Q3 2022 Ryman Hospitality Properties Inc Earnings Call
[music].
Welcome to Ryman hospitality properties third quarter 2022 earnings conference call hosting the call today from Ryman hospitality properties are Mr. Colin Reed, Chairman and Chief Executive Officer, Mr. Mark of European Pure Raunchy, President Ms, Jennifer Hudson, Chief Financial Officer, and Mr. Patrick Chaffin.
Chief operating officer.
Call will be available for digital replay. The number is 808 396798 with no conference idea required at.
At this time all participants have been placed on listen only mode. It is now my pleasure to turn the floor over to MS. Jennifer Hudson Ma'am 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 of 1995, including statements about the company's expected financial performance.
Any statements we make today that are not statements of historical fact may be deemed to be forward looking statements.
Words, such as believes or expects are intended to identify these statements, which may be affected by many factors, including those listed in the company's SEC filings and in today's release.
The company's actual results may differ materially from the results, we discuss or project today, we will not update any forward looking statements whether as a result of new information future events or any other reason.
We will also discuss non-GAAP financial measures today, we reconciled each non-GAAP financial measure to the most comparable GAAP measure in exhibit to today's release I will now turn the call over to Colin.
Thanks, Jen and good morning, everyone. The third quarter was another exceptional period for our company setting and surpassing several records just as we did last quarter at the highest level. This was the best third quarter performance ever for total revenue total adjusted EBITDA.
Total adjusted EBITDA margin for our hospitality segment and notice I did not include occupancy on that list that is what is impressive as our hotels delivered $62 million more in revenue 28 million more in adjusted EBITDA. Despite five six fewer poor.
So bulk kopinski compared to the last pre pandemic third quarter of 2019.
Announced over the past year by a few of our peers in several of our investors as to why our results are so good compared to the rest of the hospitality Reits and frankly it comes down to a few key differentiators first we've insisted that I manage it looks after our frontline staff through the pandemic because it's those individuals who.
Look solve for our customers second we've worked with our manager to overhaul our management ranks and improve overall productivity and efficiency third we continue to deploy and invest capital even in the face of a 13 months pandemic says that the physical product creates real value for our customers for.
We've been in house and invested in ourselves processes and at the same time increase the size and effectiveness of our sales teams and by the way we at Ryman, Patrick Mark Jan and I bring these teams together regularly and on a motivate them and that is one of the reasons why our room production is.
So strong.
And it doesn't stop there we at Ryman arrange and host events for our large customers. So that they know that we truly care about them and their organizations.
Funny.
When we converted to a REIT back in 2013, we shied away from talking about our operating DNA, but today after years of superior results. It's clearly an understanding of operations and the customer makes a great hotel and in turn create values.
That of course, and a manager that is willing to work with us that has respect for our knowledge. So now back to the results both group and leisure customer segments contributed to this top and bottom line delivery. For example, another quarterly record was our leisure transient ADR of $2 88 up.
$288 up 42% over the third quarter of 19, and adding $5 sequentially to the previous all time leisure ADR record set in the second quarter of this year groups also delivered healthy ADR growth of their own with the average rate for group Hotel room nights in the <unk>.
Water up 11% compared to the third quarter of 19.
On top of these room revenue guidance, we continue to see strong outside of the room spending behavior by groups in the third quarter that as evidenced by another record total banqueting revenue of $122 million was the highest all time quarterly banquet spend by groups across the Gaylord brand, surpassing the previous record set.
Just prior in the second quarter of this year and that is despite a mix shift of 12000 fewer group room nights in the third quarter compared to the second one thing all groups seem to having one thing all groups seem to having common this year has been a willingness to spend on property after waiting.
Up to two years during the pandemic it should come as no surprise to see how groups designing bigger and better programming as they finally make their return to in person events and were happy to accommodate them of course, we're ready enable to deliver bigger and better banqueting experiences. Thanks to the investments and capital we have deployed across.
The portfolio during recent times, whether a new and expanded ballrooms event loans or extensive F&B outlets recon.
Outlets and the old re concept and what we have done over this period group performance was broad based across markets and on an individual basis. Each Gaylord hotel managed to set a record for best third quarter total revenue or total adjusted EBITA E.
And in all cases set records for both the top prize must go to our newest hotel the Gaylord Rockies, which also picked up the trophy for the highest quarterly occupancy in the history of the Gaylord hotels brand at 86, 9% now maybe 8% six 9% to most rates at opera.
300 room hotels doesn't sell not spectacular, but the Rockies has 1500 rooms and to sell approximately 120000 room nights in a quarter without a casino is pretty special.
So this is quite a notable accomplishment and illustrative of what our hotels.
Below are achieving as group demand continues to return were also particularly pleased.
With the Gaylord national as the broad repositioning of this hotel's F&B offerings layered on top of the strong banquet performance of groups in general that I just mentioned.
You mentioned <unk>.
Delivered an $8 million, an $8 million increase in F&B profitability on an incremental $9 million of F&B revenue will flow through of 88% in this department when compared to the third quarter of 19. This contributed to an 82% adjusted EBIT.
<unk> flow through rate for the hotel overall the gains at the same time period.
Combination of full rooms renovation that we completed during its extended pandemic closure and the extent and the extensively redesigned F&B layout.
