transformation that has taken place within our properties. So shout out to Patrick and his team, but they played a big role here in the continuation of this rate growth.

Speaker 5

So Jay, just to put one final point on this. If you look at through September year to date rate growth in production that was booked for this year for all future periods, corporate association and Smurf have almost the identical growth rate in rate for everything that's been booked this year for all future periods. So again, it's a full court press on all fronts and we are very pleased with how the sales team has hit all of them appropriately with this improved value proposition from the investments.

Speaker 4

Great. I appreciate all that color. And then just one follow-up going back to the entertainment side. It looks like there was some sequential softness in the 3rd quarter on EBITDA and margins. And so just curious if you can expand on maybe what that was attributed to and if you expect a pickup in the Q4?

Speaker 10

Well, some of the sequential softness you're looking at is sort of the disruption, the $8,000,000 to $10,000,000 of disruption related to the WildHorse being closed this year versus being open last year. And then we had the W Hotel disruption as well. So those two components were predominantly the reasons for some of that change on a year over year basis in the Q3.

Speaker 4

Okay. So I guess it's fair to say that then Q3 came in with where you were expecting it to? And then I guess just following up on that, do you expect Q4 to be a bit better especially as the Hurricane 10 has now opened up? Yes.

Speaker 10

No, we're very excited about the opening, as Colin mentioned, of Category 10. It opened up extremely well and above our expectations. It's obviously just a few days open, but Luke Homes is a fantastic partner and that building that multifaceted entertainment concept is incredibly unique and distinctive relative to any other property, on Broadway or in the market. So we're incredibly encouraged by the potential of that particular asset.

Speaker 4

Okay. Thank you. That's it for me.

Speaker 11

Thank you.

Speaker 2

David, if there are any more questions, we'll take one more. If not, we'll shut it down.

Operator

And there are no further questions on the line at this time. I'll return the program to you.

Speaker 2

Excellent. All right. Well, thank you everyone for taking the time this morning. As the team articulated, the business is in really good shape and we look forward to getting through the next couple of months as we close the year out and then articulating 25 beyond. Thank you everyone.

Speaker 2

And if you have any further questions, you know how to get hold of us. Appreciate it. David, thank you.

Operator

And this does conclude today's program. Thank you for your participation and you may now disconnect.

Speaker 11

Here's Carly Pearce with What He Didn't Do, live from the Grand Ole Opry.

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Earnings Conference Call
Ryman Hospitality Properties Q3 2024
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