Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2018. The company operates as a REIT focused on group-oriented destination hotels, primarily four Marriott-managed Gaylord resorts, plus overflow hotels, entertainment assets, and equity interests in Gaylord Rockies and Opry City Stage.
Hospitality generated 92% of total revenue and Entertainment generated 8%. The company owned a 35% interest in the Gaylord Rockies development, expected to open in late 2018, and subsequently agreed to acquire its Opry City Stage joint venture partner’s 50% interest.
Financial and Operating Highlights
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $288.4 million | $276.0 million | 4.5% |
| Operating income | $45.9 million | $47.0 million | (2.2%) |
| Operating margin | 15.9% | 17.0% | Down 1.1 points |
| Net income | $27.3 million | $32.6 million | (16.2%) |
| Fully diluted EPS | $0.53 | $0.63 | (15.9%) |
| Net margin | 9.5% | 11.8% | Down 2.3 points |
| Cash flow from operations | $43.9 million | $38.3 million | 14.6% |
| Capital expenditures | $47.6 million | $37.7 million | 26.2% |
- Hospitality revenue increased 4.3% to $265.1 million, and Hospitality operating income increased 5.7% to $55.0 million.
- Hospitality occupancy was 73.8%, ADR was $195.02, RevPAR was $143.89, and Total RevPAR was $354.64. Net definite group room nights booked declined 11.1% to 344,640.
- Entertainment revenue increased 6.3% to $23.3 million, but operating income declined 38.1% to $1.9 million because expenses increased 14.9%.
- Cash and restricted cash totaled $85.7 million at March 31, 2018, including $59.0 million of unrestricted cash, compared with $78.7 million of combined cash and restricted cash at December 31, 2017.
- Total debt and capital lease obligations were $1.649 billion, up from $1.591 billion at year-end 2017. The increase primarily reflected $56.5 million of net borrowings under the revolving credit facility.
- The company had $470.7 million of available borrowing capacity under its revolving facility, subject to applicable requirements, and was in compliance with all debt covenants.
- The board declared a quarterly dividend of $0.85 per share, or approximately $43.6 million, paid on April 16, 2018.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by Gaylord Opryland and Gaylord Palms. Opryland benefited from higher occupancy and ADR after completion of its 2017 room renovation; Palms benefited from stronger transient demand and catering.
- Gaylord Texan revenue rose 2.8%, while Gaylord National revenue declined 2.7%, partly reflecting lower ADR and the absence of inauguration-related banquet activity included in the prior-year period.
- Operating expenses increased 5.8%, faster than revenue, driven by higher Hospitality and Entertainment expenses, increased Marriott incentive management fees, corporate costs, and preopening costs.
- Preopening costs increased to $2.1 million from $0.2 million, primarily for the Gaylord Texan guest-room and convention-space expansion and Ole Red Nashville.
- Interest expense increased 5.5% to $16.7 million, while the weighted-average borrowing rate rose to 4.6% from 4.4%.
- Losses from joint ventures increased to $2.6 million from $0.8 million, primarily due to Gaylord Rockies preopening costs and losses at Opry City Stage.
- The income tax provision increased to $2.2 million from $0.6 million. The company had not completed its accounting for the Tax Cuts and Jobs Act and could record further adjustments within the permitted measurement period.
- The company adopted the new revenue recognition and restricted-cash standards in the first quarter of 2018. The revenue standard resulted in a $0.1 million transition adjustment to retained earnings; the restricted-cash adoption was not material.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects 2018 capital expenditures of approximately $130 million to $160 million, including maintenance spending, the Gaylord Texan expansion, and the luxury indoor/outdoor waterpark at Gaylord Opryland.
- Management stated that cash on hand and operating cash flow are expected to fund short-term operating needs, interest, lease obligations, capital expenditures, and declared dividends, with additional revolver capacity available if needed.
- The company currently planned quarterly dividends of $0.85 per share in July 2018, October 2018, and January 2019, subject to board approval.
- Gaylord Rockies construction-loan guarantees include a principal repayment guarantee initially up to $21 million, declining to $14 million and then $8.75 million upon specified post-opening conditions. The company also has completion, preopening interest and operating-expense guarantees, including uncapped components related to mezzanine debt. No liability was recorded for these guarantees at March 31, 2018.
- Total contractual obligations were $2.317 billion, including $1.674 billion of long-term debt commitments, $617.5 million of operating lease commitments, and $25.5 million of construction commitments.
- The company is exposed to rising interest rates on approximately $923.8 million of variable-rate borrowings. A 100-basis-point LIBOR increase would increase annual interest expense by approximately $9.3 million based on balances at March 31, 2018.
- Key business risks include dependence on group and convention demand, geographic concentration, Marriott’s management performance, seasonal operating results, REIT qualification, dividend funding, refinancing and covenant compliance, construction and opening risks for Gaylord Rockies, and execution of planned capital projects.
- Management reported no material changes to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls as of March 31, 2018.
Important Facts for Investors to Verify
- Confirm the pace and profitability of the Gaylord Texan expansion, Ole Red Nashville, and the Gaylord Opryland waterpark.
- Monitor net definite group room nights booked, which declined 11.1% year over year despite improved first-quarter occupancy and RevPAR.
- Assess leverage, variable-rate exposure, revolver utilization, debt maturities beginning in 2021, and compliance with financial covenants.
- Evaluate whether operating cash flow can sustainably fund planned capital expenditures and the $0.85 quarterly dividend without additional borrowing.
- Review the financial impact and completion status of Gaylord Rockies, including the company’s construction, mezzanine debt, and preopening guarantees.
- Track the acquisition of the remaining Opry City Stage interest and its effect on Entertainment segment results.
- Verify final accounting adjustments related to the Tax Cuts and Jobs Act and the company’s future adoption of the lease standard, particularly the Gaylord Palms ground lease.