Ryman Hospitality Properties, Inc. — 2018 Q2 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed August 8, 2018. Ryman operates as a REIT focused on group-oriented destination hotels, primarily four Gaylord resorts managed by Marriott, plus entertainment assets and a 35% interest in the Gaylord Rockies joint venture.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $333.9 million | $298.8 million | $622.3 million | $574.8 million |
| Operating income | $76.7 million | $64.6 million | $122.6 million | $111.6 million |
| Net income | $55.5 million | $47.3 million | $82.9 million | $79.9 million |
| Diluted earnings per share | $1.08 | $0.92 | $1.61 | $1.56 |
| Operating margin | 23.0% | 21.6% | 19.7% | 19.4% |
| Dividends declared per share | $0.85 | $0.80 | $1.70 | $1.60 |
- Q2 revenue increased 11.8%, operating income increased 18.6%, and net income increased 17.5% year over year.
- Six-month revenue increased 8.3%, operating income increased 9.9%, and net income increased 3.7% year over year.
- Hospitality revenue increased 10.8% in Q2 and 7.6% for the six-month period. Hospitality operating income increased 24.8% and 16.0%, respectively.
- Entertainment revenue increased 19.1% in Q2 and 14.2% for the six-month period, primarily from the May 2018 opening of Ole Red Nashville. Entertainment operating income declined 17.7% and 22.0%, respectively, due to higher operating, preopening and depreciation costs.
- Hospitality occupancy was 79.0% in Q2 and 76.4% for the six months; ADR was $200.16 and $197.72, respectively. Hospitality RevPAR was $158.13 and $151.11, while Total RevPAR was $378.94 and $366.97.
Cash flow, balance sheet, debt and liquidity
- Six-month operating cash flow was $131.7 million, compared with $113.9 million in the prior-year period.
- Capital expenditures were $95.4 million, primarily for the Gaylord Opryland waterpark, Gaylord Texan expansion, Ole Red Nashville and maintenance projects.
- Cash used in financing activities was $10.3 million, including $85.1 million of dividends, partially offset by $80.5 million of net revolver borrowings.
- Unrestricted cash was $61.8 million at June 30, 2018; total cash, cash equivalents and restricted cash was $94.0 million.
- Total debt and capital lease obligations were $1.675 billion, compared with $1.591 billion at December 31, 2017. Debt consisted principally of the revolver, a $200 million Term Loan A, a $500 million Term Loan B and $750 million of 5% senior notes.
- The company reported $446.1 million of availability under its $700 million revolving credit facility and compliance with all debt covenants.
- On June 26, 2018, the Term Loan B margin was reduced to LIBOR plus 2.00% from LIBOR plus 2.25%; excess cash flow payment requirements were deferred to December 31, 2019. The repricing resulted in a $2.0 million write-off of deferred financing costs.
Material changes and unusual items
- Gaylord Opryland benefited from the completion of its prior-year rooms renovation, with Q2 occupancy up 8.6 points and ADR up 7.5% year over year.
- Gaylord Texan benefited from its rooms and meeting-space expansion; Gaylord National benefited from higher group ADR and banquet revenue, although occupancy declined.
- Net definite group room nights booked increased 62.0% in Q2 and 21.3% for the six-month period.
- Ryman acquired the remaining 50% interest in Opry City Stage for $3.9 million in cash plus forgiveness of a $7.9 million note receivable. A $2.8 million remeasurement gain was recognized on the pre-existing investment before consolidation.
- Preopening costs were $1.5 million in Q2 and $3.7 million for the six months, primarily related to the Gaylord Texan expansion and Ole Red Nashville.
- Income taxes increased to $5.7 million in Q2 and $7.9 million for the six months, compared with $0.9 million and $1.5 million, respectively, in the prior-year periods. The company had not completed its accounting for the Tax Cuts and Jobs Act.
Guidance, outlook and risks
- Management expected to pay a quarterly dividend of $0.85 per share in October 2018 and January 2019, subject to board approval.
- Planned 2018 capital expenditures were $85 million to $120 million, primarily for maintenance capital and the Gaylord Opryland waterpark.
- Management stated that cash on hand and operating cash flow were expected to fund short-term commitments, interest, leases, capital leases and declared dividends; the revolver was available if additional funding were required.
- Gaylord Rockies was scheduled to open in late 2018. Ryman provided construction, completion, operating-expense and debt guarantees, including a construction-loan principal repayment guarantee initially capped at $21 million and other potentially uncapped pre-opening guarantees. No liability had been recorded for these guarantees.
- Key risks include hospitality and economic conditions, geographic concentration, convention and group demand, Marriott’s management performance, REIT qualification, dividend funding, refinancing and interest-rate risk. A 100-basis-point LIBOR increase would increase annual interest expense by approximately $2.5 million on the revolver, $2.0 million on Term Loan A and $5.0 million on Term Loan B.
- The filing reported no material changes to previously disclosed risk factors, no material litigation impact, and effective disclosure controls.
Investor verification points
- Verify the sustainability of improved group bookings, occupancy, ADR, RevPAR and cancellation or attrition fee collections.
- Assess leverage, floating-rate debt exposure, covenant headroom and refinancing requirements beginning in 2021.
- Monitor capital spending, construction execution and returns from the Gaylord Opryland waterpark, Gaylord Rockies and other expansion projects.
- Evaluate whether Ole Red Nashville and Opry City Stage can improve entertainment profitability after elevated launch and operating costs.
- Review the potential financial exposure from Gaylord Rockies guarantees and the company’s ability to maintain dividends while funding capital expenditures.
- Confirm final accounting adjustments related to the Tax Cuts and Jobs Act and the expected balance-sheet impact of the 2019 lease standard adoption.