Ryman Hospitality Properties : Investor Call Transcript

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Ryman Hospitality Properties Inc Announces Strategic Investment in Opry Entertainment Group by Atairos and NBCUniversal - M&A Call

EVENT DATE/TIME: APRIL 05, 2022 / 2:00PM GMT

CORPORATE PARTICIPANTS

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO Mark Fioravanti Ryman Hospitality Properties, Inc. - President & Director

Todd Siefert Ryman Hospitality Properties, Inc. - SVP Corporate Finance & Treasurer

CONFERENCE CALL PARTICIPANTS

Chris Jon Woronka Deutsche Bank AG, Research Division - Research Analyst Dori Lynn Kesten Wells Fargo Securities, LLC, Research Division - Senior Analyst

Jay Bradley Kornreich SMBC Nikko Securities America, Inc., Research Division - Research Analyst

Michael Jason Bilerman Citigroup Inc., Research Division - MD, Head of the US Real Estate & Lodging Research and Senior Real Estate Analyst

Shaun Clisby Kelley BofA Securities, Research Division - MD in Americas Equity Research & Research Analyst Smedes Rose Citigroup Inc. Exchange Research - Research Analyst

PRESENTATION

Operator

Welcome to Ryman Hospitality Properties Investor Call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Chairman and Chief Executive Officer; Mr. Mark Fioravanti, President; Ms. Jennifer Hutcheson, Chief Financial Officer; Mr. Scott Bailey, President, Opry Entertainment Group; and Todd Siefert, SVP, Corporate Finance and Treasurer.

This call will be available for digital replay. The number is [phone] with no conference ID required. (Operator Instructions)

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

Mark Fioravanti Ryman Hospitality Properties, Inc. - President & Director

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. Any statements we make today that are not statements of historical facts may be deemed to be forward-looking statements. Example of these statements include, but are not limited to, statements regarding the pending acquisition of the Block 21 mixed-use project in Austin, Texas; the proposed investment by Atairos Group, Inc. and its affiliates in our Opry Entertainment business and the potential benefits of such transactions.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made today. These risks and uncertainties include, but are not limited to, any event or change in circumstances that could delay the closing of the Block 21 transaction or the Atairos transaction or that could result in the termination of the Block 21 transaction or the Atairos transaction prior to closing or the occurrence of any other event which could adversely impact our business, including the outbreak of a new variant of COVID-19 virus or a downturn in the U.S. economy generally. Other risks and uncertainties that could cause results to differ are described in filings made from time to time by us with the Securities and Exchange Commission and include the risk factors described in our annual report on Form 10-K for the year-ended December 31, 2021 and subsequent filings. Except as required by law, we will not update any forward-looking statements, whether as a result of new information, future events or any other reason.

We may also discuss non-GAAP financial measures today. We reconcile any such non-GAAP measure to the most comparable GAAP measure in the investor presentation we issued in connection with today's call.

I'll now turn the call over to Colin.

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO

Thanks, Mark. These safe harbors get longer. Good morning, everyone, and thank you for joining us.

Today is the beginning of the next chapter in the life of Ryman Hospitality and, particularly, Opry Entertainment business. Over the last several years, we've spent a lot of time exploring ways in which we can unlock value in our entertainment business, but at the same time demonstrate to you, our shareholders, that this business that we know as OEG is indeed very valuable.

Notwithstanding the impact of COVID on our company, last year, many entities, including multiple SPAC originators, contacted us to suggest that we partner with them or, in some cases, sell this business outright to them. I can tell you firsthand that this has been an enormously complex set of challenges that we've had to navigate, but I believe we've arrived at a very satisfactory outcome.

Since 2013, being a REIT has clearly served its purpose and allow us to create a lot of value for our shareholders, but a REIT structure is not ideal for our entertainment business. We hold OEG in a taxable REIT subsidiary and the increasing value and profitability that these businesses generate don't contribute to the qualifying assets and income for our REIT compliance tests. This creates some challenges for us as we look to continue to grow this business and unlock its value.

