Q4 2019 Earnings Call

Let's move to performances from stage of the World famous brand offerings.

Hospitality properties from.

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Welcome to Ryman hospitality properties fourth quarter and full year 2019 earnings conference call.

Hosting the call today from Ryman hospitality properties.

Mr., Colin Reed Chairman, an exact chief Executive Officer.

Mr., Mark Fioravanti, President and Chief Financial Officer.

There Patrick Chaffin, Chief operating officer.

And Mr., Scotland, Executive Vice President and General Counsel.

This call will be available for digital replay.

The number is 800.

Hi, there 58367.

And the conference I'd number is 47269 threenine.

At this time, all participants had been placed on a listen only mode.

It is now my pleasure to turn the floor over to Mr., Scotland, Sir you may begin.

Good morning, Thank you for joining us today.

This call may contain forward looking statements as defined in the private Securities Litigation Reform Act Nineteenone side, including statements about the company's expected financial performance.

These statements we make today that are not statements of historical fact, maybe 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 FCC filings and in today's release.

The company's actual results may differ materially from the results, we discuss where project today.

We will not update any forward looking statements, whether as a result of new information future events or any other reasons.

Also the school Skus non-GAAP financial measures today, we reconcile each non-GAAP measure to the most comparable GAAP measure in exhibit to today's release.

Ill now turn the call over to call.

Thank you Scott and good morning, everyone well we ended another record year in 2019 on quite a strong note across our company posting full 0.8% revpar growth from 4.9% total revpar growth in a same store hospitality business in the fourth quarter, 34%.

Adjusted EBITDA or E growth in a entertainment business, 12% growth in a a F F O per share for the quarter and 17% in a asset FFO per share for the year, which is ultimately what we I'm most pleased with in terms of delivering value to shareholders and accuracy.

Before I see Anat guidance for Twentytwenty is set to sit POS 19, and then some starting with our expectations of 3% to 5% Revpar growth and 2% to 4% total revpar growth for our hotels, which now includes the Gaylord Rockies as that properly property cost, it's one year anniversary in.

December now turning to the bottom line, we expect to hotels.

Including the Gaylord Rockies to generate 504 to 500, an 18 million of adjusted EBITDA.

Okay, and Twentytwenty on a consolidated basis, and we expect a entertainment business to generate 60.5 to 68.1 million of adjusted EBITDA.

C, which includes both the impact of that patent pending acquisition of block 21 in Austin, Texas and the substantial investment were making in the first full year of as circle media joint venture.

Given how integrated the block 21 asset saw with each other and the central nature of the entertainment to this location. We will include the results of the W. Austin Hotel in a entertainment segment once the deal closes and it will not be included in the hospitality metrics that we report however.

It will be managed and overseen by Oh, One hotel asset management team moving on in Twentytwenty, We anticipate delivering 379 to 398 million of total asset FFO and 9% increase over 2019 again.

This includes the impact of that pending block 21 at acquisition and we expect to close at the end of March early in the second quarter, and our new social media joint venture.

Now these are great numbers for both the fourth quarter of 19, and our expectations for 20, and we can talk about some of the details in a moment, but I want to use the majority of my time to tie these numbers back to our overall strategy you see at 2019 results in a 20 guidance on not simply the win.

All of a few good years for group as I expect some of the less informed lights attributed to rather they all the direct outcome of the same strategy. We have the messaging for years, the virtuous circle of building and delivering two groups and meeting planners the product they desire in the.

Markets, they want to travel to in an efficient rotational multiyear multi site booking package with while reinvesting back into our business against a backdrop of low supply, we don't sit back and wait for a good year for group to come around offer this all that downtown Convention Center.

To be renovated all for one of them markets to suddenly have a good citywide calendar.

Yes of course, some of these things a nice to have at the margin and of course will feel a bit of the impact when they swing one way or the other and we're happy to walk you through those effects affects any time, but that business is really about capturing repeat customers using our own demand and then reinvest.

Testing expanding building renovating and ultimately delivering a sustainable competitive advantage that is very difficult to replicate.

Since we are now at the start of Twentytwenty, Let me take you back to almost exactly four years ago two at Investor Day in March of 2016, we told investors then.

That with a stable economic background and just the projects we have announced at that time, we expected that in Twentytwenty, we would likely to live at the midpoint around 473 million of adjusted EBITDA, excluding the minority share in Gaylord Rockies and around three.

78 million aveo, AFFO or $7.26 a share and then if you look at the middle of the guidance that I. Just gave you for Twentytwenty, you'll see we exceeded those figures both adjusted EBITDA.

Excluding minority interest and total asset FFO and adjusted for the three and a half million share equity offering. We recently closed in December of 19 at Twentytwenty guidance would be above 2016, Investor day, Midpoints AFFO per share as well.

We expect to exceed those prior targets because of the strength of our underlying group strategy and the many subsequent investments and acquisitions that we have announced in the intervening years that were not included in that forecast. These include our increased investment in the Gaylord Rockies the opening a sound waves at opryland.

And the creation and the launch of that already venues and of course, the pending acquisition of block 21.

