Ryman Hospitality Properties, Inc. — Q1 2019 Form 10-Q Summary
Business context and reporting period
Ryman operates as a REIT focused on group-oriented destination hotels, primarily Gaylord-branded resorts managed by Marriott, plus entertainment assets including the Grand Ole Opry, Ryman Auditorium, WSM-AM and Ole Red. The filing covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Gaylord Rockies opened on a fully operational basis during the first quarter and is consolidated because Ryman owns 61.2% and is the primary beneficiary of the joint venture.
Financial performance and key metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $370.8 million | $288.4 million | 28.6% |
| Operating income | $54.0 million | $45.9 million | 17.5% |
| Operating margin | 14.6% | 15.9% | Down 130 bps |
| Net income | $22.7 million | $27.3 million | (17.1%) |
| Net income available to common stockholders | $29.4 million | $27.3 million | 7.6% |
| Diluted EPS | $0.57 | $0.53 | 7.5% |
| Cash flow from operations | $54.6 million | $43.9 million | 24.2% |
- Hospitality revenue increased 27.3% to $337.5 million, including $45.2 million from Gaylord Rockies. Entertainment revenue increased 43.0% to $33.3 million, primarily due to Ole Red Nashville, Ole Red Gatlinburg, and higher Grand Ole Opry and Ryman Auditorium activity.
- Hospitality occupancy was 72.3%, ADR was $201.07, RevPAR was $145.30 and Total RevPAR was $370.93. Same-store occupancy, ADR, RevPAR and Total RevPAR increased, while consolidated occupancy was affected by the addition of Gaylord Rockies and expanded room capacity.
- Operating expenses increased 30.7%, including a $24.3 million increase in depreciation and amortization, principally from Gaylord Rockies and its acquired intangible assets.
- Interest expense rose 91.8% to $32.1 million, primarily from Gaylord Rockies debt, higher revolving-credit borrowings and lower capitalized interest.
- At March 31, 2019, total assets were $3.89 billion, total debt and finance lease obligations were $2.49 billion, unrestricted cash was $94.9 million and restricted cash was $51.9 million.
- Ryman had $162.8 million of availability under its revolving credit facility, after $535.0 million of borrowings and $2.2 million of letters of credit.
- Capital expenditures were $48.9 million, dividends paid were $44.4 million and the cash, cash equivalents and restricted cash balance ended at $146.8 million.
Material changes versus the prior comparable period
- Gaylord Rockies contributed $45.2 million of revenue but also added significant operating costs, depreciation and interest expense. Its Q1 occupancy was 55.4%, ADR was $196.81 and RevPAR was $109.13.
- Gaylord Texan benefited from its room and meeting-space expansion; occupied rooms increased 22.2% and property revenue increased 23.4%.
- Gaylord Opryland benefited from SoundWaves, although approximately 15,700 room nights were unavailable because of a renovation project expected to finish in Q4 2019.
- Entertainment operating income increased to $5.1 million from $1.9 million, despite higher costs associated with Ole Red locations.
- Net income declined because the increase in operating income was more than offset by higher interest expense. Net income available to common stockholders increased because Q1 2019 included a $6.7 million net loss attributable to the noncontrolling interest in Gaylord Rockies.
- Ryman adopted the lease standard effective January 1, 2019, recording $100.9 million of right-of-use assets and lease liabilities before considering the existing straight-line lease liability; operating lease liabilities were $104.3 million at March 31, 2019.
Outlook, management commentary, risks and unusual items
- Management expects 2019 capital expenditures of $110 million to $135 million, including Gaylord Palms expansion, Gaylord Opryland renovations and Ole Red Orlando construction.
- Management planned quarterly dividends of $0.90 per share for July 2019, October 2019 and January 2020, subject to board approval. The stated policy targets at least 50% of adjusted funds from operations less maintenance capital expenditures or 100% of REIT taxable income, whichever is greater.
- Gaylord Palms construction began on a $158 million expansion adding 303 rooms, 90,000 square feet of meeting space, pool improvements and parking; completion is expected in summer 2021.
- Gaylord Rockies construction and mezzanine loans, totaling approximately $525.5 million of principal due within one year, mature December 18, 2019. Management expects refinancing or extensions and reported compliance with all debt covenants at March 31, 2019.
- Ryman provided completion guarantees for its pro rata share of costs under the Gaylord Rockies construction and mezzanine loans; no liability was recorded for these guarantees.
- Ares affiliates hold put rights that could require Ryman to purchase their Gaylord Rockies interests for cash or operating partnership units. RIDA affiliates also have a put right exercisable at the earlier of December 31, 2023 or certain change-of-control events.
- Ryman identified hospitality demand, geographic concentration, Marriott’s management performance, REIT qualification, dividend funding, refinancing capacity and interest-rate exposure as key risks. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $17.6 million based on the disclosed variable-rate borrowings.
- In April 2019, Gaylord Rockies bonds were redeemed with principal and interest, with no expected impact on Q2 2019 earnings. Ryman also entered a 50% joint venture with Gray Television requiring an initial $2.0 million contribution and up to $13.0 million of additional contributions through 2021.
Important facts for investors to verify
- Progress on refinancing or extending the Gaylord Rockies loans before the December 2019 maturity date.
- Gaylord Rockies occupancy, RevPAR, operating profitability and stabilization trajectory.
- Whether planned capital expenditures remain within the $110 million to $135 million range and how they affect dividend coverage.
- Interest-rate sensitivity, revolving-credit availability and compliance with debt covenants.
- Execution and expected returns from the Gaylord Palms expansion, SoundWaves, Ole Red Orlando and other development projects.
- Potential cash or equity obligations arising from the Gaylord Rockies put rights and completion guarantees.
- Management’s non-GAAP adjusted funds from operations and maintenance-capital-expenditure calculations, which are not provided in the supplied filing text.