So early in the second quarter of last year, we appointed Morgan Stanley to help us think through the optimal structure and to help evaluate which strategic partner would bring the most muscle to help us turbocharge the growth of our entertainment business.

In the third and fourth quarter of last year, we spent time in discussions with about 10 different organizations who had expressed serious interest in partnering with us. During every discussion we had, we stressed that there were very, very, very important points that we were looking for. Number one, a partner who cares as much about this business as we do, someone who is committed to preserving and protecting the cultural integrity of the magnificent assets under our care. Two, a partner who brings expertise and resources to the table, that will help us position our business with a global audience and form new relationships with customers. Three, a partner who shared our vision for how our company could become a global leader in the country lifestyle and live entertainment space. And four, a partner who was prepared to work with us and accommodate our needs, particularly as it relates to our REIT structure and our desire to control this business for the foreseeable future given our belief around growth and long-term value creation.

As a consequence of all of this, we found a partner that we believe checks every box, and we are excited to announce that Atairos, an investment firm whose capital comes from NBCUniversal, as well as NBCUniversal itself in a direct investment role, will be our partners prospectively.

Now when you step back and observe what Atairos and NBCUniversal brings to the table, it's quite impressive. Patient capital, deep industry expertise, a vast network of resources, capabilities and relationships highly relevant to the Opry family as well as an international expertise. This is very exciting.

The structure of our partnership, whereby Atairos and NBCUniversal will initially acquire 30% of the Opry Entertainment's group equity for a combined sum of $293 million, $15 million of which comes directly from NBC, is also the ideal outcome for our shareholders.

The agreed upon valuation of our business at a minimum of $1.4 billion, inclusive of Block 21 assets to be acquired, is far above the average of what most analysts who write about our stock have ascribed to it, which validates what we have long believed and puts a public mark on these assets. And that value can grow by an additional $100 million, implying an additional $30 million of proceeds to Ryman should Opry Entertainment Group achieve certain targets. This valuation range represents a multiple of 19 to 20x on 2019's pro forma adjusted EBITDA of $74 million, and this assumes Opry and Block 21 have been combined for this year.

Alternatively, it represents a 17 to 18 multiple, at the midpoint of our expectations, for the combined entities in 2022's pro forma adjusted EBITDA of $84 million.

For comparison, our shares this year to date have traded right about 17x on analyst views of our consolidated 2022 EBITDA. But of course, 2022 is not a full COVID-recovered run rate for our hotel business, so with so many of our expansions and investments still maturing and the impact of Omicron weighing on the first half of this year.

So truly, this transaction represents an attractive valuation for our company compared to where RHP as a whole is currently valued by the market on a normalized earnings basis.

Furthermore, by retaining 70% of the business at this time, our shareholders will participate meaningfully in the value creation that we,Atairos and NBCUniversal envision in the years ahead.

And the capital that we will raise from this investment will allow Ryman to incrementally delever our balance sheet, accelerating our return to pre-pandemic levels.

Separately, the new Opry Entertainment Group entity will take on its own direct indebtedness in the form of a fully underwritten $300 million Term Loan B and a revolving credit facility with a $50 million -- with $50 million of capacity. After fees and expenses, the proceeds of this term loan, along with the Atairos' funds, will be applied to pay down Ryman's $300 million Term Loan A and the remaining -- and the remainder to outstanding balances on our revolving credit facility, resulting in a net reduction of about half-turn in leverage on the consolidated RHP.

Finally, our artists, employees, sponsors and other community stakeholders, this structure ensures that the will continue to contribute to the stewardship of these iconic venues, with no abrupt changes or disruptions as we bring Atairos into the fold. So it's truly a win-win all around for everyone involved in this transaction.

Now I'm sure you'll have plenty of questions about what we and Atairos may have in our strategic plan for the future. We'll do our best to address these for you today, though it's too early to talk in terms of specific plans and decisions as we're currently focused on closing and integrating Block 21 and then closing this transaction.

Nevertheless, there are some broad strategic categories in which we can give you a taste. These include exploring new distribution channels and methods; developing new forms and sources of content and programming; applying more technology across all facets of the business, both online and in and around the venue experience; and finally, leveraging our combined financial and strategic resources to pursue both organic unit growth and further acquisitions, development or partnerships.