And for those of you that were in attendance.

You may recall that was really that was really the message that that slide back into that that was conveyed in that slide back into 16. In fact, we settled in the gold at the bottom we called your attention to the capital deployment opportunities created by the stability and visibility of our <unk>.

And it's which would allow us to make accretive investments in those upcoming years, and which will enable us to make more as we look Pos twentytwenty to the next five years and that is the real story here not just the twentytwenty will be a record year for us, but what we can and will do beyond twentytwenty.

Across that portfolio, we have so many opportunities to deploy additional capital at high rates of return into really attractive irreplaceable businesses. Let me give you. Some examples we just officially announced a $18 million 300 room expansion of the Gaylord Rockies, which we expect to open sometime in the middle.

Twentytwenty too.

Lando Apdthree hundred room expansion of the Gaylord palms is proceeding on schedule and we will open in early 21, so far the sales performance of the expansion.

The palms is tracking the same as as successful expansion of the Gaylord Texan and we study and quite a few more high ROI projects across hospitality portfolio that would help us to address the evolving needs of that group and leisure customers and then there all the greenfield possibilities against a limited supply.

Backdrop, which involves identifying new markets, our customers want to travel to I think cultivating the right partnerships and incentives to make that happen whether from the ground, though all from acquiring an existing asset that either is or can be positioned as the group meetings lead in that market.

And that is just in a hotel business that are equally as many possibilities in our entertainment segment, the popularity and crossover appeal of countries of the country music lifestyle has supported our old bread brand in three large market so far.

Actively pursuing a few more and more likely be announcing a couple of those in the next several months the launch of circle media with Gray television isn't entirely new model added to the mix of entertainment offerings Circle is now live in over 20 million homes on linear TV and digital subscriptions.

Service launch sometime in the middle of this year by.

By the way the launch of circle gives us great opportunity to use this platform to promote all of our existing operating businesses and then you add block 21, and Hcl live at the Moody's is in Austin to that mix and you have simple.

So many possibilities to cross pollinate in this segment.

That would really need a separate call to fully dive into them.

The first to bring it all back to our strategy. These are the kinds of things were focused on day in day out here at Ryman nodal flipping this'll that hotel in order to spin out wheels, and recycle capital from one market to another.

On patiently waiting for the leisure and business trends in traveling to show up or on trying to pivot and quickly group up a few percentage points, if they don't show up.

Ultimately as shareholders of being the big beneficiaries of this differentiated strategy, whether you look at just the calendar year 19 over last two three or five years running through today, our cumulative total shareholder return as Pos not just on lodging repairs, but the broader market as measured by.

By the S&P 500, as well, which is really something for Reed in this long running bull market.

So now let me briefly talk about our fourth quarter, just touching on bookings and then highlight a couple of factors at play in a year over year comparisons for both bookings and our financial results on a same store basis, excluding the Gaylord Rockies we booked.

811000 gross group room nights in the fourth quarter now this was in line with our expectations. As we told you on the law school that we did not expect to match 2018 incredible record fourth quarter performance in which we book just over 1 million group room nights now the reasons for this a pretty.

Straightforward first the simple fact is we have less availability to book into right now after the speakers we posted the last few years, especially within the current corporate window. So we would expect bookings to move back into more of the 215 to 17 Patton than the bond Bernie.

He is of 17 and 18.

That is essentially what we're seeing which is still a very healthy group backdrop when you look.

When you look holistically at all the metrics that we track such as attrition rates lead volumes and by individual yet so.

Second we are now over the slight headwind as we left the change to third Party commission schedules that kicked in at the end of 18 as well as the extensions that we still in the booking window. So many corporate group seeking to get ahead of rising demand unlikely and limited supply.

Around that same time, and finally as I said earlier they are incremental factors that do play in at the margin for everyone involved in groups, such as 2021, being analgesia, which affects citywides plus the upcoming election, which in the last few cycles has seemed to give corporate support.

As they handicap, the outcome, which seems to be a little bit more complicated this time around but as I. Also said these are fairly marginal factors for a hotel business overall all in still excluding the Rockies, We had 6.8 million net room nights on the books for all future periods at the end of the fourth call.

Water, which is 2% higher than the end of 18 and 5% higher than the end of the third quarter in terms of pace. We entered this year of Twentytwenty with 53.2% net occupancy points on the books compared to 50.8 at the start at 19.

For T plus two or 2021, we have 40.2% that occupancy points on the books at year end, which while relative to where the extremely strong twentytwenty was a year ago is marginally down on pace is still in line with the average T plus 2%.

Question of this of the prior three years, and then out and then out T plus three or Twentytwenty toothpaste looks really really encouraging right now as well.

No I should add that apart from these figures the Gaylord Rockies head of excellent booking quarter, posting a 191000 gross gross group room nights, an increase of 55000 over the previous year going forward. In 20, we will of course begin reporting the Rockies bookings within our overall same store pickup Joe.

Just as we will fall its financial results now let me call your attention to a few key drivers of our results in the quarter to each segment.

