Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed its Form 10-K for the fiscal year ended December 31, 2015. Ryman operates as a self-advised REIT focused on group-oriented destination hotels, with Marriott managing its four Gaylord Hotels resorts, the Inn at Opryland, the AC Hotel, and certain Nashville attractions. Hospitality represented approximately 91% of 2015 revenue and Entertainment approximately 9%.
The portfolio included 7,795 rooms across four Gaylord Hotels properties, plus the 303-room Inn at Opryland and the 192-room AC Hotel, which opened in April 2015. Entertainment assets included the Grand Ole Opry, Ryman Auditorium, General Jackson Showboat, Wildhorse Saloon, Gaylord Springs Golf Links, and WSM-AM.
Financial Results and Key Metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $1,092.1 million | $1,041.0 million | 4.9% |
| Operating income | $162.1 million | $153.1 million | 5.9% |
| Net income | $111.5 million | $126.5 million | (11.8%) |
| Net income available to common stockholders | $111.5 million | $121.0 million | (7.9%) |
| Diluted earnings per share | $2.16 | $2.17 | (0.5%) |
| Operating margin | 14.8% | 14.7% | Improved modestly |
| Net margin | 10.2% | 12.1% | Declined |
| Cash flow from operations | $234.4 million | $247.0 million | Declined $12.6 million |
| Capital expenditures | $79.8 million | $58.4 million | Increased $21.4 million |
| Total debt at year-end | $1,431.7 million | $1,319.9 million | Increased $111.8 million |
- Hospitality revenue increased 4.2% to $994.6 million, while Hospitality operating income increased 16.5% to $189.4 million.
- Hospitality occupancy was 73.6%, ADR was $182.56, RevPAR was $134.44, and Total RevPAR was $330.61. Net definite group room nights booked increased 4.6% to 1.898 million.
- Entertainment revenue increased 12.3% to $97.5 million and operating income increased 12.2% to $24.4 million, primarily from higher Grand Ole Opry attendance, additional shows, tours, and retail activity.
- Year-end unrestricted cash was $56.3 million, restricted cash was $22.4 million, and credit facility availability was $391.8 million.
- The Company declared $2.70 per share of dividends for 2015, totaling approximately $138.4 million. It announced a plan to declare $3.00 per share in 2016, subject to board approval.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by Gaylord Texan, where occupancy increased 5.8 percentage points, ADR increased 5.7%, and revenue increased 8.9%. Gaylord Opryland occupancy declined 1.3 percentage points due partly to a norovirus outbreak, severe winter weather, and a rooms renovation that placed approximately 18,000 room nights out of service.
- Operating income improved despite higher expenses and a $19.2 million impairment and other charge in 2015. The charge included a $16.3 million write-off of a previously contemplated Gaylord Texan expansion and $2.9 million related to discontinued special-events assets.
- Net income declined primarily because 2014 included a $26.1 million gain from the sale of rights related to the National Harbor MGM project, whereas 2015 included a $20.2 million loss from repurchasing common-stock warrants. The 2015 results also included a $6.9 million reimbursement gain related to a previously impaired Aurora, Colorado development.
- The Company issued $400.0 million of 5% senior notes due 2023, used substantially to repay the $300.0 million term loan A and reduce revolving borrowings. The revolving credit facility maturity was extended to June 2019, with two additional six-month extension options.
- During the first quarter of 2015, Ryman cash-settled the remaining 4.7 million warrants associated with its former convertible notes for $154.7 million. The former 3.75% convertible notes had been fully settled in 2014.
- Shareholders’ equity decreased to $379.6 million from $401.4 million, despite positive net income, primarily reflecting dividend payments and other equity changes.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected 2016 capital expenditures of $115 million to $125 million, including maintenance projects, an event ballroom and expanded event space at Gaylord National, the Gaylord Texan expansion, and a Gaylord Opryland rooms renovation.
- The Company announced plans for a $120 million Gaylord Texan expansion adding approximately 300 rooms and 86,000 square feet of meeting space.
- Management stated that cash on hand and operating cash flow were expected to fund normal operations, interest, lease obligations, capital needs, and declared dividends, with the credit facility available as a contingency.
- Ryman’s debt is significant and includes $306.4 million outstanding under the revolving credit facility, $394.0 million under the term loan B, $350.0 million of 5% notes due 2021, and $400.0 million of 5% notes due 2023. The revolving facility matures in 2019; other major maturities occur in 2021 and 2023.
- Variable-rate debt creates interest-rate exposure. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $3.1 million on the revolving facility and $3.9 million on the term loan B, based on year-end borrowings.
- All debt covenants were met at December 31, 2015. The credit agreements restrict additional debt, asset sales, acquisitions, investments, liens, and dividends, and are secured by substantially all major hotel assets.
- Key business risks include concentration in the group-convention hotel market and four geographic areas, dependence on Marriott, competition, economic downturns, government and corporate travel volatility, labor costs, weather and natural disasters, terrorism, cybersecurity, environmental and ADA compliance, and the need for periodic capital investment.
- Maintaining REIT status requires compliance with complex income, asset, ownership, and distribution tests. The Company generally must distribute at least 90% of REIT taxable income and could face corporate-level taxes if it fails to qualify.
- The PATH Act produced a one-time, non-cash tax benefit of $5.2 million in the fourth quarter of 2015. The filing also reports a $2.4 million pension settlement charge and $0.9 million of preopening costs, primarily related to the AC Hotel.
- Legal claims were described as ordinary-course matters that management believed were adequately insured and not expected to materially affect results. A predecessor-related Superfund liability is indemnified by Oklahoma Publishing Company.
Important Facts for Investors to Verify
- Reconcile reported net income and operating income with recurring operating performance, excluding the warrant loss, impairment charges, tax benefit, reimbursement gain, and other unusual items.
- Assess whether Hospitality growth, particularly at Gaylord Texan and Gaylord National, can offset weaker occupancy or disruption at Gaylord Opryland and higher capital requirements.
- Review debt maturities, secured collateral, covenant headroom, variable-rate exposure, and refinancing requirements beginning with the revolving facility maturity in 2019.
- Evaluate whether projected 2016 capital expenditures of $115 million to $125 million can be funded while maintaining the planned $3.00 per-share dividend.
- Verify the economic returns, financing, construction schedule, and demand assumptions for the Gaylord Texan and Gaylord National expansion projects.
- Monitor Marriott’s management performance, long-term management agreements, incentive fees, brand dependence, and restrictions affecting property sales or refinancing.
- Confirm continuing compliance with REIT qualification and distribution requirements, including the impact of taxable REIT subsidiaries and the PATH Act’s 20% TRS asset limitation beginning in 2018.