Ryman Hospitality Properties, Inc. quarterly report, Q3 FY2015

Ryman Hospitality Properties, Inc. — 2015 Q3 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2015; comparative period ended September 30, 2014. The filing is unaudited. Ryman operates as a REIT focused primarily on group-oriented destination hotels, with Marriott managing its four Gaylord Hotels properties. Its other businesses include the AC Hotel, Inn at Opryland, entertainment venues, and media assets.

Financial highlights

Metric	Q3 2015	Q3 2014	9M 2015	9M 2014
Total revenue	$252.8 million	$245.0 million	$780.0 million	$749.4 million
Operating income	$32.8 million	$29.1 million	$125.7 million	$109.4 million
Operating margin	13.0%	11.9%	16.1%	14.6%
Net income	$26.7 million	$15.1 million	$72.6 million	$63.8 million
Net income available to common shareholders	$26.7 million	$15.1 million	$72.6 million	$58.8 million
Diluted EPS	$0.52	$0.25	$1.41	$0.97
Cash flow from operations	Not separately provided	Not separately provided	$151.0 million	$157.2 million

Revenue increased 3.2% in the quarter and 4.1% year to date. Hospitality revenue rose 2.6% and 3.3%, respectively; Entertainment revenue rose 8.0% and 11.9%.
Operating income increased 12.7% in the quarter and 14.9% year to date, with margin expansion of approximately 110 basis points and 150 basis points, respectively.
Net income increased 76.4% in the quarter and 13.9% year to date. Year-to-date 2014 net income available to common shareholders was reduced by a $5.0 million loss related to convertible-note call spread and warrant modifications.
Hospitality operating income increased 17.9% in the quarter and 15.7% year to date to $34.0 million and $133.1 million, respectively.
Consolidated Hospitality occupancy was 71.9% in the quarter and 72.7% year to date, while ADR was $169.24 and $178.88, respectively. Quarterly occupancy declined, but ADR increased; year-to-date RevPAR increased 1.7% to $130.07.
Declared dividends were $0.70 per share for the third quarter and $2.00 per share for the first nine months, compared with $0.55 and $1.65 in the comparable 2014 periods.

Liquidity, cash flow, debt, and capital resources

At September 30, 2015, unrestricted cash was $40.3 million and restricted cash was $21.9 million, compared with unrestricted cash of $76.4 million at December 31, 2014.
Operating cash flow was $151.0 million, versus $157.2 million in the prior-year period. Capital expenditures were $63.4 million, up from $50.7 million, primarily for the Ryman Auditorium expansion, Gaylord Opryland room renovations, and maintenance capital.
Financing activities used $131.8 million, including $271.6 million of credit-facility repayments, $154.7 million to settle remaining warrants, $95.4 million of dividends, and $11.1 million of financing costs, partially offset by issuance of $400.0 million of senior notes.
Total debt and capital lease obligations were $1.470 billion, compared with $1.342 billion at December 31, 2014. Debt consisted primarily of $317.9 million under the revolving credit facility, $395.0 million under Term Loan B, $350.0 million of 2021 senior notes, and $400.0 million of 2023 senior notes.
The revolving credit facility maturity was extended to June 5, 2019, with two additional six-month extension options. The company had $380.1 million of availability, subject to applicable covenant and borrowing limitations, and $2.0 million of outstanding letters of credit.
Management stated that all debt covenants were satisfied and that cash on hand and operating cash flow were expected to fund normal expenses, interest, capital leases, capital expenditures, and declared dividends. The filing does not provide a clear consolidated leverage ratio or interest-coverage headroom.

Material changes versus the prior comparable period

Gaylord Texan was the primary growth driver: nine-month revenue increased 11.4%, occupancy rose to 75.6% from 70.4%, and ADR increased 5.5%.
Gaylord National nine-month revenue increased 2.6%, supported by higher occupancy, ADR, and banquet revenue.
Gaylord Palms weakened: nine-month revenue declined 3.7%, while third-quarter occupancy fell to 64.7% from 72.4% and ADR declined 7.3%.
Gaylord Opryland occupancy declined due to lower group and transient business, a norovirus outbreak, severe winter weather, and approximately 18,000 room nights unavailable during renovation. Insurance proceeds related to the outbreak contributed $2.4 million of third-quarter and $3.6 million of year-to-date Hospitality revenue.
The AC Hotel opened in April 2015 and contributed approximately $2.5 million of third-quarter and $4.8 million of year-to-date Hospitality revenue.
The company issued $400.0 million of 5% senior notes due 2023 and used substantially all net proceeds to repay Term Loan A and reduce revolving borrowings. It also cash-settled 4.7 million remaining warrants for $154.7 million, producing a $20.2 million loss in the first nine months.
Year-to-date results included $2.9 million of impairment charges related to discontinued special-events programming, $0.9 million of AC Hotel preopening costs, and a $1.6 million pension settlement loss.
Hospitality net definite group room nights booked increased 26.6% in the quarter and 2.2% year to date. However, attrition increased to 13.7% and 12.8% of bookings, respectively, from 9.7% and 10.4%.

Guidance, outlook, commentary, and risks

Management planned to pay a $0.70 per-share dividend in January 2016, subject to board approval. The dividend policy targets at least 50% of adjusted funds from operations less maintenance capital expenditures or 100% of REIT taxable income, whichever is greater.
Remaining 2015 capital expenditures were expected to be $17 million to $27 million, primarily for ongoing maintenance capital.
The company authorized a share repurchase program of up to $100 million through December 31, 2016; no repurchases had occurred through September 30, 2015.
Key risks include dependence on Marriott’s management of the hotels, economic and hospitality-market conditions, geographic concentration, group booking and cancellation trends, higher attrition, ability to maintain REIT qualification, access to financing, refinancing risk, floating-rate exposure, and the ability to generate sufficient cash to support dividends.
A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $3.2 million on the revolving facility and $4.0 million on Term Loan B, based on September 30, 2015 borrowings.
Legal proceedings in the ordinary course were not expected by management to materially affect operations, financial condition, or liquidity. The filing reports no material changes to previously disclosed risk factors.

Important facts for investors to verify

Whether group booking growth converts into occupancy, RevPAR, and cash-flow growth without further increases in cancellations and attrition.
The sustainability of performance at Gaylord Texan and Gaylord National and recovery prospects at Gaylord Palms and Gaylord Opryland.
Liquidity after dividends, remaining capital expenditures, restricted FF&E reserves, and potential share repurchases.
Debt maturity, refinancing, floating-rate exposure, covenant headroom, and the effect of the 2023 senior notes on future interest costs.
The recurring versus nonrecurring components of 2015 earnings, including insurance proceeds, warrant fair-value losses, impairment charges, pension settlement costs, and tax valuation-allowance changes.
Future dividend capacity and the company’s ability to maintain REIT qualification while operating taxable REIT subsidiaries and entertainment businesses.