And hospitality press same store hotels, we were very pleased with Revpar and total Revpar performance again, growing 4.8% and 4.9% respectively.

Six of association versus corporate was higher in the quarter, most significantly at Opryland, and Nashville, which drove load growth in total revpar. At these properties are freelance total revpar was a little challenge due to less than expected performance about Rudolph holiday show.

Which is put on by the hotel and hosted at the Grand old or pre house moving to the bottom line same still hospitality segment adjusted EBITDA.

I have one of 9.6 million was 5.6% increase over the course fourth quarter of last year now when you look at the same store portfolio total revenue growth and then flow through to adjusted EBITDA on a.

As you know, we typically look for about 50% flow through on incremental revenue in the fourth quarter. This figure was about 37% that remaining delta is about $2 million and simply put 90% of that is wages and benefit increases it's no secret that we operate in a tight labor.

The market in all about in all of the markets and I talked about this links on our last cool so I won't belabor the points again, but it is essential for us to compete and retain the best employees to deliver consistent product and services to our customers given the business and growth that we have in front of us that.

Differentiator for us versus many of our peers facing this environment is that we have the business on the books in the Revpar growth to accommodate these cost increases and still deliver good growth to our shareholders moving to the Rockies the numbers simply speak for the sale for the cells. The Rockies had a remarkable first year would.

Total revenue for the quarter end the year higher than the same store portfolio average flowing down to over 83 million of adjusted EBITDA E. As I said last quarter. If you want a single data point that illustrates the demand supply imbalance for quality group hotels and.

Leasing space and the power of the Gaylord system strategy. The first year performance of the Gaylord Rockies is a pretty good example, now let us move to entertainment business in the fourth quarter revenue and adjusted EBITDA for the Entertainment segment grew a robust 23 and 34% respect.

Typically.

Even including the easier comp created by Opry City stage loss in 18, the adjusted adjusted EBITDA grew 25%.

Nashville shows no sign of slowing down in its first full quarter comparison first fourth quarter comparison for example, overhead Nashville grew revenue, 18% and more than double profitability.

In that quarter over quarter, our operating teams have really zeroed in on getting this unique like music in restaurant venue hybrid model running efficiently and we're excited to sale rate Gatlinburg post its own first full year end twentytwenty and to open all read on all.

Ill read Orlando this spring with more locations in the works and that was Sony the third most exciting milestone of the quarter and the year for this business as we also know circle in the fourth quarter as I touched on earlier.

We also.

Long suffering in the fourth quarter, which I touched on earlier. The initial response from fans and artists alike, as being very encouraging and with specially especially pleased to announce two weeks ago. The addition of Bobby bones to have programming roster. Bobby has a tremendous following in the space and will host a weekly want to show featuring like performances.

The next day to into interviews from the Grand old offerings.

Perhaps the biggest milestone for entertainment business as the quarter end. The year was our announcement of the acquisition of block 21 in December which I touched on earlier now let me back out for one moment just in case anyone is not familiar.

21 is a mixed use entertainment complex in the heart of Austin, Texas and is anchored by the 2750 seat Hcl alive. The movie theater as well as the smaller 310 at a sale life club.

251 room W. Austin Hotel, and 53000 square feet of classes of class, a commercial and retail space in the heart of Boston.

Hcl life is best known as the whole of the longest running music series on television Austin City limits, which in turn helped to sport Austin's reputation as the live music capital of the World. The combination of block 21 assets with the entertainment portfolio, including.

Cool media bridges, the two most renowned music markets in the United States, an office, so many opportunities that I hesitate hesitate to dedicate too much time on this call, but hes just a brief list. They include a new platform to create and distribute content both physically and digitally.

New creative outlets for office, with whom we have strong relationships opportunities to cross promote content and artist between Hcl alive and other venues and channels opportunities to improve the W. Austin Hotel utilization is especially in the group business segments opportunities to Maxim.

Nice to commercial and retail space to its highest and best use which may include the additions to SMB and entertainment portfolio and finally, an opportunity to enhance margins through shared services as the acquisition will significantly leverage the infrastructure, we have built around entertainment.

Business.

So if you're keeping up with all of this at companies in very good shape, and we expect things to be even better. This year, we have an entire portfolio of new openings product launches acquisitions investment and expansions underway or on tap the twentytwenty and beyond as.

We continue to pursue a consistent strategy in front of US is one goal, which is to continue to deliver high total returns to shareholders.

Of course, one of the more visible ways, we do that is through activity and I take great pleasure on these at year end Kohl's announcing that once again, our board has authorized five cents increase to our quarterly dividend for Twentytwenty from 90 cents to 95 cents off from $3 and 62.

$3, an 80 on an annual basis for an overall increase of 5.6%.

This is something that you won't see much of the season from our peer group and something we're quite proud to deliver I'll now turn the call over to Mark Who'll take you through some more details.

On how to model all of this as well as to update you a little bit on our balance sheet and liquidity.

And including a very successful.

Equity offering as Erie Mark. Thanks, Collyn good morning, everyone. Thanks for joining the call.

