Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed its Form 10-K for the fiscal year ended December 31, 2017. The company operates as a REIT focused on group-oriented destination hotels and related entertainment assets. Hospitality represented approximately 89% of 2017 revenue and Entertainment approximately 11%. Marriott manages the company’s principal hotels and several Nashville attractions.
The portfolio included four Gaylord Hotels resorts with 7,811 rooms, the Inn at Opryland, the AC Hotel at National Harbor, a 35% interest in Gaylord Rockies, and entertainment assets including the Grand Ole Opry, Ryman Auditorium, WSM-AM, Wildhorse Saloon, and other attractions.
Financial Performance and Key Metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $1.185 billion | $1.149 billion | +3.1% |
| Hospitality revenue | $1.060 billion | $1.040 billion | +1.9% |
| Entertainment revenue | $125.1 million | $109.6 million | +14.1% |
| Operating income | $184.7 million | $213.8 million | -13.6% |
| Net income | $176.1 million | $159.4 million | +10.5% |
| Diluted EPS | $3.43 | $3.11 | +10.3% |
| Operating margin | 15.6% | 18.6% | Down approximately 300 basis points |
| Net margin | 14.9% | 13.9% | Improved |
| Operating cash flow | $295.8 million | $293.6 million | +0.8% |
| Capital expenditures | $182.6 million | $118.0 million | +54.8% |
| Total debt | $1.591 billion | $1.503 billion | +$88.8 million |
Hospitality operating income increased 3.0% to $224.0 million, while Entertainment operating income increased 20.1% to $33.6 million. Hospitality occupancy was 75.5%, ADR was $188.67, RevPAR was $142.42, and Total RevPAR was $349.53. Net definite group room nights booked declined 2.3% to 2.012 million.
At December 31, 2017, unrestricted cash was $57.6 million, restricted cash was $21.2 million, and borrowing availability under the revolving credit facility was $527.2 million. Stockholders’ equity was $378.2 million and total assets were $2.524 billion.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by stronger Gaylord National performance, higher Gaylord Opryland ADR, and increased attendance and ancillary revenue at the Grand Ole Opry and Ryman Auditorium.
- Gaylord National occupancy increased 4.5 percentage points to 73.5%, supported by group business and inauguration-related banquet activity.
- Gaylord Palms was affected by Hurricane Irma, which reduced banquet, food and beverage, and other hotel revenue despite higher occupancy, ADR, and RevPAR.
- Gaylord Texan revenue and RevPAR declined because of lower group occupancy and the effects of Hurricane Harvey.
- Operating income declined primarily because of a $35.4 million impairment charge related to Gaylord National construction bonds, higher segment and corporate expenses, increased depreciation, and $1.9 million of preopening costs.
- Net income increased despite lower operating income because the company recorded a $49.2 million income tax benefit, including a $53.4 million release of valuation allowance.
- The company refinanced its credit facility in May 2017, extending the revolver maturity to 2021, adding a $200 million Term Loan A due 2022, and increasing and extending the Term Loan B to $500 million due 2024.
- Quarterly dividends increased to $0.80 per share in 2017 from $0.75 per share in 2016, for total 2017 declared dividends of $3.20 per share, or approximately $163.7 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management planned 2018 dividends of $3.40 per share, subject to board approval, and expected 2018 capital expenditures of $180 million to $210 million. Planned investments included maintenance, the Gaylord Texan expansion, and the Gaylord Opryland luxury indoor/outdoor waterpark.
Gaylord Rockies, in which Ryman owns 35%, was expected to open in late 2018 with approximately 1,500 rooms and 485,000 square feet of meeting and exhibition space. Ryman provided construction, completion, interest, operating expense, and certain mezzanine debt guarantees; no related liability was recorded at year-end.
- The company remains highly leveraged, with approximately $1.6 billion of debt. Major maturities include $526 million in 2021, $205 million in 2022, $400 million in 2023, and $471.3 million of Term Loan B principal thereafter.
- Variable-rate debt creates interest-rate exposure. A 100-basis-point increase in LIBOR would increase estimated annual interest expense by approximately $1.7 million on the revolver, $2.0 million on Term Loan A, and $5.0 million on Term Loan B, based on year-end balances.
- Debt agreements impose financial covenants and restrictions on additional debt, asset sales, investments, acquisitions, and dividends. The company was in compliance with its covenants at December 31, 2017.
- The Gaylord National Series B bond was deemed other-than-temporarily impaired. Total impairment was $42.0 million, consisting of $35.4 million recognized in earnings and $6.5 million recognized in other comprehensive loss.
- The 2017 tax benefit was substantially non-cash and included the release of valuation allowances and a provisional $2.0 million benefit from the Tax Cuts and Jobs Act; the company stated that the tax accounting was not yet complete.
- Results are exposed to economic cycles, group and convention demand, competition, severe weather, hurricanes, flooding, terrorism, labor costs, natural disasters, and the performance and concentration of Marriott as third-party manager.
- REIT qualification depends on meeting complex income, asset, ownership, and distribution tests. Failure to qualify could subject the company to corporate-level taxation and restrict future re-election for several years.
Most Important Facts an Investor Should Verify
- Whether the 2018 Gaylord Rockies opening, Gaylord Texan expansion, Opryland waterpark, and other projects were completed on budget and on schedule.
- Actual 2018 operating trends for occupancy, ADR, RevPAR, group bookings, cancellation and attrition fees, and Marriott management fees.
- The sustainability of cash flow after maintenance capital expenditures, dividends, project spending, interest, and required debt amortization.
- Refinancing plans for the substantial 2021 debt maturities and the company’s compliance with debt covenants under changing interest rates.
- The final tax treatment and any subsequent adjustment to the $53.4 million valuation allowance release and provisional Tax Cuts and Jobs Act benefit.
- Recovery prospects and expected cash collections for the impaired Gaylord National Series B bond.
- The potential financial exposure under the Gaylord Rockies construction and mezzanine debt guarantees.
- Whether Marriott’s operating performance, contractual restrictions, or conflicts involving competing hotels could affect the company’s ability to grow or dispose of assets.