Business Context and Reporting Period
Ryman Hospitality Properties, Inc. filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The company operated as a REIT beginning January 1, 2013, owning four group-oriented convention resorts totaling 7,795 rooms, the Inn at Opryland, and Opry and entertainment assets. Marriott manages the hotel properties under long-term management agreements.
Financial Performance and Key Metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Total revenue | $221.2 million | $228.1 million | $688.5 million | $720.3 million |
| Operating income (loss) | $19.8 million | $(33.4) million | $46.5 million | $19.8 million |
| Operating margin | 9.0% | (14.7%) | 6.7% | 2.8% |
| Net income (loss) | $18.0 million | $(26.7) million | $88.2 million | $(11.7) million |
| Diluted EPS | $0.30 | $(0.57) | $1.33 | $(0.24) |
| Cash flow from operations | Not separately provided | Not separately provided | $64.3 million | $129.3 million |
- Hospitality revenue declined 4.2% in the quarter and 5.3% year to date; hospitality operating income declined 19.7% and 26.7%, respectively.
- Opry and Attractions revenue increased 8.4% in the quarter and 6.6% year to date, with operating income increasing 9.6% and 10.5%.
- Hotel occupancy was 71.2% in the quarter and 70.9% year to date, compared with 70.0% and 71.9% in the prior-year periods. ADR declined 4.3% and 1.3%, while RevPAR declined 2.7% in both periods.
- Q3 total RevPAR was $267.52, down 4.2%; year-to-date total RevPAR was $285.75, down 4.9%.
- Unrestricted cash was $52.1 million and restricted cash was $18.6 million at September 30, 2013. Total assets were $2.44 billion.
- Total debt and capital lease obligations were $1.175 billion, versus $1.032 billion at December 31, 2012. The company reported $460.1 million of remaining availability under its $1 billion credit facility and compliance with all debt covenants.
Material Changes Versus the Prior Comparable Period
- Revenue decreased primarily because of weaker group and government business, reduced banquet and ancillary spending, retail operations outsourced to third parties, and cancellations at several hotels.
- Operating income improved substantially because REIT conversion costs fell to $1.0 million in Q3 2013 from $51.4 million in Q3 2012, and corporate expenses declined by $5.5 million. Year-to-date REIT conversion costs were $21.4 million versus $57.8 million.
- The nine-month tax benefit increased to $80.5 million from $0.8 million, primarily from a $66.0 million deferred-tax benefit related to the REIT conversion and benefits from tax-position resolutions. This benefit materially increased reported net income but was largely non-cash.
- Operating cash flow declined by $65.0 million year over year, primarily because of unfavorable working-capital changes and the absence of prior-year benefits from advanced booking deposits.
- The company issued $350.0 million of 5% senior notes due 2021, refinanced its credit facility with a new $1 billion facility maturing in 2017, redeemed $152.2 million of 6.75% senior notes, and repurchased $54.7 million principal amount of convertible notes for $98.6 million.
- The company repurchased approximately 2.3 million common shares for $100.0 million and declared quarterly dividends of $0.50 per share.
Guidance, Outlook, Risks, and Unusual Items
- Management estimated approximately $1.9 million of additional one-time REIT conversion costs in the fourth quarter of 2013 and expected $11 million to $13 million of capital expenditures during the remainder of 2013.
- The company planned to pay a $0.50-per-share quarterly dividend in January 2014, subject to board approval. Its stated policy targets quarterly dividends equal to at least 50% of adjusted funds from operations or 100% of REIT taxable income, whichever is greater.
- Management reported improved third-quarter bookings but continued weakness in group sales, slower-than-expected cost synergies, and transition inefficiencies following Marriott’s assumption of hotel management.
- Gaylord National was particularly affected by U.S. government sequestration, government-group cancellations, lower occupancy, and higher attrition. Overall hotel attrition increased to 12.2% in Q3 and 11.2% year to date, compared with 10.2% and 7.1%.
- The $304.1 million of remaining convertible notes were convertible through December 31, 2013. Management stated that available liquidity was sufficient for potential conversion-related obligations, but the notes could require cash, shares, or a combination at the company’s option.
- Interest-rate exposure is material: a 100-basis-point increase in LIBOR would increase annual interest expense by approximately $5.3 million on credit-facility borrowings outstanding at September 30, 2013.
- Other commitments included $636.4 million of operating lease obligations, $17.4 million held in restricted FF&E reserve accounts, and $1.85 billion of total contractual obligations. Management stated that ordinary litigation was not expected to materially affect results, financial condition, or liquidity.
Investor Verification Checklist
- Verify whether group bookings, occupancy, ADR, RevPAR, and banquet spending improved after Q3 and whether Marriott’s management transition produced the expected cost synergies.
- Assess the sustainability of reported earnings excluding the $66.0 million REIT-related tax benefit and other unusual items, including conversion costs and the debt-extinguishment loss.
- Monitor liquidity, covenant compliance, LIBOR sensitivity, and the company’s ability to refinance or settle the convertible notes.
- Confirm that operating cash flow supports the dividend policy, maintenance capital expenditures, restricted FF&E reserves, and upcoming contractual obligations.
- Evaluate continued exposure to government spending, sequestration, group cancellations, high attrition, and geographic concentration in four major resorts.