Columns already covered our performance for the fourth quarter in our guidance ranges for 2020.

Since we have a number of moving pieces going on right now across the company.

From capital projects, the pending acquisitions, our joint venture investments as well as several recent changes to our capital structure I'll touch on a few of these to help.

Helpful. If you're going to handle on your models and how you might approach this year as well as 2021 and beyond.

First as Carl noted in 2020, our guidance booking figures of financial reporting for the hospitality segment will include the Gaylord Rockies on a fully consolidated basis.

Rather than using the same store format of 29 team.

Meanwhile, given the integrated nature block 21, GW Austin once the acquisition is closed will be reported in our entertainment segment and not included in our hospitality segment.

We continue to expect the block 21 acquisition to close at the end of the first quarter autonomy. The closing will be dependent upon the loan assumption process.

Which is going according to plan and the total purchase price of $275 million includes approximately 141 million dollar assumption.

And $134 million in cash, which 15 million has already been delivered as a deposit leaving $119 million for us to fund with unrestricted cash on hand.

<unk> block 21 debt that will be assumed as a fixed rate amortizing CMBS loan secured by the whole block 21 asset at a rate of 5.58%. It matures in 2026 and will be the prepayable without penalty in October of 2025.

Circle, our 50 50 joint venture with Gray television will continue to be accounted for as a nonconsolidated entity with the entered in the entertainment segment.

We will not recognize revenue or operating income from circle, rather we will show our share of the JV is adjusted EBITDA Ari as a component of the segment level adjusted EBITDA or buildup.

For 2020, you can see in our guidance reconciliation, we expect our investment in circle to be approximately $10 million at the midpoint of the range.

In terms of our Revpar and total Revpar guidance to give you. Some cadence we expect the first quarter to be the strongest of year with both both measures growing in the high single digits.

We then expect to sequential step down in growth rate for each metric over the subsequent quarters until we end the with the fourth quarter expected to be the slowest year over year growth, but still positive in the low single digits.

In terms of our balance sheet, the fourth quarter was a very active period.

In addition to a $200 million tack on notes offering we repriced extended an upsized our term loan a and raised $283 million in net proceeds in our first equity offering as a read.

From these combined proceeds we retired $100 million of term loan b.

It off our outstanding balances of our revolving credit facility with the remainder being held in cash for general corporate purposes, including a portion of the pending acquisition of block 21.

At year end, we had total debt net of unrestricted cash of $2.23 billion outstanding at a weighted average interest rate of approximately 4.2%.

Fixed rate exposure of 86% to the addition of our swap transactions.

No that is not yet include the $141 million alone, we will assume with block 21 as I described earlier.

We ended the year and net debt to adjusted EBITDA, our ratio of 4.4 times.

If you exclude the cash we plan to use to close the block 21 purchase our pro forma trailing leverage would be approximately 4.6 times.

We expect our leverage ratio to remain flat in 2020 has an addition to maintenance capital we will spend approximately $80 million of the Gaylord palms expansion budget in the year and we will draw approximately $40 million of the Gaylord Rockies expansion loan onto our consolidated balance sheet over the course of the year.

We will also spend approximately $10 million to complete our announced venue projects, which includes include all read Orlando and the Wildhorse saloon expansion here in Nashville.

This capital spending will be partially offset by the additional adjusted EBITDA associated with block 21.

Assuming a march 31st close we expect block to 21 to contribute $10 million to $12 million for the partial year, which has been included in our entertainment segment guidance.

Looking beyond 2020, the only announced capital commitments, we have at this time as the remaining capital spend for the palms and Rockies expansions. So we would anticipate delevering at a steady clip. Once these projects begin contributing to adjusted EBITDA Ari in 2021 in 2022, respectively.

In the interim after using $119 million, an unrestricted cash to close the block 21 acquisition, we will have approximately $940 million of liquidity available, including our fully undrawn revolving credit facility.

We review this liquidity is an important component of our growth strategy as it provides us with the ability to fund future high return investment opportunities in both of our business segments.

So as we close out a successful 2019, we're very pleased with our operating performance and balance sheet and we're excited about our continued growth in 2020 and the strategic investments opportunities in the years ahead and with that I'll turn it back over to Cohen for any closing remarks.

Mark I think what we'll do is just open up the cools Mary the call for questions Maria If you Dunfermline. Please.

Thank you at this time the floors were open for questions to ask a question simply press Star then the number one on your telephone keypad.

If at any point. Your question has been answered on you wish to remove yourself from the Q press the pound King.

Our first question comes from the line of Patrick Sean franchise.

Hi, good morning.

Colin and everyone.

A couple questions here, just quickly and I apologize if I missed this in the prepared remarks. It did look like you out a bit of uptick in cancellations in the quarter I'm wondering if you can just touch on that.

Secondly, I'm sure the virus impact is pretty miniscule for you folks, but if you could just touch on your thoughts around that and then my third and last question.

And your guidance it looks like hospitality Rev par.

The total revpar growth rate.

Is a bit lower than.

The overall regular revpar growth rate.