Has us excited about this this hotel and what it can do in the next few years speaking of the future ahead, let's discuss for a minute ourselves production. We added 614000 gross group room nights to our forward book of business in the quarter. These room nights came was real.
Good ADR growth across all individual out is with an average contracted rate at $252 and in case, you're wondering yes that is another all time record for quarterly gross booking ADR. This rate also represents an increase of 17%.
Over last year's third quarter booking ADR and 25% over the third quarter of 2019 in this inflationary environment and with the strong outside of the room spend behavior. We're seeing from groups. We continue to place a high priority on sustaining ADR growth in our sales activity looking.
A bit closer at our production in the year for the strength that we have been commenting on all year. In 2002 has continued and transformed here towards the end of the year into excellent short term momentum 41 book T plus one bookings that is groups going into 2023.
To be precise compared to the third quarter of 2019.
<unk> gross bookings for travel next year or T plus one increased 13%.
Or 52% when compared to the third quarter of last year at the very top of the sales funnel our lead volumes generated in the third quarter for arrival in all future years increased 54% from a year ago and were up five 3% compared to the third quarter.
Of 2019 now this is an important number to highlight as it represents the first quarter post pandemic that our lead volumes for all future years eclipsed the same time in 2019.
No I'm not giving you. These highlighted some record simply to Pat ourselves on the back for that strategy and our capital allocation decisions. Certainly we believe these results on top of the second quarter is equally impressive performance are a validation of our strategy going into and coming out of the pandemic. However, we are.
Also read the news and and the Analysts' reports that you guys produce them. We know the investment community is rightfully focused on the macro economy, right now and the triple threat of recession inflation and interest rates. So sharing this data is to be transparent and show you what we're seeing internally both right now.
In terms of group behavior on property and looking ahead in terms of meeting planners sentiment unwilling and willingness to book new meetings.
And the short of it is we do not see the headlines of precession playing out in that business at this moment the desire for our customers to get back to the regular programming is proving to be more powerful.
A more powerful influence on on behavior right now than the economic concerns.
All being subjected to and as we remind you often for many of our customers, particularly associations, who rely on registration fees exhibitor fees and sponsorship fees. The annual meeting is the primary economic concern.
But if a year to date results and not enough. Let me rewind the clock briefly remind everyone what happened to our company in the last true Mega recession. Following the global financial crisis. In 2009, if you look back to that yeah first virtually all of our cancellations were confined to the corporate segment.
<unk>.
And all of those cancellations, we collected close to $28 million in fees now when it was all over for 2009, we experienced about a 10% decline in revenue and a 9% decline in adjusted EBITDA.
Compared to an average revenue and profitability decline among amongst our peers of 22% and 38% respectively. So when we sit down and we plan for the future. We're not thinking foremost about navigating the economy, we're thinking about how we're going to burst.
Of the 46 six points of net group occupancy on the books already for <unk>, three and the 36 seven points on the books already for <unk> 'twenty four we're thinking about how we can further upgrade expand or enhance our meeting space at food and beverage outlets and a result of <unk>.
To further differentiate our assets against an extremely limited supply growth backdrop for group hotels, we're thinking about how we can design more compelling leisure programs around at peak group periods to induce even more high rated affluent transient demand.
During every session or period of disruption within Jude enjoyed over the years, we've emerged a leaner and stronger hotel business that is certainly the case right now as we emerge from this pandemic and an entertainment business, which I'll turn to now we're thinking about how we can extend our reach amongst that.
Country lifestyle consumer or how we can create even more value from our iconic national assets. As this city continues to experience such incredible growth. So.
So those are the top most issues that we focus on on a day to day basis on a day to day basis here not the latest GDP numbers or the pronouncement severely inform journalists so politicians now some more color.
On our entertainment business on a total basis Opry Entertainment group delivered $21 1 million of adjusted EBITA E. In the third quarter, which was within <unk>.
Updated guidance range as most of you know this was the first full quarter. Following both the acquisition of block 21 in Austin and the sale of 30% of our OCG business to our new partners at tariffs and NBC Universal and since June of 2019, we are also open to.
New Ole Red locations in Orlando, and Nashville International Airport, as well as launch that investment into circle and linear.
Streaming network when you exclude the subsequent acquisitions and investments and look at it look at that business on a same store basis at Cowen today, Ms business saw revenue growth of 19% and EBITA growth of 21% compared to the third quarter of 2019. This is the same type of growth.
We sold pre pandemic, because the city of Nashville, the surge back to its prior to its prior trajectory now I'll remind you over 40% of the U S population lives within 600 miles of this city in the most recently published data from the city through June of 'twenty, two shows visitor metrics setting records. This.
Yeah, just like so many of our businesses. For example June of this year was the highest ever monthly visitor traffic through National Airport, a 183 million passengers over 9% above June of 2019 and in the same month hotel demand across Nashville.
875000 room nights was also a monthly record up 11% over June of 19 at this moment there were 50, New hotel development and National Day in Nashville, Davidson County, and the city projects over 2600, new rooms to open in the next two years.
Another 4000 behind them still in planning and to remind everyone. These are not large group hotels to compete with opryland. These Alicia and transient focused properties that will deliver and host thousands more downtown visitors and many of these new visitors will end up seeing a show at the Ryman touring the Opry household spending and.
<unk> it all red overwhelmed horse and we'll be ready for them when they leave Nashville and to return home.
