Business Context and Reporting Period
Ryman Hospitality Properties, Inc. is a REIT focused on group-oriented destination hotels and entertainment assets. Its portfolio includes four Gaylord Hotels properties, overflow hotels, the newly opened Gaylord Rockies Resort, and Nashville-based entertainment businesses. The company is managed principally through Marriott International agreements and reports Hospitality, Entertainment, and Corporate and Other segments.
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2019, compared with the corresponding 2018 periods. Gaylord Rockies was consolidated beginning December 31, 2018, opened on a limited basis in December 2018, and became fully operational in the first quarter of 2019.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $407.7 million, up 22.1% | $778.5 million, up 25.1% |
| Operating income | $85.3 million, up 11.2% | $139.3 million, up 13.6% |
| Operating margin | 20.9%, versus 23.0% | 17.9%, versus 19.7% |
| Net income | $46.3 million, down 16.7% | $69.0 million, down 16.8% |
| Net income available to common stockholders | $49.4 million; diluted EPS $0.95 | $78.8 million; diluted EPS $1.52 |
| Operating cash flow | Not separately provided | $138.6 million, versus $131.7 million |
- Hospitality revenue increased 22.4% in the quarter and 24.7% year to date, primarily due to $55.4 million and $100.7 million of Gaylord Rockies revenue, respectively, as well as growth at Gaylord Texan and Gaylord Opryland.
- Entertainment revenue increased 19.9% in the quarter and 28.1% year to date, driven by Ole Red Nashville, the March 2019 opening of Ole Red Gatlinburg, and higher Grand Ole Opry and Ryman Auditorium activity. Entertainment operating income rose 53.0% and 71.9%, respectively.
- Hospitality operating income increased only 3.1% in the quarter and 5.9% year to date. Hospitality margin declined to 22.1% from 26.3% in the quarter and to 20.1% from 23.6% year to date, largely reflecting Gaylord Rockies costs and substantially higher depreciation and amortization.
- Consolidated depreciation and amortization increased to $53.6 million in the quarter and $106.6 million year to date, compared with $30.0 million and $58.7 million, respectively, primarily because of Gaylord Rockies and expanded assets.
- Hospitality occupancy was 78.0% in the quarter and 75.2% year to date, down 1.0 and 1.2 percentage points, respectively. Total RevPAR increased 2.4% to $388.18 in the quarter and 3.4% to $379.60 year to date.
- Same-store performance was stronger: same-store RevPAR increased 1.4% in the quarter and 3.2% year to date, while same-store Total RevPAR increased 1.6% and 3.9%, respectively.
- Net definite group room nights booked declined 23.0% in the quarter and 26.5% year to date, including declines of 22.9% and 26.2% on a same-store basis.
Cash Flow, Debt, and Liquidity
- Six-month operating cash flow was $138.6 million, compared with $131.7 million in 2018.
- Capital expenditures were $69.1 million, versus $95.4 million in 2018, primarily for Gaylord Opryland renovations, the Gaylord Palms expansion, SoundWaves, the Grand Ole Opry House, and maintenance projects.
- Cash used in financing activities was $57.7 million, including $90.7 million of dividends and a $10.6 million distribution to Gaylord Rockies noncontrolling-interest partners.
- At June 30, 2019, debt and finance lease obligations totaled $2.49 billion, compared with $2.44 billion at December 31, 2018. Unrestricted cash was $103.8 million and restricted cash was $65.3 million.
- The company had $170.0 million available under its $700 million revolving credit facility at June 30, 2019, with $529.0 million drawn and $1.0 million of letters of credit outstanding. The company was in compliance with all debt covenants.
- Interest expense increased 70.7% in the quarter and 80.4% year to date, primarily because of Gaylord Rockies debt consolidation, higher revolving-facility borrowings, and lower capitalized interest. The weighted-average borrowing rate increased to 5.3% from 4.8% in the quarter and to 5.2% from 4.7% year to date.
Material Changes, Outlook, and Unusual Items
- On July 2, 2019, Gaylord Rockies refinanced its $500 million construction loan and $39 million mezzanine loan with an $800 million secured term loan facility maturing in 2023, with three one-year extension options. The loan bears interest at LIBOR plus 2.50%; a swap fixes the LIBOR component at 1.65% for the first three years.
- Ryman received approximately $153 million from the refinancing distribution and used it to repay part of the revolving credit facility. Revolver availability increased to $347.0 million at July 31, 2019.
- The Gaylord Rockies joint venture provided limited repayment and carry guarantees covering, in aggregate, 10% of the refinanced principal debt plus interest and operating expenses. Approximately $1.1 million of deferred financing costs is expected to be written off in the third quarter of 2019.
- On July 31, 2019, Ryman purchased an additional 0.9% interest in Gaylord Rockies for $5.5 million, increasing ownership from 61.2% to 62.1%.
- Management expects 2019 capital expenditures of $75 million to $95 million, including maintenance capital, the Gaylord Palms expansion, the Gaylord Opryland rooms renovation, and Ole Red Orlando.
- The company plans to pay a quarterly dividend of $0.90 per share in October 2019 and January 2020, subject to board approval. The board may change the dividend policy.
- Construction of the $158 million Gaylord Palms expansion began and is expected to be completed in summer 2021. SoundWaves’ outdoor portion opened in the second quarter of 2019.
- Management believes cash on hand and operating cash flow will fund normal operating costs, interest, lease obligations, declared dividends, and general short-term commitments; additional capital expenditures may require revolver borrowings.
- Key risks include hospitality demand and economic conditions, geographic concentration, group booking trends, interest-rate exposure, refinancing needs, REIT qualification, dividend funding, Marriott’s management performance, and Gaylord Rockies guarantees and put rights.
- The company adopted the new lease standard on January 1, 2019, recording $100.9 million of right-of-use assets and lease liabilities before considering the existing straight-line lease liability. It also adopted ASU 2018-02, resulting in a $2.7 million equity reclassification.
Important Facts for Investors to Verify
- Confirm the post-quarter Gaylord Rockies refinancing, debt repayment, interest-rate swap, guarantees, and resulting revolver availability.
- Assess whether Gaylord Rockies can improve occupancy and operating profitability after its first fully operational period, given significant depreciation and financing costs.
- Monitor group room-night bookings, which declined materially despite higher reported revenue and same-store RevPAR.
- Reconcile reported revenue growth with lower consolidated operating margins and sharply higher interest expense.
- Evaluate the $75 million to $95 million capital-spending plan, including the Gaylord Palms expansion and other development projects.
- Review dividend sustainability against operating cash flow, capital expenditures, debt service, and REIT distribution requirements.
- Consider sensitivity to LIBOR: a 100-basis-point increase would raise annual interest expense by approximately $5.3 million on the revolver, $2.0 million on Term Loan A, and $4.9 million on Term Loan B, based on June 30 borrowings.
- Review the long-term operating lease obligation of $606.2 million, including the Gaylord Palms land lease, and the Gaylord Rockies and Ares/RIDA put-right arrangements.