It's a little counterintuitive given the trends that we've seen of late if you could give some color on that thank you Joe.

Patrick do want to you want to touch on cancellations and.

Okay.

Just a whole hype around Corona virus sure, yes in the fourth quarter, Patrick we kept positions that we experienced were would definitely within the range, we'd normally expect or a little bit up year over year.

Quite honestly Q4, 2018 was pretty low.

One of the larger cancellations was simply fact of a new CEO coming into a job and ask him. His group to take a pause as he gets to lay the land before they proceed with their group meeting and so we experienced a cancellation, they're going to can collect the cancellation fee, but again, even with that one we were still within.

In the range that we would normally expect for fourth quarter. Our Q4 2018 was down a little bit so.

We were not overly concerned with that and Patrick phosphor into this year, because obviously there is a lot of.

For one of the better with paranoia around Corona virus. So would you just sure talk about what we've been seeing here, yes, absolutely I know a lot of folks are focused on that right. Now. So let me just go ahead and address that.

We have not seen any cancellations related to corona virus or fears of Corona virus groups that we've talked to we're staying very close contact with especially those who are located in the tech industry or on the west coast because they do normally have a lot of folks traveling internationally.

Again, we've not had any cancellations related to this situation at this time, we've seen a little bit of attrition. We had a couple of tech groups in house that have made the decision to be proactive and have urged or restricted I guess is a better way to say it some of their international participants from attending the meeting.

That ended up.

Resulting in about 800 room nights of attrition.

Actually worked out okay for us because we're actually oversold for those nights were able to offset it completely.

But.

We expect somewhere around 650, 700000 room nights travel during the first quarter of 2020.

Steve a very small amount of attrition at this point, we feel pretty good that.

Groups are being very logical and how they approached us.

We continue to prepare within the hotels Weve had experiences with normal virus in the past, which is a much more difficult situations deal with from a eliminating the virus.

And so our folks are well prepared know how to isolate yes. If they do have any cases on site. They know how to prevent the spread the know how to handle trash and everything like that that may be affected so.

We are watching very closely but have not seen cancellations have seen only limited attrition and feel very well prepared and have looked at room nights on the books and do not feel that we have a tremendous amount of exposure and would you would you also remind Patrick Scholes Patrick Chaffin.

The.

Away.

Things like a virus so flu.

Yes.

Accommodative within out within our control because remember so much of that businesses in contract for that's right.

This has not been label that force majeure event and so groups are on the hook for any cancellations as in the past as we always have we will work to make sure that we maintain relationships with groups. So if there is a cancellation and this is a multiyear rotational customer.

We will make sure that we're covering the business, but also working with that customer to maintain their relationship with them long term, but again. This is not a force majeure event at this point and therefore contracts are all the in force they are written.

And last but not at least on the guidance total with Paul you want to just one of the two view address that issue.

Sure.

So Patrick you are correct our at the midpoint were about 100 basis points lower on total revpar.

Excuse me then.

Then revpar and that's really driven primarily by mix of business.

We come out of here in terms of what we have on the books. We've also made a few changes Patrick's team has been working on making a few changes at opryland specifically around.

Efficiencies one being the show the column mentioned earlier the elimination of that show in our Christmas program going forward with now that we have sound waves onboard. We've also made the decision to outsource laundry.

At Opryland in both of those things reduce.

Revenue year over year, they have about a 30 basis point impact on on total revpar. So.

Those are really the issues that are driving if there is nothing.

We're not seeing anything I think that's alarming or concerning to us as it relates to outside consumer consumer behavior.

The other thing that we should also pointed out is that even though we make these decisions.

Opryland on outsourcing laundry.

We're looking at March in growth again, which is.

Frankly unusual in asset to the Twentytwenty.

Both those things are to drive profitable that's exactly why we've done it.

Okay Patrick.

Thank you I have another question I'll get back into queue to give out there's a chance. Thank you. Thank you very much.

Okay I.

Question comes from like this means friends at Citi.

Hi, Thanks.

I wanted to follow up on some comments made on the wage and benefit.

Increases that you're seeing what sort of increases overall are factored into your guidance and are you seeing any kind of.

Differentiation across markets I understand Disney is implementing a higher minimum wage in that market. So you've earned and universal's openings have is impacting your sort of expected margin at that property.

We have business did that last year late last year, and we adjusted our wage rates to be competitive in that market late last year and really frankly.

Smedes that was the.

The Genesis of the discussion we had in the December earnings call.

When we.

November owning school, we didnt have them, but full meeting in December when we talked about wage increases in terms of Twentytwenty budgeting Patrick.

How would you describe smedes question, yes, Smedes. Good morning. This is Patrick.

If you look across what we're expecting from a wage and benefit perspective, we're seeing about 5% increase.

Thats equating to somewhere between three and $5 million to see and how thats going to play out for us as you're aware there are some very tight labor markets out there because employment in those markets is very high Denver, Orlando and Nashville are especially.

Challenging from a wage pressure perspective, they are just very popular markets right now on the hospitality side, and so to attract and retain quality folks were having to make investments both on the wage side as well as on the benefit side and from a benefits perspective, I think you probably heard host and others talk about the parity.

