Ryman Hospitality Properties, Inc. — 2016 Q3 Form 10-Q
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2016, filed November 3, 2016. Ryman operates as a REIT focused on group-oriented destination hotels and related entertainment assets. Its hospitality portfolio includes four Gaylord Hotels resorts, overflow hotels and an investment in the Gaylord Rockies joint venture; its entertainment portfolio includes the Grand Ole Opry, Ryman Auditorium and WSM-AM. Marriott manages most hotel and certain attraction operations.
Key financial metrics
| Metric | Q3 2016 | Q3 2015 | Change | 9M 2016 | 9M 2015 | Change |
|---|---|---|---|---|---|---|
| Total revenue | $271.7 million | $252.8 million | 7.5% | $829.4 million | $780.0 million | 6.3% |
| Operating income | $46.6 million | $32.8 million | 42.1% | $152.3 million | $125.7 million | 21.2% |
| Operating margin | 17.1% | 13.0% | +4.1 pts | 18.4% | 16.1% | +2.3 pts |
| Net income | $33.6 million | $26.7 million | 25.9% | $111.3 million | $72.6 million | 53.2% |
| Diluted EPS | $0.66 | $0.52 | 26.9% | $2.17 | $1.41 | 53.9% |
| Net margin | 12.4% | 10.6% | +1.8 pts | 13.4% | 9.3% | +4.1 pts |
| Operating cash flow | Not provided | Not provided | — | $199.1 million | $154.6 million | 29.0% |
Hospitality revenue increased 7.2% in Q3 and 5.7% for the nine-month period. Hospitality operating income increased 34.5% in Q3 and 15.9% for nine months. Entertainment revenue increased 9.7% in Q3 and 12.4% for nine months, while entertainment operating income increased 31.3% and 12.7%, respectively.
Hospitality performance improved: Q3 occupancy was 75.5%, ADR was $175.22, RevPAR was $132.32 and Total RevPAR was $315.50. Same-store net definite group room nights booked increased 27.1% in Q3 and 18.2% for nine months.
At September 30, 2016, total debt and capital lease obligations were $1.487 billion, compared with $1.432 billion at December 31, 2015. Unrestricted cash was $35.9 million and restricted cash was $25.9 million. The company reported $331.0 million of borrowing availability under its revolving credit facility and was in compliance with all debt covenants.
Cash flow, capital allocation and liquidity
- Nine-month investing cash outflow was $131.5 million, including $84.6 million of property and equipment purchases and $50.4 million invested in Gaylord Rockies.
- Nine-month financing cash outflow was $88.1 million, including $112.9 million of dividends and $24.8 million for repurchase and retirement of 0.5 million shares, partially offset by net credit-facility borrowings.
- Unrestricted cash declined from $56.3 million at December 31, 2015 to $35.9 million at September 30, 2016.
- The company expected to spend $38 million to $48 million on capital expenditures during the remainder of 2016 and approximately $15 million on Gaylord Rockies.
- Quarterly dividends were $0.75 per share in each of the first three quarters, and management planned a $0.75 per-share dividend for January 2017, subject to board approval.
Material changes versus the prior comparable period
- Revenue growth reflected stronger hotel performance, particularly at Gaylord Palms, Gaylord Opryland and Gaylord Texan, as well as higher Entertainment attendance and ancillary revenue.
- Gaylord Palms benefited from higher occupancy, ADR, banquet activity and new or refurbished dining outlets. Gaylord Opryland benefited from higher ADR, despite room renovations that removed approximately 19,700 room nights in Q3 and 28,300 for nine months.
- Gaylord National was broadly stable: nine-month revenue increased only 0.2%, with lower occupancy and RevPAR partly attributable to a winter storm.
- Operating expenses grew more slowly than revenue, improving operating margin. Management fees increased as a result of higher hotel revenues and incentive fees.
- The nine-month 2015 period included a $20.2 million loss related to the change in fair value of warrant derivative liabilities; no comparable loss occurred in 2016. The 2015 period also included $2.9 million of impairment charges and $0.9 million of preopening costs that did not recur.
- Income taxes shifted from a $4.6 million benefit in Q3 2015 to a $1.8 million provision in Q3 2016, and from a $3.4 million benefit to a $2.4 million provision for the nine-month periods.
Guidance, outlook, risks and unusual items
Management stated that existing cash and operating cash flow were expected to fund normal operations, interest, leases, capital expenditures and declared dividends, with the revolving facility available for capital needs and the remaining Gaylord Rockies contribution. The filing does not provide formal full-year revenue or earnings guidance.
Gaylord Rockies is expected to be completed in late 2018 as a 1,500-room resort with more than 485,000 square feet of meeting and exhibition space. Ryman owns a 35% interest and expects total capital contributions of approximately $86.1 million, of which $50.4 million had been funded by September 30, 2016. The company provided construction-loan and mezzanine-debt guarantees, including capped and uncapped obligations, without recording a liability at quarter-end.
- Hospitality results are seasonal and depend on group bookings, occupancy, ADR, transient demand, cancellations and attrition.
- The company relies heavily on Marriott for hotel management, occupancy and revenue generation.
- Variable-rate debt creates interest-rate exposure. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $3.7 million on the revolving facility and $3.9 million on the term loan B, based on September 30 balances.
- The portfolio is geographically concentrated and exposed to economic conditions affecting group travel and hospitality demand.
- The company must maintain REIT qualification and generate sufficient cash flow to support dividends and debt service.
- Legal proceedings in the ordinary course were considered immaterial by management, and no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Reconcile reported earnings growth excluding the nonrecurring 2015 warrant loss, impairment charges and preopening costs.
- Review debt maturity, refinancing and covenant capacity, including $1.487 billion of reported debt and variable-rate exposure.
- Assess cash funding needs for the remaining Gaylord Rockies contribution, planned capital expenditures and dividend commitments.
- Evaluate the scope and potential exposure of Gaylord Rockies construction, completion, interest, operating-expense and mezzanine-debt guarantees.
- Monitor Gaylord National trends, Gaylord Opryland renovation effects and whether higher group bookings convert into sustained occupancy, ADR and RevPAR gains.
- Confirm future dividend declarations, the company’s REIT tax status and the effect of taxable REIT subsidiaries on income taxes.