Ryman Hospitality Properties, Inc. — Q2 2013 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2013, compared with the corresponding 2012 periods. Ryman operates as a hospitality-focused REIT for 2013, owning four large group-oriented resorts totaling 7,795 rooms, the Inn at Opryland, and Opry and entertainment assets. Marriott assumed day-to-day hotel management beginning October 1, 2012.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $245.2 million | $253.2 million | $467.3 million | $492.1 million |
| Operating income | $28.9 million | $31.6 million | $26.7 million | $53.3 million |
| Operating margin | 11.8% | 12.5% | 5.7% | 10.8% |
| Net income | $16.4 million | $9.0 million | $70.2 million | $15.0 million |
| Net income available to common shareholders | $11.5 million | $9.0 million | $65.3 million | $15.0 million |
| Fully diluted EPS | $0.18 | $0.17 | $0.99 | $0.29 |
| Cash flow from operating activities | Not separately provided | Not separately provided | $(8.9) million | $79.2 million |
- Hospitality revenue declined 4.4% in Q2 and 5.8% for the six-month period; hospitality operating income declined 18.1% and 28.9%, respectively.
- Opry and Attractions revenue increased 10.8% in Q2 and 5.6% year to date, while segment operating income increased 32.6% and 11.1%.
- Net income benefited from income tax benefits of $1.8 million in Q2 and $68.1 million year to date. The six-month benefit primarily reflected reversal of $136.5 million of deferred tax liabilities following the REIT conversion, partly offset by a $76.1 million valuation allowance for taxable REIT subsidiary deferred tax assets.
- At June 30, unrestricted cash was $44.4 million and restricted cash was $14.5 million. Debt and capital lease obligations totaled $1.155 billion, compared with $1.032 billion at December 31, 2012.
- The company reported $530.1 million of borrowing availability under its $1 billion credit facility, subject to applicable covenants and debt-incurrence limitations, and stated that it was in compliance with all debt covenants.
- Net property and equipment was $2.104 billion and stockholders’ equity was $790.0 million at June 30, 2013.
Material changes versus the prior comparable period
- Total revenue decreased 3.2% in Q2 and 5.0% for the first six months, primarily because of weaker hospitality performance and the outsourcing of certain hotel retail operations.
- Hospitality occupancy declined to 73.9% from 76.8% in Q2 and to 70.7% from 72.8% for the six-month period. Hospitality RevPAR declined 3.9% in Q2 and 2.6% year to date; Total RevPAR declined 4.4% and 5.3%, respectively.
- Net definite group room nights booked declined 61.0% in Q2 and 18.7% year to date. Attrition increased to 12.9% of bookings in Q2 and 10.7% year to date, compared with 6.7% and 5.6% in the prior-year periods.
- Corporate and Other operating expenses declined $6.6 million in Q2 and $13.0 million year to date, primarily due to lower employment costs following the REIT conversion.
- REIT conversion costs increased to $5.4 million in Q2 and $20.4 million year to date, compared with $3.4 million and $6.4 million in the prior-year periods.
- The company issued $350.0 million of 5% senior notes due 2021, redeemed $152.2 million of 6.75% senior notes, refinanced its prior credit facility with a $1 billion facility maturing in 2017, and repurchased approximately 2.3 million common shares for $100.0 million.
- The company declared quarterly dividends of $0.50 per share for both the first and second quarters. The second-quarter dividend, totaling approximately $25.3 million, was paid July 15, 2013.
Guidance, outlook, commentary, risks and unusual items
- Management estimated approximately $25.7 million of 2013 one-time REIT conversion costs, of which $20.4 million had been incurred through June 30, and anticipated $5.0 million to $7.0 million of related federal income tax payments during 2013.
- Management expected $18 million to $20 million of remaining 2013 capital expenditures, primarily for ongoing maintenance, and planned to pay a $0.50 per-share quarterly dividend in October 2013 and January 2014, subject to board approval.
- Management cited weakness in group bookings, the Marriott transition, slower-than-expected cost synergies, operating inefficiencies, U.S. government sequestration, government-group cancellations, higher attrition and cancellations, and lower banquet spending as pressures on results.
- The company expects to rely on Marriott’s sales and operating execution but cannot ensure that Marriott will increase occupancy or revenue. Its properties are concentrated in the hospitality and large-group meetings sectors.
- In July 2013, the company repurchased and cancelled $54.7 million of convertible notes for $98.6 million and settled $1.2 million of converted notes. Remaining principal was $304.1 million, and management expected a third-quarter debt-extinguishment loss of approximately $3.0 million.
- The convertible notes were convertible through September 30, 2013. Based on the July 31 stock price and related hedge and warrant arrangements, management stated that it did not expect liquidity issues if conversion occurred.
- The company reported a $1.2 million impairment charge related to equipment at Gaylord National and a $4.9 million loss related to modification of convertible-note call spread arrangements.
- Potential commitments include $16.9 million of maximum exposure under contribution agreements related to Hawaii joint ventures, $6.9 million of letters of credit, and total contractual obligations of $1.833 billion, excluding projected debt interest and certain retirement obligations.
- A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $4.6 million on the $463.0 million drawn under the credit facility as of June 30, 2013.
Most important facts for investors to verify
- Whether group bookings, occupancy, attrition, cancellations and Total RevPAR recover after the Marriott management transition.
- The sustainability of cash flow and the $0.50 quarterly dividend given negative year-to-date operating cash flow and substantial debt service requirements.
- The effect of the REIT conversion on recurring taxes, taxable REIT subsidiary results, conversion costs and future distributions.
- Debt maturities and refinancing requirements, particularly the convertible notes originally due October 2014, subsequent to the July 2013 repurchases.
- Compliance with credit-facility covenants and the availability of the stated $530.1 million borrowing capacity.
- Whether anticipated Marriott cost synergies and operating efficiencies are realized, and whether government sequestration and broader economic weakness continue to affect demand.