Business context and reporting period
Ryman Hospitality Properties, Inc. filed its Form 10-K for the fiscal year ended December 31, 2016. The company operates as a self-advised REIT focused on group-oriented destination hotels and related entertainment assets. Marriott manages the company’s four Gaylord Hotels resorts, the Inn at Opryland, the AC Hotel, and certain Nashville attractions.
Operations are reported through Hospitality, Entertainment, and Corporate and Other. Hospitality represented approximately 90% of 2016 revenue, Entertainment 10%, and Corporate and Other less than 1%. The filing includes unaudited fourth-quarter 2016 revenue of $319.8 million, operating income of $61.5 million, and net income of $48.1 million, but the primary reporting period is the full fiscal year.
Financial performance and key metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $1,149.2 million | $1,092.1 million | 5.2% increase |
| Operating income | $213.8 million | $162.1 million | 31.9% increase |
| Net income | $159.4 million | $111.5 million | 42.9% increase |
| Diluted earnings per share | $3.11 | $2.16 | 44.0% increase |
| Operating margin | 18.6% | 14.8% | Expanded |
| Net margin | 13.9% | 10.2% | Expanded |
| Cash flow from operations | $293.6 million | $238.1 million | 23.4% increase |
| Capital expenditures | $118.0 million | $79.8 million | Increase |
| Total debt | $1,502.6 million | $1,431.7 million | Increase |
| Unrestricted cash | $59.1 million | $56.3 million | Increase |
| Credit facility availability | $315.5 million | Not clearly provided in the filing text | — |
Hospitality revenue increased 4.5% to $1,039.6 million, while Hospitality operating income increased 14.8% to $217.6 million. Company-wide Hospitality occupancy was 75.0%, ADR was $184.36, RevPAR was $138.27, and Total RevPAR was $342.25. Net definite group room nights booked increased 8.5% to 2.06 million.
Entertainment revenue increased 12.3% to $109.6 million and Entertainment operating income increased 14.6% to $28.0 million. Interest expense was $63.9 million, interest income was $11.5 million, and the income tax provision was $3.4 million. The company declared quarterly dividends totaling $3.00 per share, or approximately $153.0 million.
Material changes versus the prior comparable period
- Revenue growth was driven by higher Hospitality revenue, particularly at Gaylord Palms, Gaylord Opryland, and Gaylord Texan, and by increased Grand Ole Opry attendance and Ryman Auditorium ancillary activity.
- Hospitality performance improved, with occupancy increasing 1.4 percentage points, ADR increasing 1.0%, RevPAR increasing 2.8%, and Total RevPAR increasing 3.5%.
- Gaylord Palms occupancy increased 2.9 percentage points and Total RevPAR increased 8.9%. Gaylord Opryland ADR increased 3.0% and RevPAR increased 5.1%.
- Gaylord National weakened, with occupancy down 1.0 percentage point, ADR down 0.5%, and RevPAR down 1.9%, partly due to a severe winter storm affecting group business.
- Operating income benefited from the absence of $19.2 million of impairment and other charges recorded in 2015, including a $16.3 million write-off related to a previously contemplated Gaylord Texan expansion.
- Net income also benefited from a favorable change in other gains and losses. The 2015 period included a $20.2 million loss related to repurchase of convertible-note warrants and a $6.9 million reimbursement gain related to the Aurora development.
- Cash flow from operations increased by $55.5 million, but investing cash outflows increased substantially because of higher capital expenditures and the $70.1 million investment in the Gaylord Rockies joint venture.
- Total debt increased by approximately $70.8 million, while stockholders’ equity declined from $379.6 million to $368.0 million after dividends and share repurchases.
- The company repurchased and retired approximately 0.5 million shares for $24.8 million during the first quarter of 2016. The $100 million authorization expired on December 31, 2016.
Guidance, outlook, management commentary, risks, and unusual items
- Management reported strong sales booking levels and record bookings during much of 2016, with net definite group room nights booked up 8.5%. Results remain dependent on group convention demand, transient demand, pricing, cancellations, attrition, and Marriott’s management performance.
- The company planned 2017 dividends of $3.20 per share, subject to future board approval.
- Management expected 2017 capital expenditures of approximately $238 million to $268 million, including Gaylord Texan expansion, Gaylord Opryland room renovations, ongoing maintenance, and commencement of the proposed waterpark. The company also expected to invest approximately $16.0 million in Gaylord Rockies during the first quarter of 2017.
- Gaylord Rockies is a 35%-owned joint venture with an estimated total project cost of approximately $800 million and expected completion in late 2018. Ryman’s total capital contribution was expected to be approximately $86.1 million, of which $70.1 million had been funded by year-end 2016.
- The company provided construction-loan and mezzanine-debt guarantees for Gaylord Rockies. Certain payment guarantees are capped, but completion guarantees and some pre-opening operating and interest obligations are uncapped or limited to the company’s pro rata share. No liability was recorded for these guarantees at December 31, 2016.
- Debt consisted principally of $382.4 million outstanding under the revolving credit facility, $390.0 million under the term loan B, $350.0 million of 5% senior notes due 2021, and $400.0 million of 5% senior notes due 2023. The revolving facility matures in 2019, subject to extension options, and the term loan B and 2021 notes mature in 2021.
- The company was in compliance with all debt covenants at December 31, 2016. However, debt agreements restrict additional indebtedness, asset sales, acquisitions, investments, dividends, and other corporate actions.
- Interest-rate exposure is material: a 100-basis-point increase in LIBOR would increase estimated annual interest expense by approximately $3.8 million on the revolving facility and $3.9 million on the term loan B, based on year-end balances.
- Key risks include concentration in the U.S. group-meetings and convention sector, geographic concentration, reliance on Marriott, competition, labor and operating-cost inflation, capital-project execution, interest-rate increases, refinancing risk, REIT qualification and distribution requirements, tax-law changes, cybersecurity, severe weather, terrorism, pandemics, environmental matters, and litigation.
- Management stated that cash on hand and operating cash flow were expected to fund normal short-term commitments, interest, leases, capital leases, and declared dividends; additional borrowing may be required for capital projects and Gaylord Rockies.
Investor verification points
- Verify the sustainability of Hospitality revenue growth and whether Gaylord National’s weaker performance reverses.
- Reconcile planned 2017 capital expenditures and Gaylord Rockies funding with operating cash flow, dividends, and available credit capacity.
- Assess refinancing plans for the $382.4 million revolving facility maturity in 2019 and the approximately $740.0 million of term loan and 2021 notes due in 2021.
- Review the scope and potential exposure of the Gaylord Rockies construction, completion, mezzanine-debt, interest, and operating guarantees.
- Evaluate dividend coverage under the company’s REIT distribution requirements and debt covenants, including the stated 2017 dividend plan.
- Confirm the effect of Marriott management fees, incentive fees, long-term contract restrictions, and reliance on Marriott for operating performance.
- Review the assumptions supporting the fair value and collectability of the $152.9 million Gaylord National notes receivable, including the approximately $51 million estimated fair value of the Series B Bond.