Exercise with the gone through with Marriott to make sure that we're keeping our employees very satisfied so that we can make sure that we keep the most efficient labor models in place long term.

And then additionally, a pressure that is always present for us because we have a union market in DC and that is a union hotel. The contract. That's in place continues to drive up our wages and benefits, but about a 5% increase year over year, let's say $3 million to $5 million of impact.

And Thats looking through one and one lends to the telescope. The three markets you talked about Orlando, Atlanta Nashville and.

And then Denver the other end of the telescope is that each of those three markets, we're going to have a record year in profitability. This year. So we've recognized the fact that.

Leyva is skus in those very very frothy markets bought but the good news is we have tremendous business on the books and Twentytwenty here.

To accommodate profitability growth in every one of those markets.

Thanks, and then I just wanted to ask you on your block 21 acquisition I mean, it looks like it's.

Dilutive at least for the first year of ownership. So I believe the LTM EBITDA on that asset was around 16 million you're factoring in 10 to 12 million for partial year ownership, where do you see that going over just a multiyear period like what sort of numbers do you think you can generate out of that.

Well, we we.

We have.

Hello.

Got into specifics, but we really do think that the the.

There are multiple benefits of this is not just the growth in EBITDA.

From the from that particular platform.

Which we see occurring we see occurring in the theater, we see a clearing in the hotel we were going to do a reefer that hotel and we believe the movement moving moving some of that retail to an entertainment district is also great. That's the first benefit but the second benefit which we believe is very material.

Rail is our ability to now identify those consumers that are in this market.

For entertainment, particularly around the music music side of it and then be able to market to those folks out soon to be launched.

Asphalt.

Platform that will go out at the end of June. So it's not just this is not just the significant growth. We believe we'll get from the platform itself, but it's also the growth that we will get from the relationships that we will build with consumers that today, we don't touch so I know, we're going to be doing and invest.

[music].

Meeting here Mark towards.

During the year and what we'll do Patrick as weak.

I'm, sorry, Smedes as we get into as we get into this business get out feed on the under the rug. So to speak we will be a little bit more explicit about how we believe we can grow profitability on that platform, but we bought this business because we believe we can run this business and grow profitability.

Profitability in a material way.

Okay. Thank you.

Thank you.

Our next question comes from the line of Shaun Kelley of Bank of America.

Hi, good morning, everyone.

Paul and appreciate your comments and I think this is touched on in Smedes question. If I may go about.

Wages and I think in your prepared remarks, you talk about flow through was wondering if you could just.

Going to help us with the bridge to 2020.

Yeah.

Is the net of where we are with wages at this moment being that.

We think flow through is probably going to remain below that 50% level. It seems like that what we're trying to kind of works through the math on kind of a 3% total revpar gain but I just want to make sure.

Thinking about correctly.

I think.

I think the.

The 39% we experienced in the fourth quarter, what we had really in the fourth quarter was decent revenue growth and that was the quarter in which we made adjustments in I think Patrick three of the three of the markets.

But my sense is going forward, we still aim to find efficiencies to get to this 50% 50, I'm, having trouble, saying at 50% flow through and we've got work going on right now with Marriott to improve efficiencies in this business because at goal is to.

Always be at this 50% type flow through Patrick you got me.

The other thing I would point out of there are other factors beyond just wages and benefits we've seen a dramatic increase in property insurance given the number of named storms that we've seen over the past couple of years and the wildfire situation on the West coast.

We saw property insurance increase of about 52% for 2020, we even went out and tried to see if we could privately placed that outside of the Marissa property insurance programs. If there was an opportunity we found out that actually even with the increase in rates that we're still very competitive so thats going to drive another million dollars.

Say of challenge to the bottom line and then we have the increased property taxes from Delta expansions that we've done which are driving up our property tax costs now to Collins point. There are number of things that we're going after to offset those and I think that our internal plan and even our guidance demonstrate that.

We're having great success and believe we'll continue to have good success in offsetting some of these increased costs, whether it be on the utility side with going back in replacing some are older central plant equipment, putting in led lighting, we've opted for cogen.

Facilities on one of our locations and are looking and evaluating added other locations.

And then we're also having external consultants come in and help US look at time motion studies and productivity upside at our properties. So a number of initiatives under way to make sure that we mitigate the cost increases that were seeing both in taxes wages and property insurance.

Great. Thank you for that and then.

As a follow up maybe just to move over to the entertainment division to Theres lot moving on or going on over there.

I think it looks like from an equity raise perspective in terms of what was done in the fourth quarter, you guys pretty meaningfully over capitalized.

Lot of 21 transaction relative the amount now about cash you actually need.

For that given the assumed got so can you talk about either future growth potential.

Down the road is there something else being kind of contemplated there how you're thinking about that maybe that next layer of growth or is this just more broader balance sheet conservatism that be great.

Well we.

We feel that with the entertainment business. There is a business a ton of growth that we havent talked about publicly that we're working on and we sort of touched on it in this call about multiple rich that we're working on we've had a lot of outreach from cities and.