Or they go to Austin or Las Vegas for their next music musical pilgrimage will be they're continuing to engage with them whether through our investments in expanding the <unk> footprint.
Deepening our virtual reach across linear TV digital streaming or online we have a menu of exciting new strategic options to pursue alongside our partners that have tariffs in NBC and these conversations and plans that we're having with these folks are well underway.
This is a part of that business that I am looking forward to driving forward and spending more time in discussions.
<unk>.
With tariffs and with the artist community as we build a truly one of a kind platform to connect the country lifestyle consumer with the content on the artist. They love now to that end with all our businesses operating at record or near record levels of performance. There's no better time for me to transition.
The day to day CEO role to my long term colleague and partner here Mark Fioravanti, Mark has been instrumental in getting our company to these levels and I'm confident he will sustain and grow them in the future Mark will assume this new combined role as president and CEO on January one and I will step into the position of executive chair.
And for both Ryman Opry Entertainment group to spin it off.
To lead this company for the past two decades and I'm extremely proud of all that we have accomplished and I know it will be in great hands with mark at the helm, so with that let me turn it over to Mark who will discuss latest outlook and then Jen will wrap up.
Looking about that.
Our improving balance sheet.
Thanks, Thanks, Colin I am I am grateful to you and my fellow board members for the opportunity.
It is a privilege to lead such a talented and long tenured management team at <unk>.
It's an exciting time.
It is my hope and expectation that the records.
Just outlined will not last very long as we seek to surpass them.
Investing and growing in our businesses.
Let me spend a moment on <unk>.
Our fourth quarter expectations in how we're currently positioned for 2023.
Fourth quarter is our most leisure oriented portion of the calendar and we've always filled our hotels. During this time with holiday themed programming headlined by our ice exhibits.
These exhibits feature walk through larger than life hand carved ice sculptures produced by Mastercard from Harbin China for.
For the last two years, we've been unable to bring the <unk> to the states due to travel restrictions, but we're happy to confirm that they are on U S soil at each of our properties and putting the finishing touches on each of our exhibits.
Our leisure transient business going into the holiday season or Advair.
Advanced bookings in ticket sales for ice and our other associated activities are all tracking very well to our expectations.
And based on our group business on the books for the fourth quarter and the current pace of transient transient holiday bookings, we expect to deliver a strong fourth quarter for our hospitality business above 2019 levels.
Specifically, we now anticipate full year hospitality adjusted EBITDA.
A 491% to $500 million, an increase of $13 million at the midpoint compared to our prior range.
This implies the midpoint.
Over $133 million of hospitality adjusted EBITDA in the fourth quarter, which would exceed our fourth quarter of 2019 by approximately $8 million.
Looking into 2023 as Colin noted we ended the third quarter with 46 six points of net group occupancy occupancy already on the books for next year at an average rate of over $221. This translates to over $392 million of group rooms revenue on our books for 2002.
'twenty three with another three months to go before we begin the year.
This is 10, 4% higher than the $356 million of group rooms revenue, we have in our books for 2022 at this point last year and nearly $50 million more than the $342 million. We had on the books in the third quarter of 2018 for 2019.
In our entertainment business, we're also expecting a strong finish to the year because we continue to see solid demand for our core Nashville assets with 20 more concerts and events on the books for the fourth quarter at the Opry House and the Ryman auditorium than we had in the fourth quarter of 2019.
In addition, we continue to see improvement in post pandemic demand and the tour and travel segment and Nashville.
The third quarter was the first full quarter of operation of our ownership of block 21 in Austin, Texas.
This performance was in line with our initial assumptions and does not yet reflect many of the enhancements and improved utilization. We have plan for these assets, which we expect to begin in 2023 and ramp over the first few years of our ownership.
Altogether, we continue to expect <unk> to deliver at least $72 million of adjusted EBITDA for the year, but we are tightening the range to 72% to $76 million from the prior range of $72 million to $80 million.
Looking ahead with Eaton Vance.
Enhancements, we have planned for block 21, the continued strong growth in Nashville visitor traffic the anticipated return of top artist talent as they finished their post pandemic touring schedules and of course, the recent groundbreaking for our old Red Las Vegas location. We are tremendously excited about the next several years ago Luigi.
And lastly in our corporate segment, we expect full year adjusted EBITDA, sorry to be a loss of $30 to $32 million or $1 $5 million better at the midpoint than our previous range of $32 million to $33 million.
The combination of these adjustments yields an increase to our full year guidance range for consolidated adjusted EBITDA to 531% to $546 million or $12 $5 million increase from our previous range at the midpoint.
As is our usual course, we'll give more specific 2023 guidance for both of our segments on our fourth quarter call in late February and with that I'll turn it over to Jennifer to update you on our balance sheet and liquidity.
Thank you Mark.
In the third quarter. The company generated total revenue of $467 8 million and net income to common shareholders of $45 2 million.
Or <unk> 79 per fully diluted share.
You'll note that there is an increase in our fully diluted share count compared to prior reporting period.
It reflects the put rights held by a test as part of the Opry Entertainment Group investment agreement.
Total consolidated adjusted EBITDA for the third quarter of $150 1 million was above the high end of our guidance range of $146 million.
Collecting the outperformance of our hospitality segment as described by Colin.
As Mark outlined we are increasing the guidance range for our full year consolidated adjusted EBITDA, Ari and I would just add that this guidance range is on a fully consolidated basis.
