Business context and reporting period
Ryman Hospitality Properties, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2014. Ryman operates as a REIT through RHP Hotel Properties, LP and owns group-oriented destination hotels, including four Gaylord Hotels properties managed by Marriott, along with the Inn at Opryland and Opry and Attractions assets.
The report compares the three and six months ended June 30, 2014 with the corresponding 2013 periods. The company’s principal segments are Hospitality, Opry and Attractions, and Corporate and Other.
Financial performance and position
| Metric | Three months ended June 30, 2014 | Three months ended June 30, 2013 | Six months ended June 30, 2014 | Six months ended June 30, 2013 |
|---|---|---|---|---|
| Total revenue | $257.9 million | $245.2 million | $504.4 million | $467.3 million |
| Operating income | $47.5 million | $28.9 million | $80.3 million | $26.7 million |
| Operating margin | 18.4% | 11.8% | 15.9% | 5.7% |
| Net income | $28.0 million | $16.4 million | $48.6 million | $70.2 million |
| Net income available to common shareholders | $23.0 million | $11.5 million | $43.7 million | $65.3 million |
| Fully diluted EPS | $0.38 | $0.18 | $0.73 | $0.99 |
| Dividends declared per share | $0.55 | $0.50 | $1.10 | $1.00 |
- Revenue increased 5.2% in the quarter and 7.9% year to date. Hospitality revenue rose 4.5% and 7.6%, respectively, while Opry and Attractions revenue rose 11.8% and 12.5%.
- Quarterly net margin was approximately 10.9%, compared with 6.7% in the prior-year quarter. The year-to-date net margin was approximately 9.6%, compared with 15.0% in 2013.
- Hospitality operating income increased 21.5% in the quarter and 40.3% year to date. Hospitality occupancy was 74.3% for the quarter and 72.4% year to date; RevPAR was $134.85 and $129.94, respectively.
- Net cash provided by operating activities was $91.7 million for the six months, compared with cash used of $8.9 million in 2013. Capital expenditures were $35.8 million, compared with $15.2 million in the prior-year period.
- Unrestricted cash was $77.8 million at June 30, 2014, compared with $61.6 million at December 31, 2013. Restricted cash was $13.9 million.
- Total debt and capital lease obligations were $1.280 billion, compared with $1.154 billion at year-end 2013. Debt included $300.0 million under the revolving credit facility, $400.0 million under a new term loan, $229.5 million carrying value of convertible notes, and $350.0 million of 5% senior notes.
Material changes versus the prior comparable period
- Operating results benefited from higher premium group business, increased outside-the-room spending, improved occupancy at Gaylord Opryland and Gaylord National, higher ADR at Gaylord Opryland and Gaylord Texan, lower cancellation levels, and increased group room bookings.
- Net definite group room nights booked increased 150.5% in the quarter and 12.6% year to date.
- Operating expenses declined 2.7% in the quarter and 3.8% year to date, principally because the $5.4 million quarterly and $20.4 million year-to-date REIT conversion costs recorded in 2013 did not recur. The 2013 periods also included $1.2 million of impairment and other charges.
- Six-month net income and EPS declined despite stronger operating income because 2013 included a $68.1 million income tax benefit, primarily from the REIT conversion and reversal of tax liabilities. The 2014 period included a $2.1 million debt extinguishment loss and $4.3 million of net losses, primarily from warrant derivative fair-value changes.
- Gaylord Texan results were affected by a rooms renovation project, which placed approximately 15,700 room nights out of service in the quarter and 26,400 year to date. Completion was projected for the third quarter of 2014.
- In April and June 2014, the company repurchased or settled conversions of $71.6 million principal amount of convertible notes for aggregate consideration of approximately $153.6 million and cash-settled 2.4 million warrants for $50.8 million.
Guidance, outlook, risks, contingencies and unusual items
- Management expected to spend approximately $28 million to $30 million on capital expenditures during the remainder of 2014, primarily for maintenance and the Gaylord Texan renovation.
- The company expected to pay approximately $58 million in the third quarter of 2014 to settle an additional 2.4 million warrants. It also expected to settle the remaining principal balance of the convertible notes in cash at maturity in October 2014, with the conversion spread settled in common shares.
- Management planned to pay a quarterly dividend of $0.55 per share in October 2014 and January 2015, subject to board approval. The stated policy targets at least 50% of adjusted funds from operations or 100% of REIT taxable income, whichever is greater.
- At June 30, 2014, the company had approximately $700 million of borrowing availability under its $1 billion credit facility, subject to applicable covenants and letters of credit. Management believed cash on hand and operating cash flow were adequate for near-term obligations and did not anticipate a maturity issue based on current covenant projections.
- The company agreed to sell rights related to a National Harbor land-income opportunity for $26.1 million over three years, expected to close in December 2014. It also agreed to purchase a 190-room Aloft hotel and nearby land for $21.8 million, with closing expected in December 2014.
- The Pension Benefit Guaranty Corporation disputed the company’s position that the Marriott management transition did not constitute a cessation of management operations. Potential outcomes include litigation, settlement requiring prefunding or security, or legislative relief. The company stated that ordinary-course legal actions were not expected to materially affect operations, financial condition or liquidity.
- Key risks include dependence on Marriott’s hotel management, concentration in the group-meetings and hospitality sectors, economic and lodging-cycle conditions, REIT qualification and tax requirements, refinancing and interest-rate risk, dividend funding, hotel renovation execution, and potential dilution or cash requirements from convertible notes and warrants.
- The company was in compliance with all debt covenants at June 30, 2014. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $3.0 million on the revolving facility and $4.0 million on the term loan, based on balances at period-end.
Most important facts for investors to verify
- Reconcile the year-to-date earnings decline with the nonrecurring $68.1 million tax benefit recorded in the 2013 period.
- Verify the funding and settlement of the October 2014 convertible notes and the additional third-quarter warrant cash settlement, including resulting share dilution.
- Assess leverage, borrowing-base capacity, covenant compliance, variable-rate exposure and refinancing needs after the new $400 million term loan.
- Monitor hotel operating trends by property, particularly Gaylord Texan after renovation, Gaylord Palms’ weaker quarterly occupancy, and continued group-booking momentum.
- Evaluate whether operating cash flow can sustain the $0.55 quarterly dividend while funding maintenance capital expenditures, warrant settlements, debt obligations and the planned National Harbor acquisitions.
- Follow the PBGC dispute and the timing and conditions of the National Harbor asset sale and hotel and land purchases.