Major corporations that would like to talk and I'll read close to entertainment districts that they.

They currently operate so we've got we've got plans for that and.

And I think the this whole circle TV and the OTI launch is also very very exciting for our business. So.

I think that we've got us continue to see a ton of growth in this in this business.

In terms of the equity raised we we've never done one before and.

As as unit as you well know we the bankers have sort of been lining up wanting to do wanting wanting to.

Lead at an equity raise we've we've had we've had liquidity issues in our stock because we've had so many.

So many shareholders that a very sticky and and so we did what we did to bring our balance sheet into that four and a half times debt to EBITDA range and also give us all the pop how we need to not only grow entertainment business, but also continue to look at.

Opportunistic ways to grow our hotel business must deal is there anything you want to add to that.

I think that I think that you covered it I mean.

Our equity was trading at a value rate that we were we were comfortable with that level of rate is.

As we talked running a call on a.

Pro forma basis. After we close block 21 will be about 4.6 times.

Net debt to adjusted EBITDA, sorry, it's a level, we're comfortable at and it does give us some flexibility as we look forward in terms of.

Organic growth opportunities or if.

We would see an opportunistic acquisition opportunities.

Let me just say one last thing.

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If you go back to that.

He is ago and I think it would there that investor day, we had when we laid out this is what we're going to do.

And you look at the activity that we hadn't that we didnt talk about than we've gone through over the last four years, we've got a very.

I think.

Matt We got a management team here that is not sitting around twiddling their fingers.

Hopefully.

Hoping like how this maybe a downturn in the hotel business and I can go and buy assets on the cheap we don't think about at businesses way. We've got a very defined strategy. We look at the opportunities for growth, we see opportunities for growth all across our portfolio here and we're going to continue to.

Focus on that because.

As Loren Buck said yesterday. He manages outflow 10 years Thats, how we think of that business, we don't think of that AD business.

With this overhang of Corona virus and all my dog, what's going to happen here in the next quarter in the next quarter when thinking about the long term here. We believe we've got a strategy that is unique differentiated we got two brands that are worth a ton of money and on we're going to look for ways to continue to enhance value. It just as we.

We have over the last five to 10 years.

Thank you very much.

Thank you.

Our next question comes from line of Chris Woronka Dutch Bank.

Hey, good morning, guys.

Doug Congratulations on the on the quarter and year and I guess as we look back at 29 team.

It seems like the group's clearly kind of outperformed your your expectations versus initial guidance and so I guess the question is.

With your initial 2020 guidance.

Yes, how much of that kind of continued outperformance. If any are you are you baking in.

Well I'm going to let me, let me say this and lock box, probably going to kick me under the table, but last week, we had board of directors meeting and we talked about asset until business.

For last year, and we hope to see show that board at year end results and the fact to the matter is at year end results came right on top of that plant.

The difference in profitability was like a million bucks on our plan so.

We we have aggressive goals in and out in our business, but in this environment, where the world is you know.

You listen to our competitors talk about talk about margin problems and cost problems and no revpar growth here. We are as a company. We are by far the told coffee. The company. This the that is projecting very healthy growth in revpar and by the way tank.

For say good job last year.

Because we there's no other company that came close to the type of growth that we came close to but our plans this year, our aggressive and and so I'm not going to tell you. What operating plan is in comparison to last into until out.

Guidance, but we've got an aggressive plan and.

Patrick and his team and the hotel business will be all of our operated to ensure that that plank gets.

Delivered and entertainment business leadership will be very focused on delivering the statement. That's how we think about it.

Great appreciate the color Collin and then.

Just as a follow up with block 21, you're showing a willingness to go into a new market in a pretty big way, but without without a traditional kind of big box group Hotel and I heard your comments about.

Looking at things that would be number one in their group position in their markets. So does that does that make you may be more likely you go into other or I don't want to call them secondary markets, but but smaller markets, where you don't have to have the 15 order room hotel.

No look.

At hotel business, we're in the large group business that slip expertise is and we won't see us going into a market buying up for 500 room Hotel. The reason we went into this market of both the W. Hotel was because it was being sold as as a part of that.

That that that that block 21, and frankly, we report everything in that block, except that hotel if that was available to us, but it wasn't available to us. The this cielo wanted to sell the whole block. We believe in this case. The poll is lift the died in the sense that.

The the opportunity that we have to be in the self proclaimed.

Music venue capital of America in that market is absolutely critical to our long term entertainment strategy between us with site. This we have we have coveted this that business, the Austin city limits movie theater, and and and that that that.

Package Weve coveted this fully its mark I think we're looking at it for four years, because we wanted to be able to build relationship with those customers in that market. So I don't think thats another market that affords that type of connection to the music consumer in the United.

States right now.

And so I don't think you'll see us go and buy go into a market in by of three 400 room hotel when we go into a market.

On our hospitality strategy.

You'll see us entrant market with a thousand room type hotel with that we can expand to make it the dominant convention hotel in that market. That's how we think about it and Chris we're going to.

