Ryman Hospitality Properties, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing reports Gaylord Entertainment Company results through September 30, 2012, followed by Ryman Hospitality Properties, Inc. after the October 1, 2012 merger. The filing also provides unaudited fourth-quarter data.
Business context
Ryman owns four group-oriented destination resorts totaling 7,795 rooms, the 303-room Inn at Opryland, and Nashville entertainment and attraction assets including the Grand Ole Opry, Ryman Auditorium, General Jackson Showboat, Wildhorse Saloon, Gaylord Springs and WSM-AM. Hospitality generated approximately 93% of 2012 revenue; Opry and Attractions generated approximately 7%.
The Company completed a restructuring to operate as a REIT beginning January 1, 2013. Marriott acquired the Gaylord Hotels brand and management rights for $210.0 million and assumed day-to-day management of the hotels and certain attractions beginning October 1, 2012; it assumed management of the Inn at Opryland on December 1, 2012.
Financial performance and key metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Total revenue | $986.6 million | $952.1 million | 3.6% increase |
| Hospitality revenue | $916.0 million | $886.6 million | 3.3% increase |
| Opry and Attractions revenue | $70.5 million | $65.4 million | 7.8% increase |
| Operating income (loss) | $(4.8) million | $79.5 million | Decline |
| Net income (loss) | $(26.6) million | $10.2 million | Decline |
| Diluted EPS | $(0.56) | $0.20 | Decline |
| Operating cash flow | $176.5 million | $153.9 million | 14.6% increase |
| Capital expenditures | $95.2 million | $132.6 million | 28.1% decrease |
Consolidated operating margin was approximately (0.5%) in 2012 versus approximately 8.4% in 2011. The 2012 loss was driven primarily by $102.0 million of REIT conversion costs, including $33.3 million of non-cash impairment charges. Excluding segment-level special items, Hospitality operating income increased to $150.2 million from $130.9 million, and Opry and Attractions operating income increased to $13.2 million from $8.8 million.
Hospitality occupancy was 72.6%, ADR was $170.48, RevPAR was $123.81 and Total RevPAR was $310.21. Net definite room nights booked increased 1.8% to 1.478 million. Gaylord Palms was the principal growth contributor, with revenue up 16.6%, occupancy up 3.7 percentage points and ADR up 7.5%. Gaylord National revenue increased 3.1%, while Gaylord Opryland revenue declined 1.1% and Gaylord Texan revenue declined 1.0%.
Liquidity, debt and balance sheet
- Unrestricted cash at December 31, 2012 was $97.2 million; restricted cash was $6.2 million.
- Total debt was $1.032 billion, including $545.0 million outstanding under the $925 million secured credit facility, $333.0 million carrying value of convertible notes and $152.2 million of 6.75% senior notes.
- Credit-facility availability was $372.0 million after $8.0 million of letters of credit. The facility matures August 1, 2015.
- The $360.0 million principal amount of 3.75% convertible notes matures October 1, 2014. The notes were convertible through March 31, 2013 based on the year-end stock price and had an adjusted conversion price of approximately $22.50 per share.
- The 6.75% senior notes were redeemed at par on January 17, 2013 for $152.2 million, funded with operating cash flow and credit-facility borrowings.
- Working capital was negative $137.6 million, reflecting current assets of $211.2 million and current liabilities of $348.8 million. Management stated that cash, operating cash flow and credit availability were sufficient for current obligations.
- The Company was in compliance with its debt covenants at December 31, 2012. Key credit-facility requirements include maximum funded debt to asset value of 0.65 to 1.0, minimum fixed-charge coverage of 1.75 to 1.0 and minimum implied debt-service coverage of 1.60 to 1.0.
Material changes versus the prior comparable period
- Revenue increased modestly, but profitability deteriorated because of the REIT conversion and restructuring costs.
- Operating cash flow improved by $22.6 million, while capital expenditures declined by $37.4 million after completion of major projects at Gaylord Palms and flood-protection work at Gaylord Opryland.
- Marriott replaced the Company as day-to-day operator of the hotels and certain attractions. Base management fees accrued in 2012 were $5.1 million; no Gaylord Hotels incentive fee was paid during 2012.
- The Company repurchased 5.0 million shares from TRT Holdings for $185.4 million and issued approximately 0.9 million shares for net proceeds of $32.7 million.
- The Company paid a special REIT-conversion dividend valued at approximately $309.8 million, consisting of $62.0 million in cash and approximately 6.7 million shares.
- Stockholders’ equity declined to $853.6 million from $1.046 billion, primarily reflecting the special dividend, share repurchase and 2012 net loss.
Guidance, outlook, risks and unusual items
- Management estimated aggregate non-cash-excluded REIT conversion costs of approximately $85 million, of which approximately $69 million had been incurred, plus estimated federal income taxes of approximately $4 million to $7 million.
- Management anticipated stabilized annualized cost synergies, net of management fees, of approximately $38 million to $45 million from the restructuring and Marriott transition.
- 2013 capital expenditures were expected to be $35 million to $38 million, including $26 million to $29 million of Hospitality maintenance capital, approximately $3 million for Opry and Attractions, and approximately $6 million for other projects.
- The Company announced a dividend policy targeting at least 50% of adjusted funds from operations or 100% of REIT taxable income, whichever is greater, subject to board approval and debt restrictions. The first quarterly dividend was declared at $0.50 per share, or approximately $26.4 million.
- The Company authorized up to $100 million of common-stock repurchases, although the program does not require any purchases.
- Key risks include maintaining REIT qualification, satisfying required distributions, reliance on Marriott as the principal hotel manager, substantial debt maturities in 2014 and 2015, covenant restrictions, exposure to group-convention demand and economic conditions, geographic concentration, refinancing risk, and potential dilution from the convertible notes and warrants.
- Other unusual items included a $20.0 million gain on the sale of intellectual property to Marriott, $33.3 million of non-cash impairment charges related primarily to abandoned development and conversion projects, and $0.9 million of remaining Nashville Flood-related casualty costs.
- The Company has potential exposure of up to $16.9 million under contribution agreements related to guarantees on joint-venture debt, although no liability was recorded. Management stated that ordinary-course litigation was not expected to have a material effect.
Most important facts for investors to verify
- Whether Marriott delivers the projected revenue improvements and $38 million to $45 million of stabilized net cost synergies.
- The refinancing or repayment plan for the $360 million convertible notes due in 2014 and the $545 million credit facility maturing in 2015.
- Compliance with REIT income, asset and distribution tests, including the final treatment of the special dividend and pre-REIT accumulated earnings and profits.
- Actual 2013 cash dividends, share repurchases and capital expenditures relative to the announced plans and debt-covenant limitations.
- Hotel occupancy, ADR, RevPAR, group booking trends and the performance of Gaylord National and Gaylord Texan, which declined or remained pressured in 2012.
- Potential dilution from the convertible notes and warrants, including the filing’s estimate of approximately 4.8 million net shares or $183.4 million of incremental settlement exposure under specified assumptions.