Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed an unaudited Form 10-Q for the three months ended March 31, 2020, comparing results with the first quarter of 2019. The company is a REIT focused on group-oriented destination hotels managed primarily by Marriott, including the Gaylord Hotels portfolio, and entertainment assets such as the Grand Ole Opry, Ryman Auditorium, WSM-AM and Ole Red. The Gaylord Rockies joint venture is consolidated, with Ryman owning 62.1%.
The quarter was materially affected by the COVID-19 pandemic. Entertainment venues began closing on March 15, 2020, and Gaylord Hotels properties suspended operations beginning March 24, 2020. Most assets remained closed at the filing date.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $313.0 million | $370.8 million | Down 15.6% |
| Operating income | $4.8 million | $54.0 million | Down 91.2% |
| Operating margin | 1.5% | 14.6% | Down 13.1 percentage points |
| Net income (loss) | $(50.7) million | $22.7 million | Declined $73.4 million |
| Net income (loss) available to common stockholders | $(46.5) million | $29.4 million | Declined $75.9 million |
| Diluted EPS | $(0.85) | $0.57 | Declined $1.42 |
| Net margin available to common stockholders | (14.9)% | 7.9% | Down 22.8 percentage points |
| Cash flow from operating activities | $4.7 million | $54.6 million | Down $49.9 million |
| Capital expenditures | $43.2 million | $48.9 million | Down 11.7% |
| Cash flow from financing activities | $346.8 million | $(7.7) million | Primarily reflects $400.0 million revolver draw |
- Hospitality revenue was $285.7 million, down 15.4%; Entertainment revenue was $27.4 million, down 17.8%.
- Hospitality operating income was $23.8 million, down 60.5%, including approximately $10.3 million of COVID-19-related expenses. Entertainment reported a $5.1 million operating loss versus $5.1 million of operating income in the prior-year quarter.
- Hospitality occupancy decreased to 57.1% from 72.3%; RevPAR decreased 20.6% to $115.36, and Total RevPAR decreased 16.3% to $310.51. ADR increased 0.5% to $202.09.
- At March 31, 2020, unrestricted cash was $662.2 million and restricted cash was $64.5 million. Total cash, cash equivalents and restricted cash were $726.7 million.
- Total debt and finance lease obligations were $2.952 billion, compared with $2.560 billion at December 31, 2019. The increase primarily reflects the $400.0 million revolving credit facility draw.
- Debt included $400.0 million outstanding under the revolver, $297.6 million under Term Loan A, $380.7 million under Term Loan B, $397.0 million of 5.0% senior notes, $690.9 million of 4.75% senior notes and $792.5 million under the Gaylord Rockies term loan.
- Interest expense was $29.4 million, down from $32.1 million. The weighted-average borrowing rate, excluding certain non-cash items and capitalized interest, was 4.5% versus 5.2%.
- Total assets were $4.345 billion and stockholders’ equity was $560.0 million at March 31, 2020.
Material Changes Versus the Prior Comparable Period
- COVID-19 caused significant cancellations, closures and reduced operating activity. Hospitality experienced approximately 680,000 net room-night cancellations attributable to the pandemic, representing approximately $143 million of revenue.
- Net definite group room nights booked were negative 415,754, compared with positive bookings of 273,453 in Q1 2019. The 2020 figure included approximately 600,000 group-room cancellations.
- Management fees, net, decreased 43.7% to $5.5 million, reflecting lower hotel revenue and profitability.
- Operating expenses declined only 2.7% overall despite the 15.6% revenue decline, resulting in substantial margin compression. Entertainment operating expenses increased 14.4% while its revenue declined.
- The company recorded a $5.8 million credit loss on Gaylord National-related held-to-maturity securities after reducing projected tax revenues because of the Gaylord National closure. The notes receivable carrying value declined to $99.9 million from $110.1 million.
- The company recorded a $26.7 million valuation allowance against taxable REIT subsidiary deferred tax assets, contributing to a $26.8 million income tax provision.
- Accumulated other comprehensive loss increased to $63.4 million from $28.2 million, primarily due to a $35.9 million decline in the fair value of interest-rate swaps.
- The company adopted the expected-credit-loss standard, recording a $5.3 million reduction to beginning retained earnings and a $2.2 million adjustment to accumulated other comprehensive loss.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management did not provide conventional earnings or revenue guidance. It stated that reopening timing would depend on health authorities and other factors and did not anticipate resuming Gaylord Hotels operations before the end of May 2020.
- While assets remained closed, estimated monthly cash needs were approximately $40 million to $50 million, including Gaylord Rockies operating costs and debt service.
- Management expected 2020 capital expenditures of approximately $90 million to $115 million, while deferring approximately $82 million of non-essential projects. The Gaylord Rockies expansion was postponed; the Gaylord Palms expansion continued and was expected to be completed in summer 2021.
- On April 23, 2020, the company amended its credit agreement. Financial covenants were waived through March 31, 2021, with the waiver ending April 1, 2021, subject to the amendment terms. The amendment confirmed approximately $300 million of remaining revolver availability, increased interest and fees, restricted certain debt, investment, dividend, repurchase and capital-expenditure activity, and required at least $100 million of unrestricted liquidity.
- The first-quarter dividend of $0.95 per share was paid on April 15, 2020. Regular quarterly dividends were suspended for the remainder of 2020, although the credit agreement permits dividends necessary to maintain REIT status and permits a potential $0.01-per-share quarterly dividend.
- The company continued to pay required debt service, lease payments and taxes. It remained in compliance with debt covenants at March 31, 2020, and lenders had waived the covenant restricting prolonged closure of the Gaylord Hotels properties.
- The pending $275 million Block 21 acquisition in Austin, Texas, includes assumed mortgage debt of approximately $141 million and a nonrefundable $15 million deposit. Closing remained subject to customary conditions, including mortgage-loan consent.
- Key risks include the duration and severity of COVID-19, reopening restrictions, weakened group and transient demand, customer willingness to travel and gather, Marriott’s ability to restart operations, refinancing risk, interest-rate exposure, REIT qualification, debt covenant restrictions and potential pressure on asset values.
Most Important Facts for Investors to Verify
- Whether and when the Gaylord Hotels and entertainment properties reopened, and the pace of recovery in occupancy, group bookings, RevPAR and cancellation activity.
- Cash burn relative to the stated $40 million to $50 million monthly requirement and the remaining revolver availability and liquidity covenant.
- Compliance with the amended credit agreement after the temporary covenant-waiver period, including increased borrowing costs and restrictions.
- Debt maturities, refinancing capacity and the effect of variable LIBOR-based debt; a 100-basis-point LIBOR increase would raise annual interest expense by approximately $7.4 million on unhedged company borrowings identified in the filing.
- Whether the Block 21 acquisition closed and how it was financed.
- The timing and amount of any future dividends and continued compliance with REIT distribution requirements.
- Potential further credit losses on the Gaylord National notes receivable, additional tax valuation allowances and impairment or fair-value changes related to the pandemic.
- Whether deferred capital projects, including the Gaylord Rockies expansion, were resumed and whether the stated $90 million to $115 million capital-expenditure range changed.