With operating Entertainment group included at 100% ownership.
We will continue to report this fully consolidated figure as well as the pro rata adjusted EBITDA that excludes non controlling interest.
<unk>, which excludes <unk>, 30% share of the entertainment segment.
Turning to the balance sheet, we ended the quarter with $224 $7 million of unrestricted cash on hand, and our $700 million revolving credit facility remained undrawn.
Gather with the Undrawn $65 million revolving credit facility and operating Entertainment group this yield $979 $3 million of available liquidity net of $10 4 million of outstanding letters of credit.
We retained an additional $96 million in restricted cash available to us for certain <unk> projects and other maintenance.
On a trailing 12 month basis, our net leverage ratio of total consolidated net debt to adjusted EBITDA stood at five six times.
Based on the midpoint of our guidance, we anticipate we will end the year at approximately four nine times, which is very close to our pre pandemic target range.
We were also happy to reinstate our quarterly dividend paying 10 cents per share in cash on October 17th totaling approximately $5 5 million.
Going forward, our interim policy is to pay a minimum annual dividend of 100% of REIT taxable income.
Finally in terms of interest rate exposure as of quarter end, approximately 90% of our outstanding debt was at fixed rate either directly or with the benefit of swaps.
Through the end of 2023, we have only one maturity on our $800 million Gaylord Rockies term loan and this loan has three one year extension options available to us.
But we believe our balance sheet is well positioned to weather this volatile period for interest rates and capital markets.
With that I'll turn it back over to Colin.
Thanks, Jen so Catherine let us open up the call for questions. Please.
And at this time, if you would like to ask a question. Please press star and one on your Touchtone phone again that is star one if you would like to ask a question you can remove yourself from the queue at any time by pressing star two.
We'll go ahead and take our first question from Shaun Kelley with Bank of America. Your line is open.
Yes.
Hi, good morning, everyone, calling and Mark congratulations on the new title is calling you'll be very much missed on these calls we're not when we don't get to host you anymore.
Well you are.
Youre, making the assumption that I won't be on those calls we'll see what happens.
Okay, then we might have we'd love to we'd love to keep with you.
Someone's someone's got to keep you guys in check.
Very true.
So on that.
Let's just kind of look at a couple of the <unk>.
So one of the things.
Looking at it closely as market in your statement you talked about.
Room revenue on the books for T plus one I believe the number was $392 million I'm looking at it correctly, that's a quite nice pick up I think that's about up about 4% from.
Why are you worried in 19 and also up 4% from the last update you gave.
So what kind of drove that pickup in activity.
A question and then.
September it looks like or September October and then just in general what are some of the levers that can drive that number between now and the end of the year.
Yes.
Mark and I are going to defer to Patrick him because he has all of the detail, but suffice to say that booking production.
Let me, let me back up a second.
When we when we listen to all of this noise around inflation all the noise around.
The whole issue of are we going into a recession or not.
I was I was pleasantly surprised with the level of bookings that we were able to contract and also the the amount of inbound requests for Rfps with our lead volume lead volumes jump in this quarter was.
Pretty spectacular and then.
I would tell you that.
The four of us.
Actually three of US Jim wasn't there three of us will without all of the Gaylord salespeople, Patrick what about three weeks ago, two weeks ago in Orlando, we brought them in to.
To celebrate the work that they have done through the pandemic. Thank them for the great job that doing I'll tell you I was so surprised by the enthusiasm and the excitement that that group.
Well.
Just.
<unk> themselves how they how it was so pumped with with things currently sits so.
Patrick talk about the 4% increase.
And what we think is going to happen here.
Hey, Shaun it's Patrick I would attribute what youre seeing on the group side. The four things number one we've been talking about this for a couple of years the decision to retain the sales team and have them focused on re bookings as opposed to just cancellation <unk>.
Collections that has set us up for a stronger book of business and $23 24, and 22 coming out of Omicron. The second thing I would say as Colin talked to earlier in his comments, we've finally seen lead volumes recover beyond.
And see growth beyond what we had in 2019. So the group business continues to strengthen and recover and so combine that with US building a stronger book of business. That's that's played out very well for us the third and again something else account has talked about as our investments what I would tell you is we have a different narrative than our competition right now.
We have a narrative that says we've been adding value throughout the pandemic. So we're not just raising rates on you because of inflation, we have value to offer to you and I think our group customers are seeing that and understanding that we have not lost our stride whatsoever and have only enhanced our hotels through the past two years and the last thing I would.
Say as smart management of the group calendar.
I mean by that is making sure that we're not just filling gaps.
Hastily and with in a reckless manner, but continuing the scientific discipline and filling up the group calendar. So that as these last minute opportunities are materializing as the recovery continues we have space in rooms in which put them in various hotels across our portfolio those four things have.
Let up a nice finish for 2022 for us and have set up 23% and 24 to be really strong years for us as we look forward.
Had one added one factor and that is that.
We have.
Patrick's team along with Marriott has done a terrific job of driving the leisure rate.
And what that has done is it has it has raised the bar in terms of group rate certainly during group need periods and so those two those two segments feed off of each other.
And Patrick's group has done a terrific job of instilling some discipline in that process and driving and driving that minimum required rate for the salespeople. This is a very important point shown marks just made.
The dynamic between escalating lesion rate and escalating group rate. These things are so intertwined.
