Ryman Hospitality Properties, Inc. — 2018 Form 10-K Summary
Business context and reporting period
Ryman is a self-advised REIT focused on group-oriented destination hotels and related entertainment assets. The filing covers the fiscal year ended December 31, 2018; fourth-quarter results are included but the filing is an annual report. Operations are divided among Hospitality, Entertainment, and Corporate and Other. Hospitality generated approximately 88% of total revenue and Entertainment 12%.
The portfolio included four owned Gaylord Hotels resorts totaling 8,114 rooms, the Inn at Opryland, the AC Hotel, a 61.2% interest in Gaylord Rockies, and entertainment assets including the Grand Ole Opry, Ryman Auditorium, WSM-AM and Ole Red. Gaylord Rockies opened on a limited basis in December 2018 and became consolidated for balance-sheet purposes on December 31, 2018; its operating results will be consolidated beginning January 1, 2019.
Key financial metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $1,275.1 million | $1,184.7 million | 7.6% |
| Operating income | $214.3 million | $185.9 million | 15.2% |
| Operating margin | 16.8% | 15.7% | Improved |
| Net income | $264.7 million | $176.1 million | 50.3% |
| Diluted EPS | $5.14 | $3.43 | 49.9% |
| Cash flow from operations | $321.9 million | $295.8 million | 8.8% |
| Capital expenditures | $188.2 million | $182.6 million | 3.1% |
| Total debt | $2,441.9 million | $1,591.4 million | Increase primarily from Gaylord Rockies consolidation |
| Unrestricted cash | $103.4 million | $57.6 million | Increase |
| Revolver availability | $172.7 million | Not clearly provided in the filing text | — |
| Dividends declared per share | $3.40 | $3.20 | 6.3% |
Hospitality revenue increased 6.4% to $1,127.9 million, while Hospitality operating income increased 11.0% to $247.9 million. Segment occupancy was 75.3%, ADR was $194.64, RevPAR was $146.50 and Total RevPAR was $363.66. Net definite group room nights booked increased 4.7% to 2.106 million.
Entertainment revenue increased 17.7% to $147.2 million, primarily following the May 2018 opening of Ole Red Nashville. Entertainment operating income declined 17.3% to $27.7 million because expenses grew 29.3%, including Ole Red costs and Opry City Stage expenses.
Net income and EPS benefited materially from the $131.4 million gain on remeasurement of Ryman’s pre-existing Gaylord Rockies investment. Accordingly, reported net profit and net margin are not representative of recurring operating performance. Net income margin was approximately 20.8% in 2018 versus 14.9% in 2017.
Material changes versus the prior comparable period
- Revenue growth accelerated, led by higher Hospitality revenue and the launch of Ole Red Nashville.
- Gaylord Texan benefited from its completed $110 million expansion, including 303 rooms and 88,000 square feet of meeting space. Actual rooms occupied increased 10.8%, although reported occupancy declined because of the added rooms.
- Gaylord Opryland improved occupancy, ADR and outside-the-room spending; the indoor portion of the $90 million SoundWaves waterpark opened in December 2018.
- The Company purchased additional Gaylord Rockies interests for approximately $235.2 million, increasing ownership from 35% to 61.2%. The transaction added approximately $1.0 billion of property and equipment and $494.6 million of debt to the consolidated balance sheet.
- Opry City Stage was temporarily suspended and then permanently closed. The Company recorded $22.6 million of related impairment charges, including an $18.0 million fourth-quarter charge.
- Interest expense increased 13.5% to $75.0 million, reflecting higher borrowings, refinancing effects and higher variable interest rates.
- 2017 results included a $53.4 million release of valuation allowance that produced a significant tax benefit; 2018 instead included an $11.7 million income tax provision.
Guidance, outlook, commentary and risks
- Management expected 2019 dividends of $3.60 per share, subject to board approval and future operating, financing and tax considerations.
- Management projected 2019 capital expenditures of approximately $155 million to $185 million, including Gaylord Palms expansion, Gaylord Opryland renovations and Ole Red Orlando construction.
- Management stated that cash on hand and operating cash flow were expected to fund normal operating expenses, interest, lease obligations and declared dividends; additional revolver borrowings could be used if needed, subject to covenants.
- Gaylord Palms construction was expected to cost $158 million and add 303 rooms and 90,000 square feet of meeting space, with completion expected in summer 2021.
- The Gaylord Rockies construction loan and mezzanine loan, totaling approximately $496.6 million outstanding at year-end, matured in December 2019 unless extended under available options. Ryman provided completion guarantees capped at its pro rata share of required completion costs.
- Major debt maturities include approximately $875 million in 2021, including the $525 million revolver and $350 million senior notes; $200 million of Term Loan A matures in 2022, and $400 million of senior notes matures in 2023.
- The Company was in compliance with debt covenants at December 31, 2018. Debt agreements restrict additional indebtedness, asset sales, investments and dividends.
- A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $17.2 million based on the disclosed variable-rate borrowings, including Gaylord Rockies debt.
- Key risks include concentration in the group-convention hotel sector and several geographic markets, reliance on Marriott as the principal manager, substantial leverage, refinancing risk, variable interest rates, capital-project execution, REIT qualification and distribution requirements, weather and natural disasters, labor and operating costs, cybersecurity, and competition.
Most important facts for an investor to verify
- Separate recurring operating performance from the $131.4 million Gaylord Rockies remeasurement gain and the $23.8 million of 2018 impairment charges.
- Confirm the post-2018 impact of consolidating Gaylord Rockies, including its revenue, operating results, debt service, minority interest and required capital spending.
- Review 2019 and subsequent refinancing plans for the Gaylord Rockies loans, the revolver and the $350 million senior notes due 2021.
- Assess whether projected Gaylord Palms, SoundWaves and Ole Red investments produce expected returns without materially increasing leverage.
- Monitor Hospitality occupancy, ADR, RevPAR, Total RevPAR and group-booking trends, particularly at Gaylord Texan and Gaylord National.
- Evaluate dividend coverage using recurring operating cash flow and maintenance capital expenditures rather than reported net income.
- Review the terms and potential cost of Gaylord Rockies completion guarantees, minority-partner put rights and the related tax protection agreement.
- Confirm the effects of the 2019 lease-accounting adoption and the expected recognition of approximately $95 million to $105 million of right-of-use assets and lease liabilities.