Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2015. The company operates as a REIT through RHP Hotel Properties, L.P., with a portfolio focused on group-oriented destination hotels and entertainment assets. Hospitality operations include four Gaylord Hotels resorts totaling 7,795 rooms, the Inn at Opryland, the AC Hotel at National Harbor, and related assets managed primarily by Marriott. Entertainment assets include the Grand Ole Opry, Ryman Auditorium and WSM-AM.
The company reported three operating segments: Hospitality, Entertainment, and Corporate and Other. Results are seasonal and interim results are not necessarily indicative of full-year performance.
Financial Performance and Position
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $253.1 million | $246.5 million | 2.7% |
| Operating income | $35.9 million | $32.8 million | 9.4% |
| Operating margin | 14.2% | 13.3% | Up 0.9 percentage points |
| Net income available to common shareholders | $4.5 million | $20.7 million | Down 78.1% |
| Fully diluted EPS | $0.09 | $0.32 | Down 71.9% |
| Cash flow from operations | $3.9 million | $29.8 million | Down $26.0 million |
| Capital expenditures | $18.7 million | $17.5 million | Up $1.2 million |
- Hospitality revenue rose 1.8% to $236.5 million, and Hospitality operating income increased 12.6% to $45.1 million. Hospitality occupancy was 71.0%, ADR was $183.13, RevPAR was $129.96, and Total RevPAR was $324.43.
- Entertainment revenue increased 17.2% to $16.7 million, while Entertainment operating income increased to $2.1 million from $0.6 million.
- Rooms revenue increased 4.0% and entertainment revenue increased 17.2%; food and beverage revenue increased 0.9%, while other hotel revenue declined 2.0%.
- Net income included a $20.2 million loss primarily related to the change in fair value of derivative liabilities associated with warrants on previously issued convertible notes. The company also recorded $2.9 million of impairment and other charges and $0.6 million of AC Hotel preopening costs.
- Interest expense declined to $13.8 million from $15.7 million, primarily because the 3.75% convertible notes matured in October 2014. The reported weighted-average borrowing rate declined to 3.9% from 5.3%.
- At March 31, 2015, total assets were $2.399 billion, unrestricted cash was $53.0 million, restricted cash was $21.0 million, and stockholders’ equity was $371.7 million.
Material Changes Versus the Prior Comparable Period
- Operating performance improved despite a difficult quarter at Gaylord Opryland. Company-wide occupancy increased to 71.0% from 70.4%, ADR increased 3.2%, RevPAR increased 4.0%, and Total RevPAR increased 1.8%.
- Gaylord Texan revenue increased 8.0%, with occupancy up 5.0 percentage points and ADR up 7.9%, partly reflecting the completion of a prior-year rooms renovation.
- Gaylord National revenue increased 7.7%, with occupancy up 4.5 percentage points and ADR up 3.5%. Gaylord Palms revenue increased 2.0%.
- Gaylord Opryland revenue declined 6.8%; occupancy fell to 65.1% from 68.5%, ADR declined 3.5%, and Total RevPAR declined 6.8%. Management attributed the decline primarily to a norovirus outbreak and severe winter weather in January and February 2015.
- Net definite group room nights booked increased 5.1% to 263,055, but attrition increased to 11.3% of bookings from 10.2%, and in-the-year, for-the-year cancellations increased 62.9%.
- Operating cash flow declined primarily because of seasonal working-capital outflows, including higher trade receivables and lower accrued liabilities.
- Debt increased to $1.511 billion from $1.342 billion at December 31, 2014, principally because of $171.0 million of net borrowings under the credit facility used in part to fund the warrant settlement.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2015 capital expenditures of approximately $61 million to $71 million, primarily for maintenance capital, a Gaylord Opryland room renovation and the Ryman Auditorium expansion.
- The company planned quarterly dividends of $0.65 per share in July 2015, October 2015 and January 2016, subject to board approval. The first-quarter dividend totaled approximately $33.3 million and was paid April 16, 2015.
- The AC Hotel at National Harbor opened in April 2015. The company incurred $0.6 million of related preopening costs during the quarter.
- In April 2015, the company issued $400.0 million of 5% senior notes due 2023 and received approximately $392 million of net proceeds. Substantially all proceeds were used to repay the $300 million term loan and reduce borrowings under the revolving credit facility.
- The company was refinancing its revolving credit facility, seeking to extend the maturity from 2017 to 2019 and amend certain covenants. Completion was not assured, and approximately $2 million of deferred financing costs was expected to be written off in the second quarter of 2015.
- At March 31, 2015, $757.5 million was outstanding under the credit facility, $397.0 million under Term Loan B, and $350.0 million under the 5% senior notes due 2021. The company had $240.2 million of credit-facility availability, subject to applicable conditions, and was in compliance with its debt covenants.
- Variable-rate debt creates interest-rate exposure. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense by approximately $7.6 million on the credit facility and $4.0 million on Term Loan B, based on balances outstanding at March 31, 2015.
- Key risks include economic conditions affecting hospitality demand, geographic concentration of hotel assets, reliance on Marriott for hotel management and revenue generation, REIT qualification, dividend funding, refinancing and covenant compliance, interest-rate changes, group cancellations and attrition, and the effect of weather or health events on hotel operations.
- Management stated that ordinary-course litigation was not expected to materially affect results, financial condition or liquidity. No material changes to previously disclosed risk factors were reported.
Most Important Facts for Investors to Verify
- Reconcile reported net income and EPS to operating performance after excluding or separately assessing the $20.2 million warrant-related loss, $2.9 million impairment charge and $0.6 million of preopening costs.
- Verify the April 2015 refinancing, the repayment of the $300 million term loan, the resulting revolving-credit balance and the final maturity and covenant terms.
- Assess whether operating cash flow can support the planned $61 million to $71 million of capital expenditures, dividends and interest obligations.
- Monitor Gaylord Opryland’s recovery from the norovirus outbreak and severe weather, as well as changes in cancellations and group attrition.
- Evaluate the sustainability of the $0.65 quarterly dividend in light of low first-quarter operating cash flow and the company’s substantial leverage.
- Confirm the impact of the AC Hotel opening and the timing and cost of the planned Gaylord Opryland renovation and Ryman Auditorium expansion.