For folks, who really don't understand this business. They they probably see these two groups business has two segments of business as being very different and not related they are very related and.
And.
I'm very excited about the prospects for the next 12 to 24 months.
In our bookings and our rate growth.
Thank you very much.
Thank you.
We'll take our next question from Chris <unk> with Deutsche Bank. Your line is open.
Hey, good morning, guys and Marc and Colin Congratulations on the.
New roles Collyn.
We're certainly appreciate all the.
Anecdotes and perspectives over the years, so hopefully we'll get to continue a little bit of that.
And my question actually was for you Colin is now in this in this new role.
What is it you're trying to get some ideas on what youre going to do with that Entertainment group. What your vision for that is now that you have a little bit more time to spend on it exclusively.
Gulfport is no different to what we've been articulating to you guys for the last two to three is it's funny.
Let me just say this I'll come to your question that Mark and I would chat and earlier today and.
We've fielded some sort of inbound questions about our results.
The analyst community and the investment community and now really focused on this entertainment business and we're really pleased with this because it seems like for five years, we were wanting to talk about it and talk about the underlying value what it represented.
It took some time to get to the analyst community and the investment community solar to the to the fence and but now now we've got a we've got a lot to do.
Aye.
I Love this business.
I love the the relationship that this company has built with the artist community.
There is an extraordinary trust this community has of our company.
And.
What I want to do is make sure that the baton is passed very clearly to mark over the next couple of couple of years here.
In terms of making sure that he is the guy.
And that the artist community.
<unk> as the leader of this company.
But I'm going to stay very close closely involved in this part of the business we have.
<unk>.
I can't begin to describe to you Chris the amount of <unk>.
<unk> is that we are fielding.
On this business.
Yes.
I would say that mark and I are spending probably 90% of that.
Waking hours fielding inbounds.
Looking at different opportunities working with that team.
I'm here to grow this business.
The amount of activity that we're seeing.
From our friends at Comcast NBC Universal.
<unk> is really really picking up so the key for US is is.
Putting this through <unk> and making sure that we prioritize on those things that are really really important, but Michael and mark scope for this business is to do what we see.
Said that we need to do with it which is at some point separate it but we will separate it win.
When growth is obvious to the investment community the structure that we have management structure is.
Really really really strong and.
And that's what we're going to be working on so lots of opportunity here.
Thanks Carl.
Super helpful. Just a quick follow up if I can.
You guys have talked a lot.
Coming out of Covid about changes at the National you talked about some of them in the comments.
Is what you achieved in third quarter or maybe year to date.
Is that running in line with or maybe even ahead of your expectations I guess, mostly in terms of our margin performance. How do you how do you look back going forward.
Yes.
I know from my perspective.
Illicitly surprised with what we're seeing there and it's not just it's not just the performance in the third quarter.
The excitement and that management team.
And the and the physical work that we have done that honestly.
We learned a lot about a month ago.
About a month ago and.
The room, the room product looks great Carnival productivity, Greg what we've done on food and beverage that looks super hub.
And it's all sort of playing out in our results Pat you want to add to that to Chris's, Yes, Chris I would say, we're slightly ahead of our expectations, but we believe that the momentum will continue to build we're looking at ways to further activate the atrium at that hotel and.
Create more revenue generating spaces.
We are getting ready to renovate old hickory and add some meal periods to that restaurant.
And so we're excited about what that's going to be able to do is do for US and then to <unk> point building on the momentum that's already been built there we're looking at how do we.
Truly drive more leisure occupancy into the hotel long term and exploring different opportunities and ideas there because from a group perspective that hotel does an outstanding job.
We've always have a little bit more of opportunity on the leisure side and so we're kind of deconstructing that so we.
We think theres still lots of upside opportunity at Gaylord National and the momentum will only continue.
Great very helpful. Thanks, guys.
Thanks, Chris.
We'll take our next question from Bill Crow with Raymond James Your line is open.
Hey, good morning.
Hospitality question couple of quick ones on the entertainment side on the hospitality side as you think about.
The cancellation fee income that you received this year.
Hopefully burning off next year.
Quite substantially what does that do for 'twenty three margins.
Hospitality versus 'twenty two.
Patrick you Jennifer.
Yes keep in mind, we've been expecting this attrition and cancellation to continue to burn off. This is this is a good problem to have the customers are expected to come and in the third quarter. It was about $10 million of.
Attrition and cancellation fees and that's getting getting closer to our normal run rate in terms of what we expect.
Each quarter. So I mean, I think 5 million, mainly in the fourth quarter and that would be a continual run rate Patrick it's.
Bill I would say Theres, a couple of things that we're doing to make sure that that cancellation fee revenue Burns off that we don't see negative impact on the margin. The first is we're making investments continued tightening up on our labor management.
We're using the technology platform that's been enhanced so that's going to help us on one side Colin has alluded to multiple times that we continue to look at how how to hold our management, how head count in check and at a lower level than where we were in 2019. So a lot going on on the labor side and then the second thing is you have seen some great progress on the <unk>.
Group rate side and tremendous progress on the leisure rate side, but I would say on the group side. We're really just getting started we believe there is additional upside for us to continue to grow group rate and that additional rate growth in the future will help insulate us from any kind of decline in our margin erosion as a result of those canceled.
<unk> fees going away.
Let me weigh in.
Bill Let me just say one thing so.
I think when you look at the fact that we collected almost $100 million in cancellations rates through the pandemic.
