Ryman Hospitality Properties, Inc. quarterly report, Q2 FY2015

Ryman Hospitality Properties, Inc. — 2015 Q2 Form 10-Q

Reporting period: Three and six months ended June 30, 2015; filed August 6, 2015. Ryman operates as a REIT focused on group-oriented destination hotels, entertainment assets, and related properties. Marriott manages the principal hotel portfolio, which includes four Gaylord resorts, the Inn at Opryland, and the AC Hotel at National Harbor, opened in April 2015.

Financial performance and position

Metric	Q2 2015	Q2 2014	Six months 2015	Six months 2014
Total revenue	$274.0 million	$257.9 million	$527.2 million	$504.4 million
Operating income	$57.0 million	$47.5 million	$92.9 million	$80.3 million
Operating margin	20.8%	18.4%	17.6%	15.9%
Net income	$41.4 million	$28.0 million	$45.9 million	$48.6 million
Net income available to common shareholders	$41.4 million	$23.0 million	$45.9 million	$43.7 million
Fully diluted EPS	$0.80	$0.38	$0.89	$0.73
Operating cash flow	Not separately provided	Not separately provided	$75.6 million	$91.7 million

Q2 revenue increased 6.3%; six-month revenue increased 4.5%. Hospitality represented approximately 90% of quarterly revenue and 91% of six-month revenue.
Hospitality revenue increased 5.5% in Q2 and 3.7% for the six-month period. Hospitality operating income increased 16.9% in Q2 and 14.9% for six months.
Consolidated net margin was approximately 15.1% in Q2 versus 10.9% in the prior-year quarter; six-month net margin was approximately 8.7% versus 9.6%.
Hotel performance improved overall: Q2 occupancy was 75.2%, ADR was $184.32, RevPAR was $138.61, and Total RevPAR was $325.96. Six-month changes were occupancy plus 1.0 percentage point, ADR plus 2.4%, RevPAR plus 3.4%, and Total RevPAR plus 2.5%.
At June 30, 2015, total assets were $2.39 billion, unrestricted cash was $41.3 million, restricted cash was $25.3 million, and stockholders’ equity was $381.5 million.
Total debt and capital lease obligations were $1.493 billion, including $340.5 million drawn under the revolving credit facility, $396.0 million under term loan B, $350.0 million of 2021 senior notes, $400.0 million of 2023 senior notes, the $6.0 million AC Hotel note, and capital leases.
Credit facility availability was $357.5 million after $2.0 million of letters of credit. Management stated that all debt covenants were satisfied at quarter-end.

Material changes versus the prior comparable period

Revenue growth was driven by higher rooms and food-and-beverage revenue, stronger performance at Gaylord Texan and Gaylord Opryland, and $2.3 million of revenue from the newly opened AC Hotel.
Gaylord Texan was the strongest major contributor: revenue increased 14.6% in Q2 and 11.0% for six months, with Q2 occupancy up 8.6 percentage points and six-month occupancy up 6.8 percentage points.
Entertainment revenue increased 12.9% in Q2 and 14.4% for six months, primarily from higher Grand Ole Opry attendance, additional shows, tours, and retail activity.
Gaylord National weakened in Q2: revenue declined 4.5%, occupancy declined 5.7 percentage points, and RevPAR declined 4.5%, primarily due to lower group occupancy and a large association cancellation.
Net income for six months declined 5.6% despite higher operating income because 2015 included a $20.2 million loss on the fair-value change and settlement of remaining convertible-note warrants. The prior-year period included a $2.1 million debt-extinguishment loss and a $5.0 million call-spread and warrant modification charge.
Operating cash flow declined $16.1 million year over year, largely because of unfavorable working-capital changes, including higher trade receivables and lower accrued liabilities.
Debt was refinanced during the quarter. The Company issued $400.0 million of 5% senior notes due 2023, repaid the $300.0 million term loan A, and reduced revolving borrowings. The revolving facility maturity was extended to June 5, 2019, with two additional six-month extension options.
The Company adopted revised lodging-industry classifications, reclassifying certain technology revenue to food and beverage and certain revenue-management costs to other hotel expenses. Prior periods were presented on a comparable basis.

Guidance, outlook, risks, and unusual items

Management expected 2015 capital expenditures of approximately $41 million to $51 million, including maintenance capital and a Gaylord Opryland room renovation.
The Company planned quarterly dividends of $0.70 per share for October 2015 and January 2016, subject to board approval. The declared Q2 dividend was $0.65 per share.
Management believed cash on hand and operating cash flow would fund normal operations, interest, lease obligations, capital expenditures, and declared dividends; it did not expect to need revolver borrowings for general working capital.
Management identified hospitality-sector economic conditions, geographic concentration, hotel occupancy and group demand, Marriott’s management performance, REIT qualification, dividend funding, refinancing capacity, interest rates, and financing covenants as material risks.
Gaylord Opryland experienced a norovirus outbreak and severe winter weather in January and February 2015. These events reduced six-month occupancy and ADR and increased cancellations, although insurance proceeds partially offset the impact.
The six-month period included $2.9 million of impairment charges related to discontinued special-events programming and $0.8 million of AC Hotel preopening costs.
Interest-rate exposure is material: a 100-basis-point increase in LIBOR would increase estimated annual interest expense by approximately $3.4 million on the revolver and $4.0 million on term loan B.
Contractual obligations included $1.493 billion of long-term debt, $625.0 million of operating leases, $24.1 million of construction-related commitments and $337.3 million of estimated future debt interest payments. Management stated that ordinary-course litigation was not expected to materially affect operations, financial condition, or liquidity.

Important facts for investors to verify

Whether occupancy, group bookings, attrition, cancellations, and RevPAR trends support continued hospitality revenue and margin growth, particularly at Gaylord National and Gaylord Opryland.
Whether operating cash flow is sufficient to fund dividends, planned capital expenditures, restricted FF&E reserves, and interest obligations.
The Company’s leverage, variable-rate debt exposure, covenant headroom, and ability to refinance maturities beginning in 2019.
The sustainability of the planned $0.70 quarterly dividend and its relationship to adjusted funds from operations, maintenance capital expenditures, and REIT taxable income.
The operating ramp and profitability of the AC Hotel and the financial impact of the Gaylord Opryland renovation.
The effect of one-time warrant settlement losses, impairment charges, preopening costs, and other unusual items when assessing recurring earnings.
Marriott’s ability to manage the properties effectively and the Company’s continued qualification as a REIT.