Ryman Hospitality Properties, Inc. quarterly report, Q1 FY2013

Ryman Hospitality Properties, Inc. — Form 10-Q Summary

Business Context and Reporting Period

Unaudited results cover the three months ended March 31, 2013, compared with the three months ended March 31, 2012. Ryman operates as a hospitality-focused REIT beginning January 1, 2013, with four large group-oriented resorts totaling 7,795 rooms, the Inn at Opryland, and Opry and Attractions assets. Marriott assumed day-to-day management of the hotels beginning October 1, 2012.

Financial Results and Key Metrics

Metric	Q1 2013	Q1 2012	Change
Total revenue	$222.1 million	$238.9 million	Down 7.0%
Operating income (loss)	$(2.2) million	$21.7 million	Down $23.9 million
Operating margin	(1.0%)	9.1%	Down 10.1 percentage points
Net income	$53.8 million	$6.0 million	Up $47.8 million
Fully diluted EPS	$0.81	$0.12	Up $0.69
Cash flow from operations	$(46.9) million	$13.9 million	Down $60.8 million
Capital expenditures	$10.1 million	$29.7 million	Down $19.6 million

Hospitality revenue was $209.6 million, down 7.3%, and Hospitality operating income was $23.4 million, down 41.5%. Hospitality occupancy was 67.5%, ADR was $173.84, RevPAR was $117.33, and Total RevPAR was $287.56.
Net income was substantially affected by a $66.3 million income tax benefit, primarily from reversing $137.4 million of deferred tax liabilities following the REIT conversion, partly offset by a $76.1 million valuation allowance for taxable REIT subsidiary deferred tax assets.
Interest expense, net, was $13.3 million, compared with $14.4 million in the prior-year period. The weighted-average borrowing rate, excluding the deferred financing cost write-off, was 4.7% versus 5.3%.
At March 31, 2013, unrestricted cash was $44.8 million, restricted cash was $6.9 million, total assets were $2.46 billion, and total debt and capital lease obligations were $1.09 billion.
Cash flow from continuing operations was negative because approximately $73.5 million of working-capital uses more than offset operating cash generation before working-capital changes.

Material Changes Versus the Prior Comparable Period

Rooms revenue decreased 2.3%, food and beverage revenue decreased 9.1%, and other hotel revenue decreased 15.0%. The decline reflected weaker group activity, lower banquet and outside-the-room spending, government-related cancellations, and outsourced retail operations at three hotels.
Gaylord National was particularly affected by U.S. government sequestration: occupancy declined to 55.6% from 64.7%, while revenue decreased 11.0%.
Hospitality operating expenses were essentially flat despite the revenue decline, causing segment operating income to fall. New Marriott management fees were $3.5 million in reported expenses, partially offset by lower other hotel expenses and depreciation.
Attrition represented 8.3% of bookings versus 4.5% in the prior-year period, and in-year cancellations increased 241.4%, primarily due to government and other large-group cancellations or rescheduling.
REIT conversion costs increased to $15.0 million from $3.1 million, including $11.2 million of employment and severance costs. Corporate expenses decreased $6.3 million because of lower staffing and other costs following the conversion.
The Company redeemed its $152.2 million of 6.75% senior notes on January 17, 2013, funded with revolving credit borrowings, and repurchased 1.3 million shares for $55.7 million.
The first quarterly dividend was declared at $0.50 per share, or approximately $26.1 million in aggregate, and was paid on April 12, 2013.

Guidance, Outlook, Risks and Unusual Items

Management estimated approximately $24.9 million of one-time REIT conversion costs for 2013, including approximately $15.0 million incurred in the first quarter, and expected $5 million to $7 million of related federal income taxes to be paid during 2013.
Management anticipated stabilized future annual cost synergies, net of management fees, of approximately $38 million to $45 million.
Planned 2013 capital expenditures were $36 million to $38 million, including $27 million to $29 million for Hospitality maintenance, approximately $3 million for Opry and Attractions maintenance, and approximately $6 million for other projects.
Management planned quarterly dividends of $0.50 per share in July 2013, October 2013, and January 2014, subject to board approval and future financial conditions. The stated policy targets at least 50% of adjusted funds from operations or 100% of REIT taxable income, whichever is greater.
On April 3, 2013, the Company issued $350 million of 5% senior notes due 2021 and used substantially all of the approximately $342 million of net proceeds to repay revolving credit borrowings. On April 18, 2013, it refinanced the $925 million facility with a $1.0 billion facility maturing in 2017.
As of April 30, 2013, borrowings under the new credit facility were $439.0 million, with $553.3 million of availability, subject to applicable tests and covenants. The Company stated that it was in compliance with its debt covenants.
Key risks include sensitivity to economic conditions, corporate and government travel spending, sequestration-related cancellations, concentration in the group meetings market, reliance on Marriott's management performance, REIT qualification requirements, dividend funding, refinancing and interest-rate risk, and the ability to realize projected synergies.
The Company estimated that a 100-basis-point increase in LIBOR would increase annual interest expense by approximately $4.4 million based on April 30, 2013 borrowings under the new facility.
The Company had potential contribution obligations of up to $16.9 million related to guarantees of certain joint-venture debt; no liability was recorded. Management stated that existing litigation was not expected to materially affect operations, financial condition, or liquidity.

Important Facts for Investors to Verify

Separate recurring operating performance from the $66.3 million tax benefit and other REIT conversion-related items when assessing earnings quality.
Reconcile the sharp decline in operating cash flow with working-capital movements, dividend payments, share repurchases, and post-quarter-end financing activity.
Monitor Gaylord National and other properties for recovery in occupancy, group bookings, banquet spending, cancellations, and attrition.
Confirm the final effect of the April 2013 debt refinancing, including interest rates, secured leverage, covenant compliance, and the treatment of convertible notes due 2014.
Assess whether projected annual synergies of $38 million to $45 million offset Marriott management fees and the revenue effects of outsourced retail operations.
Verify the sustainability of the $0.50 quarterly dividend and further share repurchases against recurring funds from operations and leverage.