And we collected almost $30 million and $28 million in 2009.
This part about this part of our strategy is clearly.
A really good insurance policy for bad times that.
Societies like has it doesn't hit from time to time, but I wanted to go back to one of the things that we said very clearly as we went into this recession and we said that we expect that when we come out of it.
Margins will grow one one.
100 basis, 100 to 150 basis points and I thinking on that hasn't changed.
Hasnt changed at all in fact.
Where we are.
<unk> excited about.
Can we can we do better than that because we have been able to re imagine reengineer, our business and thats. What we have what we have done here. We've recalibrated. This hotel business, whether it's the relationship with the meeting planners building more business coming to us whether it's the upgrading of the sales.
Process, whether it's improving the leisure offerings that we've done throughout the pandemic and improving the efficiency that Patrick just talked about we expect our margins to improve.
And that business to be just stronger post pandemic than it was pre pandemic and it was.
I hate to.
Pound, our chest here, but it was industry leading pre pandemic.
Yes, I appreciate the color on that.
I mentioned two quick questions on the entertainment side.
The first one is any any signs of improvement in Orlando. The second question is if you could just shed some more light on the put option.
Tariffs has.
What would trigger that.
I guess I had missed that there was a put option on their front.
Perfect.
Yes.
In terms of Orlando, Mark things are improving.
The convention business is coming because convention traffic comes back.
We're seeing improvements in that.
We had a double whammy there right I mean, we built this building and it's beautiful and the customers love. It and then we had obviously the pandemic and things with the convention industry in Orlando fell apart.
This facility is near the convention the convention centers.
<unk> comes back that business is improving.
The other whammy was that the the death unfortunate deaths and icon Park on a ride that was an icon park.
<unk> right got shutdown Bad press Ni Com Park and that was a problem, but that is that is.
Yes. They are in the process of taking that write down right and it'll get replaced with another attraction. So that will help there literally next door to us.
That will help foot traffic as well, but at risk to that whole rates.
Alright here is materially outperforming what we imagined already it was going to do in Gatlinburg is continuing to just did very very well.
<unk> business is going to be fine and by the way the Las Vegas, I'm really excited about that.
You want to talk about the put option Mark yes. So so the put option within the context of if you think about the deal as it's structured it has its first in minority interest and secondly.
Because of our REIT structure. It does create some potential for liquidity challenges for an investor because of our income tests and so what what we structured the transaction was a number of I guess, what I would call kind of on and off ramps for our partner specifically in terms of on ramps they.
The ability over the next three years to buy up to 49%.
Of the business.
Mental 19% to get to 49%.
At a predetermined at a predetermined multiple 17 times trailing right.
And.
If they execute.
Sure.
<unk>.
That by right then all of the put rights.
Go away.
And the purchase the purchase option that they have also terminates.
If we would.
Do an IPO, if we would sell the business or spin the business.
So that's kind of there on ramp in terms of in terms of the put right.
The way that the put right is structured is that if we have not completed.
IPO prior to the fourth anniversary of the deal which is could be 2026.
They can request an IPO.
If.
If we decline.
To do that IPO, then they have the right to put the business.
Put them back to us.
And we can either.
Take them out in cash or use shares.
And.
And they have a second.
Put right in year seven that if we have not completed an IPO or sale of our spend prior to the seventh anniversary, which is 2029 and again they can they can put their interest back to us at fair market value and again, we have the ability to settle in cash.
Or or shares at our option so what what we've tried to construct with the <unk>.
Our system of on and off ramps where.
They don't they are not subjected to a liquidity discount in the future and that we retain control.
<unk> of the process.
And and maintained our optionality as it relates to whether we would use cash or stock and unfortunately.
Spite the outcome being in our control from an accounting perspective accounting rules require us to assume full dilution occurs and that's why.
You see that dilution in this year and the reason the reason we.
Negotiated the right to do it in cash or stock was because.
Here, we are back in when we are negotiating this back at around Christmas of last year.
We only Kona, we're thinking to ourselves.
We've had the kitchen sink thriving as an industry as a society.
What could be in place four years from now so it was really an option it out.
Of our choosing.
But stepping back from the mechanics of all of this.
<unk>.
We and our partners are really focused on how the Hell did we grow this business.
How do we how do we then separate this business should do do with it.
What we all what we all.
Wanted it which is to allow this business to Florida as a stand alone separate entity and that's what we're focused on here and these are the things that Mark has just described.
Truck to the market as just described is really.
It is there, but it's not that's not what we're working towards.
Yes, and yes.
And Bill if you want to jump on a separate call to go through the details happy to do that.
Okay, well I appreciate the insights on that.
Ill yield before.
Congrats to both of you guys promotions.
Thanks, Buddy us.
I appreciate it.
Next call. Please Kathryn.
We will go next.
Next to Dori Kesten with Wells Fargo. Your line is open.
Thanks, Good morning, and congratulations to you both.
So you touched on this a few different times.
Look over time, how kind of relationship is there between the chain Henry for rates and the change in either near or medium term group.
Where is the point that they move somewhat together, but.
With much higher leisure rating scale and drive higher <unk>.
Yes.
Yeah, you want to take that part.
Yes.
So hey, George it's Patrick so to Mark's point, a few minutes ago.
Growing leisure rate gives us two benefits number one.
It allows us to have the conversation with group that the leisure realities, what we're seeing on rate applies to group.