From this point, the real fun and interesting work begins as we pursue these and other opportunities together now with Atairos with a unified vision of establishing the Opry Entertainment Group as a leading player in the country lifestyle and live entertainment content.

Last but not least, I want to thank my partners here at the company, particularly Mark and Scott Lynn, our General Counsel, and the rest of the management team, who have really worked so hard on these negotiations and the structuring of this pretty complicated transaction. They've done a world-class job, very proud of the work they've done.

And so now what we'd like to do, Gretchen, I think, is go directly to questions. I'm sure there are quite a few. So let's open the call up for questions.

QUESTIONS AND ANSWERS

Operator

(Operator Instructions) And we'll take our first question from Dori Kesten from Wells Fargo.

Dori Lynn Kesten Wells Fargo Securities, LLC, Research Division - Senior Analyst

And congratulations on the announcement. Can you give us some details around your partners' right to acquire up to 49% of OEG?

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO

Yes. Mark, do you want to take those?

Mark Fioravanti Ryman Hospitality Properties, Inc. - President & Director

Sure. Dori, they do have an incremental purchase right. And that purchase right in over 3 years, 2023, 2024 and 2025. And it is -- it's based on a formula value subject to a floor, and it's capped. The amount is capped each year in association with our ability to sell down due to our REIT constraints, specifically the 75% gross income test.

Dori Lynn Kesten Wells Fargo Securities, LLC, Research Division - Senior Analyst

Okay. And I guess I was just wondering, was the delay in the closing of Block 21 in any way related to this? Or is it just a slow process with the servicer as it was last time?

Mark Fioravanti Ryman Hospitality Properties, Inc. - President & Director

No. It's just been a slow and opaque process with the CMBS servicer, particularly because it's in special servicing coming out COVID. So it has just taken longer than we certainly anticipated. But we are, I would say, rounding third and headed home, we've gotten servicer approval at this point and just finalizing the documentation. So ...

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO

We are hopeful, what, you think at the end of the month, Mark?

Mark Fioravanti Ryman Hospitality Properties, Inc. - President & Director

Yes. We've extended our agreement with (inaudible) at the end of May.

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO

Yes, but we hope to get it done before then -- yes.

Dori Lynn Kesten Wells Fargo Securities, LLC, Research Division - Senior Analyst

Yes. So the midpoint of OEG's net debt-to-EBITDA looks like around 5.5x on 2022 estimates. But what do you think the appropriate long-term leverage is for this business?

Mark Fioravanti Ryman Hospitality Properties, Inc. - President & Director

We're targeting 4.5%.

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO

Yes, it's no different to the way we think about Ryman. The good news is we have a partner that has a lot of capital, and we have a partner that has as higher expectations for growth as we do. And so we will navigate leverage as we deploy more and more capital into this business.

Operator

Our next question comes from Chris Woronka from Deutsche Bank.

Chris Jon Woronka Deutsche Bank AG, Research Division - Research Analyst

Congratulations on getting this across the finish line. First question was kind of on focus of the Opry Entertainment business now that you've got this done. Because I know historically, right, it's been kind of centered around Nashville and then kind of expanding into the Ole Red locations. So does having a partner like this kind of get you more of a national and broader focus beyond just some of the traditional venues that you've operated?

Colin V. Reed Ryman Hospitality Properties, Inc. - Chairman & CEO

You -- Chris, Colin. I'll give this a go and then I'll let my, let the team here weigh in on this.

This is a very, very -- the way you've described it, I suppose, is somewhat accurate. But the way we think about it is the customer that we are trying to build the relationship with lives all across this country and also lives in other countries across the world.

Scott Bailey, our President, has talked about -- President of OEG has talked about through the pandemic, we're streaming to upwards of 100 countries every week. The Opry goes out to -- through streaming to approximately 100 countries.

So the thing that excites me about this relationship, hitching our wagon to an organization that has the tentacles that this organization has is that it will, in our opinion, if we do this right, we'll speed up the communication process with these consumers, that they're all