Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. The company operates as a REIT through RHP Hotel Properties, LP and focuses on group-oriented destination hotels, primarily four Gaylord Hotels properties totaling 7,795 rooms managed by Marriott, plus the Inn at Opryland and Opry and Attractions assets.
Continuing operations comprise Hospitality, Opry and Attractions, and Corporate and Other. Ryman completed its REIT conversion in 2012 and elected REIT taxation beginning in 2013.
Financial Performance and Key Metrics
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Total revenue | $245.0 million | $221.2 million | $749.4 million | $688.5 million |
| Operating income | $29.1 million | $19.8 million | $109.4 million | $46.5 million |
| Operating margin | 11.9% | 9.0% | 14.6% | 6.7% |
| Net income | $15.1 million | $18.0 million | $63.8 million | $88.2 million |
| Net income available to common shareholders | $15.1 million | $18.0 million | $58.8 million | $83.3 million |
| Diluted EPS | $0.25 | $0.30 | $0.97 | $1.33 |
| Cash flow from operating activities | Not separately provided | Not separately provided | $157.2 million | $64.3 million |
- Hospitality revenue increased 9.9% in the quarter and 8.3% year to date; Hospitality operating income increased 28.4% and 37.1%, respectively.
- Opry and Attractions revenue increased 18.4% in the quarter and 14.7% year to date, while operating income increased 55.5% and 47.8%.
- Hospitality occupancy was 74.2% in the quarter and 73.0% year to date, compared with 71.2% and 70.9% in the prior-year periods. ADR increased 5.7% in the quarter and 3.5% year to date.
- Hospitality RevPAR increased 10.2% to $123.99 in the quarter and 6.6% to $127.94 year to date. Total RevPAR increased 9.9% to $294.09 and 8.3% to $309.50, respectively.
- Net definite group room nights booked increased 1.3% in the quarter and 8.9% year to date.
- At September 30, 2014, unrestricted cash was $279.5 million, restricted cash was $14.2 million, and total assets were $2.61 billion.
- Total debt and capital lease obligations were $1.51 billion, compared with $1.15 billion at December 31, 2013. Stockholders’ equity was $587.4 million, down from $757.7 million.
- Capital expenditures were $50.7 million year to date, primarily for the Gaylord Texan rooms renovation and ongoing maintenance. Net cash increased $218.0 million to $279.5 million during the first nine months.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected higher occupancy, ADR, premium group business, banquet and other outside-the-room spending, and increased attendance at the Grand Ole Opry and Ryman Auditorium.
- Operating performance benefited from the absence of $1.0 million of REIT conversion costs in the quarter and $21.4 million year to date that were recorded in 2013.
- Net income declined despite stronger operating results because the 2013 periods included unusually large income tax benefits, including an $80.5 million year-to-date benefit substantially related to the REIT conversion and tax matters. The 2014 year-to-date tax benefit was only $0.4 million.
- Interest expense increased 12.8% in the quarter and 5.1% year to date, primarily because of the new $400 million Term Loan B and other financing changes.
- Debt increased following $399.0 million of Term Loan B borrowings and $17.5 million of additional borrowings under the revolving facility. Proceeds supported convertible-note and warrant settlements.
- The company repurchased or converted portions of its 3.75% convertible notes and cash-settled 4.8 million related warrants during 2014. The remaining $232.2 million of convertible notes were settled on October 1, 2014, with 6.3 million shares issued and offset by shares received under the note hedge.
Guidance, Outlook, Risks and Unusual Items
- Management reported continued improvement in group bookings, cancellations, attrition, occupancy and premium group mix, and stated that it continues working with Marriott on further revenue improvements and cost synergies.
- The company planned a $0.55 per share quarterly dividend for January 2015, subject to board approval. Its stated policy targets at least 50% of adjusted funds from operations or 100% of REIT taxable income, whichever is greater; the board may change the policy.
- Management anticipated $9 million to $11 million of additional capital expenditures during the remainder of 2014, including maintenance spending and an expansion of the Ryman Auditorium.
- At September 30, 2014, $527.0 million was outstanding under the $1 billion credit facility, with $470.3 million available, subject to covenant and borrowing-base limitations. The $400 million Term Loan B had a September 30 balance of approximately $399.0 million. Management reported compliance with all debt covenants.
- Variable-rate debt creates interest-rate exposure. A 100-basis-point increase in LIBOR would increase estimated annual interest expense by approximately $5.3 million on the revolving facility and $4.0 million on the Term Loan B, based on balances at September 30.
- The company relies on Marriott to manage hotel operations and generate occupancy and revenue. Results are concentrated in the hospitality and large-group meetings markets and are sensitive to economic conditions, group demand, cancellations, attrition and geographic concentration.
- The PBGC disputes the company’s position that the REIT conversion did not constitute a cessation of management operations and could seek accelerated pension funding, security or other measures. Potential outcomes include litigation, settlement, prefunding, a letter of credit or legislative relief; the company does not currently believe such measures are required.
- The company agreed to sell certain National Harbor contractual rights for $26.1 million over three years and to purchase a 190-room hotel and nearby land for $21.8 million, with transactions expected to close in December 2014.
- The filing identifies no material changes to previously disclosed risk factors. The filing text does not provide formal full-year earnings guidance.
Important Facts for Investors to Verify
- Post-quarter settlement of the convertible notes, resulting refinancing, cash usage, share issuance and the remaining 7.2 million warrants scheduled for settlement during 2015.
- Debt covenant compliance, borrowing-base capacity, variable-rate exposure and the effect of higher leverage on dividends and liquidity.
- Sustainability of higher occupancy, ADR, RevPAR and group-booking trends after the 2014 improvement period.
- Actual capital spending, the Gaylord Texan renovation impact, and the planned National Harbor hotel and land acquisitions.
- Resolution and potential financial consequences of the PBGC pension dispute.
- Whether cash flow from operations is sufficient to fund debt service, required reserves, capital expenditures and the stated dividend policy.