So that starts to that conversation and it helps everyone get their minds wrapped around the fact that group rates just cannot stay stagnant they are growing.
The second thing it allows us to do.
Mark was kind of pointing out is.
Historically before we really started investing a lot in our leisure amenities in our leisure business.
Our our need periods were much more there was during the summer and during the holidays. We just didnt have much group in house and.
As we were building our leisure capabilities were really taken a lot of lower rated groups to just sort of fill the occupancy.
Now that we've gotten a much more science and capabilities behind what we can do on the leisure side.
We were able to tell groups that might come over that period, because they're low rated group look here's the reality of what we're able to capture on the leisure side in house during that same period. So if you want to travel it's no longer we have to discount and allow you to come because we don't have any other occupancy. It's now a conversation of we have high.
Our rated leisure in house. Therefore, the group customers are going to have to pay more to be in house.
It sets up for it takes a little bit longer for us to get the group rate to grow not in terms of as we are booking it but for it to materialize in the P&L. It takes a little bit longer because again, we're booking corporate 18 to 24 months in advance and we're booking association three to four years in advance so our weighted average of what gets booked.
Prior to an inflationary environment like we're in right now it takes a while for those group room nights that were booked with maybe a little bit lower rate prior to inflation to burn off.
That answers your question, but let me know if you have any follow up.
No that's good.
And if we look out the next two years, what larger ROI projects.
Do you all expect to be underway.
The record occupancy and bookings that Rockies accelerate your plans there.
Okay.
We have so many I'm not even sure we have time to talk through all of them right now no no I'd say its funny.
<unk>.
The four of US have this conversation.
Two days ago.
About actually yesterday.
About the cadence of the projects that we're looking at we could take you through each hotel I mean, we're looking at the Rockies we're looking at.
Potentially.
We are going to redo the whole lobby of the Rockies, we're going to we're building an outdoor pavilion, we're going to build an outdoor pavilion, we're looking at.
A potential improvement on.
Two our whole water feature of Soundwaves potential we're looking at.
More rooms.
When we when we move to <unk>.
Other markets.
Like like for instance, here in Nashville, we're looking at a materially.
<unk>, the whole sports bar food and beverage offerings of this hotel.
In Texas.
Looking at our sound waves building up.
Some ways there because of the <unk>.
Potential to really add leisure business sort of the through the winter months of that of that hotel. We just got we got.
So much going on everywhere.
Do you want to just touch on quickly the brand research that we completed with Marriott and how that informs how we're thinking about investment yes.
As you've heard Carlin talked about many many times in the past it's we.
Don't just go off what we think we go off what we know and so we do.
Do a lot of research we've had a continuous research effort going on with our group customers and our leisure customers over the past couple of years. It started prior to the pandemic and we continued it through and so it was very fortuitous because we were able to see what was happening as the pandemic was setting in and then the recovery starting as far as how group customers and leisure.
<unk> responded.
It has informed our strategy for the future.
We've been able to identify where the opportunities to improve what we're doing today, just clean up our execution as well as where to group customers want to see us grow.
And we were using that to inform our strategy for the next five to seven years.
We're getting ready to do another research effort as we go into 2023 to better understand the industry to better understand how meeting planner preferences have changed et cetera. So we have a boatload of research that we're using to.
Again going back to what I was saying earlier to Shaun Kelley.
To change the narrative that while others are just kind of been keeping their heads down and trying to endure the pandemic. We've been looking at how we create more value for the customer how.
How we modify our operations, how we evolve as a brand to better meet folks needs. So that we.
We have a very different narrative to be able to pitch.
Okay. Thank you.
Okay. Thank you.
I believe we have two or three more of the.
Analysts in the queue.
Catherine.
Continued for a bit.
Absolutely we will go next to Smedes Rose with Citi. Your line is open.
Hi, Thanks.
Sure.
Along with everyone else Congrats to you Collyn and Mark on your new roles.
I wanted to just ask a little bit about.
The mix of group business.
You've got on the books for next year and the following years and I guess, specifically I was just wondering if youre seeing any.
Change in attendance for folks on the association side of the business I think they often participate in those association meetings on their own time and I was just wondering if the higher rates and higher airfares are impacting demand there and maybe kind of.
Just sort of seeing any kind of mix change in kind of the kinds of groups that are coming to you.
It's a good question by the way, yes, Smedes this is Patrick.
As we look to our mix for 'twenty three 'twenty four 'twenty five we have not seen a significant shift away I would tell you that.
We've seen a resurgence in corporate demand coming back.
Association demand kind of came back a little bit faster post the pandemic. So our mix is a little bit more heavily weighted towards association to slightly as we look at $23 24, but that's really not because of a change in behavior. It's simply how the two segments of the business or the industry has been coming back.
We feel really good that we have lots and lots of.
Spots, where we can put into short term corporate business as it continues to surge and come back as we're booking into 'twenty three 'twenty four to your question on attendance, we've not seen attendance numbers change.
As the inflationary environment has accelerated we've been watching real closely with what's going on in a potential recession, we've been talking to our sales folks a lot over the past eight or nine weeks and just seeing are you seeing any change in behavior. There has been a few corporate groups here and there just not a material amount, but a few corporate groups that have.
Pulled back a little bit in their attendance.
