Business Context and Reporting Period
Ryman Hospitality Properties, Inc. is a REIT focused on group-oriented destination hotels, principally Gaylord-branded properties managed by Marriott, plus entertainment assets including the Grand Ole Opry, Ryman Auditorium, WSM-AM and Ole Red. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2019, filed November 5, 2019.
The Gaylord Rockies joint venture was consolidated beginning January 1, 2019 for operating results and cash flows. Ryman owned 62.1% of the joint venture at September 30, 2019; the 2018 comparable periods did not include Gaylord Rockies.
Key Financial Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenue | $379.8 million | $292.2 million | $1,158.3 million | $914.6 million |
| Operating income | $56.5 million | $40.1 million | $195.8 million | $162.7 million |
| Operating margin | 14.9% | 13.7% | 16.9% | 17.8% |
| Net income | $20.9 million | $22.6 million | $89.8 million | $105.5 million |
| Net income available to common stockholders | $22.3 million | $22.6 million | $101.1 million | $105.5 million |
| Diluted EPS | $0.43 | $0.44 | $1.95 | $2.05 |
| Cash flow from operations | Not separately reported | Not separately reported | $231.1 million | $225.3 million |
| Capital expenditures | Not separately reported | Not separately reported | $109.6 million | $132.8 million |
- Hospitality revenue increased 31.7% in Q3 and 26.9% for the first nine months, to $328.3 million and $1,022.9 million, respectively. Entertainment revenue increased 19.8% in Q3 and 24.8% year to date.
- Hospitality occupancy was 77.1% in Q3 and 75.8% year to date; ADR was $188.13 and $196.81, respectively. Consolidated RevPAR increased 11.4% in Q3 and 3.7% year to date.
- Interest expense rose to $35.3 million in Q3 and $100.8 million year to date, primarily because Gaylord Rockies debt was consolidated and revolving-credit borrowings increased.
- Unrestricted cash was $101.8 million and restricted cash was $57.7 million at September 30, 2019. The company reported $476.0 million of available capacity under its revolving credit facility.
- Total debt and finance lease obligations were $2.581 billion, compared with $2.442 billion at December 31, 2018. Stockholders’ equity declined to $311.5 million from $469.6 million.
- The company declared dividends of $0.90 per common share for each of the first three quarters, or $2.70 year to date.
Material Changes Versus the Prior Comparable Period
- Revenue growth primarily reflected the opening and consolidation of Gaylord Rockies, which contributed $64.9 million in Q3 revenue and $165.6 million for the first nine months, along with stronger performance at Gaylord Opryland and Gaylord Texan.
- Gaylord Rockies generated $165.6 million of nine-month revenue but $167.3 million of operating expenses, including $67.4 million of depreciation and amortization.
- Same-store Q3 Hospitality performance improved: occupancy increased 2.3 percentage points to 75.5%, ADR increased 4.5% to $186.04, and RevPAR increased 7.9% to $140.52.
- Operating income increased 40.9% in Q3 and 20.3% year to date, but net income available to common stockholders declined 1.1% and 4.1%, respectively, because higher interest expense and taxes more than offset operating growth.
- Depreciation and amortization increased $23.0 million in Q3 and $70.9 million year to date, principally due to Gaylord Rockies and its related intangible assets.
- Entertainment operating income increased 58.5% in Q3 and 66.0% year to date, benefiting from higher Grand Ole Opry and Ryman Auditorium activity, Ole Red Gatlinburg, and the absence of Opry City Stage losses.
- The 2018 periods included $4.5 million of impairment charges; no impairment charges were recorded in 2019. Preopening costs also declined to $2.3 million from $4.0 million for the first nine months.
Debt, Liquidity, Outlook and Risks
- In July 2019, the Gaylord Rockies joint venture refinanced its prior $500 million construction loan and $39 million mezzanine loan with an $800 million secured term loan maturing in 2023, with an additional $80 million expansion option. Ryman received approximately $153 million from the related distribution and used it to repay revolving debt.
- In September 2019, the company issued $500 million of 4.75% senior notes due 2027, used to refinance its $350 million 5% senior notes due 2021 and reduce revolving debt. The refinancing produced a $0.5 million extinguishment loss and $1.7 million of deferred-financing-cost write-offs.
- At September 30, 2019, Ryman was in compliance with its debt covenants. Subsequent to quarter-end, the revolving facility maturity was extended to 2024, Term Loan A was increased to $300 million and extended to 2025, and the accordion capacity was increased to $600 million. An additional $200 million of 4.75% notes was issued in October 2019.
- Management expected $40 million to $60 million of capital expenditures during the remainder of 2019, primarily for Gaylord Palms expansion, Gaylord Opryland renovations and Ole Red Orlando. Management stated that cash on hand and operating cash flow were expected to fund short-term commitments, interest, leases, capital expenditures and declared dividends, with the revolver available as an additional source.
- Management planned a $0.90 per-share dividend for January 2020, subject to board approval. The stated policy targets at least 50% of adjusted funds from operations less maintenance capital expenditures or 100% of REIT taxable income, whichever is greater; the policy may be changed by the board.
- Key risks include hospitality-cycle and economic conditions, concentration in destination group hotels, dependence on Marriott’s management, interest-rate and LIBOR-transition exposure, refinancing and covenant compliance, the ability to generate cash for dividends, REIT qualification, Gaylord Rockies performance, construction execution and substantial leverage.
- The company had approximately $3.280 billion of contractual obligations at September 30, 2019, including $2.611 billion of long-term debt, $605.7 million of operating lease commitments and $48.6 million of construction commitments. Certain Gaylord Rockies debt is non-recourse except for limited guarantees and customary carve-outs.
- The company adopted the lease standard on January 1, 2019, recording $105.9 million of operating lease liabilities at September 30, 2019. The filing states that no material changes occurred in previously disclosed risk factors.
Most Important Facts to Verify
- Whether Gaylord Rockies achieves sufficient occupancy, margins and cash flow to offset its high interest and depreciation burden.
- Actual leverage, fixed-charge coverage, debt-service coverage and covenant headroom after the October 2019 refinancing and additional debt issuance.
- Revolving-credit utilization, unrestricted cash, interest-rate swap coverage and sensitivity to changes in LIBOR or its successor rate.
- Progress, cost and completion timing for the Gaylord Palms expansion, Gaylord Opryland renovations and Ole Red Orlando.
- Whether operating cash flow continues to cover dividends, maintenance capital expenditures, interest and required debt amortization.
- Comparable-property trends excluding Gaylord Rockies, including group bookings, occupancy, ADR, RevPAR and cancellation or attrition fees.