Ryman Hospitality Properties, Inc. — 2017 Q3 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2017, compared with the same periods in 2016. Ryman operates as a REIT focused on group-oriented destination hotels and entertainment assets. Its portfolio includes four Marriott-managed Gaylord resorts totaling 7,811 rooms, overflow hotels, and entertainment assets including the Grand Ole Opry, Ryman Auditorium, and WSM-AM.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Total revenue | $264.7 million | $271.7 million | $839.5 million | $829.4 million |
| Operating income | $36.4 million | $46.6 million | $148.2 million | $152.3 million |
| Operating margin | 13.8% | 17.1% | 17.6% | 18.4% |
| Net income | $23.9 million | $33.6 million | $103.8 million | $111.3 million |
| Net margin | 9.0% | 12.4% | 12.4% | 13.4% |
| Diluted EPS | $0.46 | $0.66 | $2.02 | $2.17 |
| Operating cash flow | Not separately provided | Not separately provided | $215.8 million | $199.1 million |
- Hospitality revenue was $229.6 million in Q3, down 4.7%, and $747.1 million for nine months, essentially flat year over year. Hospitality operating income declined 20.2% in Q3 and 2.5% for nine months.
- Entertainment revenue increased 14.4% in Q3 and 12.9% for nine months, while segment operating income increased 5.9% and 13.3%, respectively.
- Hospitality occupancy was 75.5% in Q3 and 75.0% for nine months. Q3 ADR was $174.20 and RevPAR was $131.56; nine-month ADR was $185.08 and RevPAR was $138.73.
- Capital expenditures were $127.1 million in the first nine months, compared with $84.6 million in the prior-year period. Investing cash flow was negative $147.1 million.
- At September 30, 2017, unrestricted cash was $62.7 million and restricted cash was $14.7 million. Total assets were $2.49 billion.
- Total debt and capital lease obligations were $1.57 billion, compared with $1.50 billion at December 31, 2016. Stockholders’ equity was $351.4 million.
- The company declared quarterly dividends of $0.80 per share during 2017, or $2.40 per share for the first nine months.
Material changes versus the prior comparable period
- Q3 revenue declined 2.6%, operating income declined 21.8%, and net income declined 28.9%. For nine months, revenue increased 1.2%, while operating income and net income declined 2.7% and 6.7%, respectively.
- Hospitality performance was pressured by Hurricane Irma at Gaylord Palms, Hurricane Harvey and lower group occupancy at Gaylord Texan, lower outside-the-room spending at Gaylord Opryland, and lower attrition and cancellation fee collections. Q3 attrition increased to 15.5% from 13.4%.
- Net definite group room nights booked decreased 3.9% in Q3 and 5.7% for nine months. The nine-month decline included the cancellation of a group with 17 meetings booked through 2025.
- Entertainment growth reflected increased shows, attendance, tours, and retail activity at the Grand Ole Opry and Ryman Auditorium, together with benefits from the 2016 Wildhorse Saloon renovation.
- In May 2017, the company refinanced its credit facility, extending maturities, adding a $200 million Term Loan A, and increasing Term Loan B capacity to $500 million. Debt refinancing increased interest expense and resulted in a $0.9 million write-off of deferred financing costs.
- Property and equipment increased to $2.04 billion from $2.00 billion at year-end 2016, primarily reflecting renovation and expansion projects.
Guidance, outlook, commentary, risks, and unusual items
- Management expected to spend $60 million to $80 million on capital expenditures during the remainder of 2017, including maintenance capital, Gaylord Texan expansion, and the Gaylord Opryland luxury waterpark.
- The company planned a $90 million Gaylord Opryland indoor/outdoor waterpark targeted to open in 2018. The Gaylord Rockies joint venture, in which Ryman owns 35%, was expected to open a 1,500-room resort in late 2018.
- Management expected to pay a $0.80 per share quarterly dividend in January 2018, subject to board approval. The dividend policy may be changed by the board.
- At September 30, the company had $551.4 million of revolver availability, $146.5 million of revolver borrowings, and $2.1 million of letters of credit. The company stated that it was in compliance with all debt covenants and did not foresee a maturity issue based on current projections.
- Variable-rate debt creates interest-rate exposure. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $1.5 million on the revolver, $2.0 million on Term Loan A, and $5.0 million on Term Loan B, based on balances outstanding at September 30.
- Gaylord Rockies guarantees include a construction-loan principal guarantee initially capped at $21 million, declining to $14 million and then $8.75 million upon specified conditions, completion guarantees, and certain mezzanine-debt guarantees. No liability had been recorded for these guarantees.
- Total contractual obligations were $2.22 billion, including $1.59 billion of long-term debt, $616.5 million of operating lease commitments, and $13.6 million of construction commitments. Projected future interest payments were approximately $327.2 million.
- Other unusual items included $0.9 million of Q3 preopening costs, $1.6 million of nine-month other asset-disposal losses, pension settlement losses, and approximately $2.6 million of Q3 gains associated with reimbursements related to Gaylord National bonds.
- Primary disclosed risks include hospitality cyclicality, geographic concentration, reliance on Marriott for hotel management and demand generation, REIT qualification, dividend funding, refinancing and interest-rate risk, capital project execution, and Gaylord Rockies guarantee exposure. Management considered ordinary-course litigation immaterial.
Important facts for investors to verify
- Whether the decline in group bookings and hotel spending, including the effects of Hurricanes Irma and Harvey, persists beyond the reported quarter.
- Occupancy, ADR, RevPAR, Total RevPAR, attrition, and cancellation trends by property, particularly at Gaylord Palms, Gaylord Texan, and Gaylord Opryland.
- Completion, budget, opening timing, and expected returns for the Gaylord Opryland waterpark, Gaylord Texan expansion, and Gaylord Rockies.
- Actual capital expenditures, revolver usage, debt balances, interest rates, covenant compliance, and refinancing requirements.
- Cash flow coverage of dividends after maintenance capital expenditures and the company’s ability to fund project commitments without materially increasing leverage.
- Potential obligations under the Gaylord Rockies construction and mezzanine-debt guarantees, which were not recorded as liabilities at September 30, 2017.
- Final effects of upcoming accounting standards, including revenue recognition adoption in 2018 and lease accounting adoption in 2019.