But the funny thing is that when the group actually shows up while there are tenants may be a little bit lighter because of fears of recession, they're outside the room spend as healthy as any other group on property. So we don't think that.
It has materialized into a trend at this point, it's just a few groups here and there.
So really nothing thats happening on the attendance side of note right now and especially not on the association side. So many associations are really quite honestly, just trying to make up for what they've lost over the past few years and trying to make sure that the programs that are providing further attendees were compelling enough to get them to travel despite some.
The increases in air fare travel et cetera.
One of the benefits of that tilt.
Towards Association next year is that.
As you know.
During recessionary periods associations travel.
Versus canceled they will have attrition, but they do travel and we saw that in 2009.
Yes, it's a good question I think it's something that we put under the microscope will be watching these association groups performance and talking to these associations ahead of time about their anticipated arrival numbers, but again the good thing is with our contracts with.
Attrition rate.
The rates that we have negotiated.
Because associations associations, turning up next year by and large but well before the pandemic.
The last thing I would tell you is one of the things that I'm encouraged by watching over the hotel business is.
Our mix of large group or 1000 plus.
We're a little more heavily weighted towards large group as far as what's on the books as you compare back to 2019 as we move into 2023.
That means to me to both Mark and Collins point as those large groups are usually a little bit more sticky.
And they performed better in a recessionary environment and it gives us sort of the big building blocks already in place as we head into the year and we can use some of the smaller corporate business that usually shows up at the last minute to fill in.
Round some of those largest groups.
Okay. Thank you I appreciate that and then Patrick maybe just if I could just ask you to maybe could you just touch on what Youre seeing on the on the labor cost side of the business at the hotel level.
Yeah, we've tried to stay ahead of it.
As we've been talking for the past year and a half about the fact that we'd be holding our management head count too.
Levels below 2019, we have seen.
24% wage increases in the third quarter versus 2019 across the brand a little bit more pronounced the Gaylord Texan, which was up about 38% simply because that was the lowest rate the lowest wage margin or I'm, sorry, the lowest wage market in our brand it's still the cheapest.
Labor market that we operate in but it has seen higher level of growth simply because it was starting off a lower base.
But we've been very successful in driving leisure and group rate to more than offset those inflationary increases in wages, but around mid twenty's as what we've seen versus <unk> 19 in the third quarter.
Okay. Thank you guys I appreciate it. Thank you we have one more Kathryn and I think in the Q and.
And then we'll shut it down.
We'll go to Jay Kornreich with NBC. Your line is open.
Hey, Thanks, Good morning, I guess.
Just going back to the guidance.
But again, it's more related to the upside of the leisure transient ADR group bookings that surprised you and what sort of demand do you think is more at risk if a recession does materialize next year.
I had a hard time hearing that.
The question was which which leg of demand group versus leisure is more at risk in a recessionary environment.
Yes have you hear me better now and I'll just repeat it.
First in terms of the guidance was the surprise this quarter or for the full year guidance or was it more related to the upside of leisure transient ADR or the group bookings that surprised you and which is which.
Like if demand between those two would be more at risk next year, if a recession were to materialize.
Right.
So I would tell you that our outlook for the remainder of the year and our increase in the guidance for the hospitality segment is related to two things.
Three things really the first is outside of the room performance of groups on site has been better than we anticipated most pronounced in our banquet activity and you saw that materialize in the third quarter with our highest banquet performance for a quarter ever. So that's number one.
Second is.
As we look at the fourth quarter, we had a lot of concerns around whether or not our ice programming would be able to actually travel.
And what I mean by that is getting the carvers to come over from China.
Given the continued impact of Covid in China, we were able to get that to travel that gave us more confidence and as we've seen the bookings and tickets start to sell whether it be room nights, where tickets for the fourth quarter, we're getting more confident that it will be a good performance and so those three factors came together to raise our guidance.
For the hospitality segment.
In the fourth quarter.
To your question as far as what's more at risk well I would tell you that group probably would be more at risk, but to <unk> point earlier, that's where we have contracts in place that provide a measure of protection for us.
If there is a cancellation that occurs or if groups show up in smaller numbers, so a little bit more risk there, obviously, but more protection than the leisure traveler, who if they cancel we don't really have much protection and again to be clear. When we say group is really corporate when you go back and look at two O nine.
We cancelled about 100 and I'm doing this from memory 135000 room nights canceled nine.
And.
And literally 95% of those room nights for Copa Yes, we had $29 million in cancellation, yes. It was.
It was space at Neal corporate the other interesting thing that occurs.
In a recessionary environment, you see families abandoning they are long term, let's go to Europe , let's spend a week wherever it may be and and do more short sharp breaks with the family in our leisure business back in a pretty decent.
We're primarily regional driving and so it's a staycation for consumers, particularly now with the enhanced pool products we have.
Yes anyway.
Really good questions and these are things that we really have under the microscope as weak.
As our economy twists and turns we are watching this stuff like a hawk and but right now our business folks in really good shape, both not just the quarter, but fourth quarter is going to be pretty good for us.
Okay, Great I'll leave it there thanks so much.
I mentioned to Kathryn.
Just to thank investors for being on this morning.
Appreciate your time.
Barry.
Proud of the.
The results that we.
Published last night and if there are any questions you can get hold of Jennifer our Chief Financial Officer, Todd Siefert.
Treasurer head of IR Hallmark Omi.
Here you know us so thank you for your time this morning.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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