Ryman Hospitality Properties, Inc. — Q1 2016 Form 10-Q Summary
Business Context and Reporting Period
Ryman Hospitality Properties, Inc. operates as a REIT focused on group-oriented destination hotels and entertainment assets. Its portfolio includes four Gaylord Hotels resorts managed by Marriott, the Inn at Opryland, the AC Hotel at National Harbor, the Grand Ole Opry, Ryman Auditorium and WSM-AM. The unaudited filing covers the three months ended March 31, 2016, compared with the three months ended March 31, 2015.
Financial Results and Key Metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $261.5 million | $253.1 million | 3.3% |
| Operating income | $38.8 million | $35.9 million | 8.1% |
| Operating margin | 14.8% | 14.2% | Up 0.6 percentage points |
| Net income | $26.3 million | $4.5 million | 481.3% |
| Fully diluted EPS | $0.51 | $0.09 | Up $0.42 |
| Net cash from operating activities | $53.3 million | $7.5 million | Up $45.8 million |
| Capital expenditures | $13.2 million | $18.7 million | Down $5.4 million |
| Dividends declared per share | $0.75 | $0.65 | Up $0.10 |
Revenue consisted primarily of food and beverage revenue of $122.2 million, rooms revenue of $97.0 million, other hotel revenue of $25.0 million and entertainment revenue of $17.3 million. Net margin was approximately 10.1% in Q1 2016 versus approximately 1.8% in Q1 2015.
Hospitality revenue increased 3.3% to $244.2 million, while Hospitality operating income increased 0.9% to $45.5 million. Consolidated hotel occupancy was 70.2%, ADR was $183.21, RevPAR was $128.54 and Total RevPAR was $323.69. Net definite group room nights booked increased 21.3% to 319,015.
At March 31, 2016, total assets were $2.34 billion, unrestricted cash was $57.2 million and restricted cash was $30.0 million. Debt and capital lease obligations totaled $1.48 billion, compared with $1.43 billion at December 31, 2015. The company had $336.5 million of available borrowing capacity under its revolving credit facility and was in compliance with all debt covenants.
Material Changes Versus the Prior Comparable Period
- Gaylord Opryland revenue increased 12.0%, supported by higher occupancy, group and transient business, and recovery from the prior-year norovirus outbreak and severe winter weather.
- Gaylord Palms revenue increased 4.5%, primarily from higher catering and other hotel revenue.
- Gaylord Texan revenue declined 3.0% and Gaylord National revenue declined 5.9%, principally due to lower group occupancy and room nights.
- Entertainment revenue increased 3.7%, but Entertainment operating income declined 54.6% to $1.0 million because expenses grew faster than revenue.
- Q1 2015 included $20.2 million of losses related to the fair-value change and cash settlement of warrants associated with former convertible notes. The item did not recur in Q1 2016.
- Q1 2015 also included $2.9 million of impairment charges and $0.6 million of AC Hotel preopening costs; neither was recorded in Q1 2016.
- Interest expense increased 16.1% to $16.0 million, primarily due to the $400 million of 5% senior notes issued in April 2015. The weighted-average borrowing rate increased to 4.3% from 3.9%.
- The company repurchased 538,746 shares for $24.8 million during the quarter and cancelled the shares.
Guidance, Outlook, Risks and Unusual Items
Management planned quarterly dividends of $0.75 per share in July 2016, October 2016 and January 2017, subject to board approval. It expected 2016 capital expenditures of $115 million to $135 million, including maintenance spending and projects at Gaylord National, Gaylord Texan and Gaylord Opryland. The company also expected to invest approximately $38 million in Gaylord Rockies during the remainder of 2016.
In March 2016, the company acquired a 35% interest in the Gaylord Rockies Resort & Convention Center project. Its total expected capital contribution is $86.1 million, of which $21.5 million had been funded by March 31, 2016. The 1,500-room resort is expected to open in late 2018. The company provided construction-loan, completion, interest and mezzanine-debt guarantees; no related liability was recorded at March 31, 2016.
Management stated that cash on hand and operating cash flow should fund normal operations, interest, lease obligations and declared dividends, with the revolving facility available for capital needs and Gaylord Rockies funding. Key risks include dependence on Marriott for hotel management and demand generation, concentration in a limited number of destination properties, seasonality, group-booking and occupancy volatility, interest-rate exposure, refinancing risk, REIT qualification requirements and the ability to sustain dividends.
A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $3.6 million on the revolving facility and $3.9 million on the term loan B, based on balances outstanding at quarter-end. The filing states that ordinary-course litigation was not expected to materially affect results, financial condition or liquidity.
Most Important Facts for Investors to Verify
- Whether the strong year-over-year net income comparison is normalized for the nonrecurring $20.2 million warrant loss, 2015 impairment charges and preopening costs.
- Occupancy, RevPAR and group-room-night trends at Gaylord National and Gaylord Texan, where Q1 performance weakened.
- Progress, total funding requirements and guarantee exposure related to Gaylord Rockies.
- Execution of the projected $115 million to $135 million of 2016 capital expenditures and their effect on leverage and liquidity.
- Availability under the revolving credit facility, covenant compliance and sensitivity to higher LIBOR rates.
- Whether operating cash flow and adjusted funds from operations support the planned $0.75 quarterly dividend and ongoing share repurchases.
- Marriott’s management performance and the company’s ability to maintain REIT qualification while operating entertainment and taxable REIT subsidiary businesses.