Patrick and see if we're going to are going to manage that hotel, we think that that we can improve the performance of it.

We're going to undertake a pip there to improve the physical the physical asset as well and and while there are some defeasance issues in terms of fees associated with the CMBS today.

Theres no reason that in the longer term that we'd have to continue to hold that asset.

Carl's point that we bought it because it was a package deal. There's no reason that we can monetize it down the road.

So we can we get into that debt correct, yes, but it's a perfect time, because the W. brand is in a reinvention mode. If you will and so were coming in on yields and a lot of new groups supply coming into that market. So we think theres an opportunity to tighten up the efficiency of group bookings in the sales process for this hotel, we think theres some additional synergies with that.

The other.

And then we earned a point were with this renovation and Pip. We're on the forefront of this brand being reinvented. So we think this is a great time for us to come in and to Mark's point down. The road, we can demonstrate that we've added value and potentially sell the hotel at premium.

Okay very helpful. Appreciate all the color thanks, guys.

Thanks, Chris.

Our next question comes from the line of Bill Crow Raymond James.

Okay. Good morning. Thanks.

Patrick.

You are the the voice Corona virus as you look at the groups that are coming up over the next three or four months maybe.

Any group stick out as being particularly at high risk.

Yes, Great question, we went through and looked at all the groups that are coming through and we identified.

Let's say about 30000 room nights that could have any kind of impact.

From Corona virus and as we looked at how that plays out over the year. There was a minimal number of those actually traveling in the first and second quarter more of them travel in the third and fourth quarter, which to US is a good sign right. Because those are groups that this virus hopefully will be far behind us and by the time dose groups travel.

But again those are the groups that we then reached out to and spoke to the meeting planners had been getting very clear read on how they're feeling and.

We're cautiously optimistic but the folks we've spoken to on the meeting planners side are not overly concerned those that are taken steps on the attrition side and again, we're going to work with them to make sure that thats done properly, but we can take a little bit of attrition, that's always a better outcome than cancellation.

Hi, Eric again remind bill how much of that business comes comes from Asia.

Oh, a minimal so our international business is really only about 5% of our total business and if you look at how much of that 5% is coming from China. It's it's not even a percentage point.

And then it's helpful side and then the second thing fill remember we said it. This is worse workflow just saying again.

30000 room nights. They are part of a contract. So if all of a sub than the meeting planners, saying, Hey, we're going to do it for whatever reason that would be subject to cancellation clauses or attrition courses.

Yes. It and this is this is one of those moments where being partnered with Marriott is very good for us because as a five hotel brand, we wouldn't have quite the visibility, but with marriott's exposure in China and other places they are proving to be a tremendous partner and staying ahead of the situation preparing for.

Looking into contingency plans et cetera, so we value the input and partnership that they provided through this process so far.

All right.

Thank you.

Mark.

Circle media.

10 million dollar drag on EBITDA in 2020.

Is probably the biggest variance to our model and we weren't expecting quite that much.

I thought you guys talked about maybe 5 million year over two years or something like that.

How do we think about.

About that number evolving.

We look beyond 2020.

Well so so the way that we had described it was was that we're going to make a 15 million dollar.

Contribution over three years.

That was in the last year on year, one that was about a 2 million dollar.

Contribution this year is about 10 and then.

We should reach breakeven.

In.

22022 will be profitable in 2022.

So it's really.

Lets explained why okay. This is this is you know from your perspective, so cycle Boy. This is this is big.

And this doesn't look good but from our perspective was saying this is big employ this looks good and there's a reason for this the reason for it is the assumptions in our model how does having having.

The distribution piece of this linea platform into just the great with the gray with the great platform at or around 23, 25% of the households, where we are right now because of what has happened with.

Organizations like TEGNA Meredith CBS have come we will be at all around 60% of the households.

At 60% of the markets will be covered and so the that we've got increased increased distribution costs, but what we're seeing is that we're going to.

In short order have increased revenue coming from this through the appetizing because we just we will have more platforms to advertise on and and and and so that this is the reason, but but it's a really good reason and as we sort of highlighted in the.

In the in the text, we talked about a few minutes ago. The response back from the markets have been tremendous about the actual content that we are showing and we've got I didn't on March 25 to 30, new pieces of content unique to this platform coming that will.

Also the available to the over the top.

Strategy that will rollout middle of the years so.

We've we've we've beefed up the costing you want to simply because the distribution allows us to do that.

Our total investment.

Materially change hasn't changed at low consider its timing what was materially change.

At what point do we are we able to access the actual program and other.

Local stations.

And potentially while you can do it now in many markets okay.

Yep.

All right great. Good all right that's it for me. Thank you.

Thanks, Phil.

Let's do one if there's any more questions Maria will do one more but because we've been going for now here.

And that was our final question Sac.

Lovely excellent low thank you everyone and.

Appreciate you taking the time in these.

Yes difficult times as it relates to the.

Issue around Corona viruses and asset, but thank you everyone. If you have any further questions you know how to get hold a mark.

Sub sea foot or me here at rhyme and thank you.

Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.

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Okay.

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