Ryman Hospitality Properties, Inc. quarterly report, Q3 FY2018

Ryman Hospitality Properties, Inc. — 2018 Q3 Form 10-Q

Business context and reporting period

Ryman Hospitality Properties operates as a REIT focused on group-oriented destination hotels and entertainment assets. Its portfolio includes four Gaylord Hotels resorts managed by Marriott, overflow hotels, a 35% interest in the Gaylord Rockies joint venture, and entertainment assets including the Grand Ole Opry, Ryman Auditorium, Ole Red, WSM-AM, and Opry City Stage. The filing covers the three and nine months ended September 30, 2018; financial statements are unaudited.

Financial performance and key metrics

Metric	Q3 2018	Q3 2017	9M 2018	9M 2017
Revenue	$292.2 million	$264.7 million	$914.6 million	$839.5 million
Operating income	$40.1 million	$37.5 million	$162.7 million	$149.1 million
Net income	$22.6 million	$23.9 million	$105.5 million	$103.8 million
Diluted EPS	$0.44	$0.46	$2.05	$2.02
Operating margin	13.7%	14.2%	17.8%	17.8%
Dividends declared per share	$0.85	$0.80	$2.55	$2.40

Q3 revenue increased 10.4%, while nine-month revenue increased 8.9%. Hospitality revenue rose 8.6% in Q3 and 7.9% year to date; Entertainment revenue rose 22.4% and 17.3%, respectively.
Q3 operating income increased 6.9%, but operating margin declined to 13.7% from 14.2%, primarily because expenses grew faster than revenue and the company recorded a $4.5 million impairment charge.
Q3 net income decreased 5.4%, mainly due to higher interest expense and income taxes. Nine-month net income increased 1.6% despite higher interest and tax expense.
Hospitality operating income increased 19.9% in Q3 and 17.0% for the nine months. Hospitality Total RevPAR increased 4.7% in Q3 and 5.9% year to date, while RevPAR declined 1.0% in Q3 but increased 3.8% year to date.
Hospitality occupancy was 73.2% in Q3 and 75.3% for the nine months, compared with 75.5% and 75.0%, respectively, in the prior-year periods. ADR increased 2.2% in Q3 and 3.3% year to date.
Net cash provided by operating activities was $225.3 million for the first nine months, compared with $215.8 million in 2017. Capital expenditures were $132.8 million, compared with $127.1 million.
Cash, cash equivalents, and restricted cash totaled $124.4 million at September 30, 2018, including $86.0 million of unrestricted cash and $38.4 million of restricted cash.
Total debt and capital lease obligations were $1.693 billion, compared with $1.591 billion at December 31, 2017. Debt consisted primarily of the revolving facility, Term Loan A, Term Loan B, and $750 million of 5% senior notes.
The company had $427.6 million of available capacity under its $700 million revolving credit facility, after $270.0 million of borrowings and $2.4 million of letters of credit. The company was in compliance with all debt covenants.

Material changes versus the prior comparable period

Gaylord Texan benefited from its rooms and meeting-space expansion, increasing Q3 revenue 25.2% and nine-month revenue 12.6%. Gaylord Opryland benefited from the completion of its rooms renovation project and increased group business.
Entertainment revenue increased following the May 2018 opening of Ole Red Nashville and the company’s acquisition of the remaining 50% interest in Opry City Stage. Entertainment operating income nevertheless declined 13.8% in Q3 and 18.6% year to date because expenses grew faster than revenue.
Opry City Stage operations were temporarily suspended in September 2018 for repositioning. The company recorded a $4.5 million impairment charge after concluding that ongoing operations were below acquisition expectations.
On June 26, 2018, the company repriced Term Loan B to LIBOR plus 2.00% from LIBOR plus 2.25% and deferred excess cash flow payment requirements until December 31, 2019. It wrote off $2.0 million of deferred financing costs as a result.
The company adopted the new revenue recognition standard in the first quarter of 2018 using the modified retrospective method. It recorded a $0.1 million transition adjustment to retained earnings; prior periods were not restated.
The company declared a quarterly dividend of $0.85 per share, up from $0.80 in the comparable 2017 period, and stated that it currently planned to pay $0.85 per share in January 2019.

Guidance, outlook, commentary, risks, and unusual items

The company expected Gaylord Rockies to open in late 2018 and entered into an agreement on September 13, 2018 to increase its ownership from 35% to approximately 62.3% for approximately $242 million in cash. Closing was expected by year-end 2018 but remained subject to lender and Marriott consent and other conditions.
Management stated that cash on hand and operating cash flow, together with available credit capacity, were expected to fund normal operations, interest, dividends, planned capital expenditures, and the proposed Gaylord Rockies investment.
For the remainder of 2018, management anticipated approximately $242 million for the additional Gaylord Rockies interest and $45 million to $65 million of capital expenditures, including maintenance spending and construction of a luxury indoor/outdoor waterpark at Gaylord Opryland.
The company has guarantees related to Gaylord Rockies construction and mezzanine debt, including a construction-loan principal repayment guarantee initially capped at $21 million and estimated pro rata pre-opening construction-loan interest of $9.8 million. Certain completion and pre-opening operating guarantees are uncapped. No liability had been recorded for these guarantees at September 30, 2018.
The company’s principal market risk is interest-rate exposure. A 100-basis-point increase in LIBOR would increase estimated annual interest expense by approximately $2.7 million on the revolver, $2.0 million on Term Loan A, and $4.9 million on Term Loan B, based on balances at September 30, 2018.
Gaylord National’s results were affected by Hurricane Florence in September 2018. Hospitality results are also sensitive to group bookings, cancellations, attrition, transient demand, economic conditions, geographic concentration, and Marriott’s management performance.
Contractual obligations totaled $2.429 billion, including $1.714 billion of long-term debt, $676.9 million of operating leases, and $37.2 million of construction commitments. Projected future interest payments on debt were approximately $306.9 million, based on stated or then-current variable rates.

Important facts for investors to verify

Whether the Gaylord Rockies ownership increase closed on the expected terms and how consolidation of the joint venture affected debt, guarantees, cash flow, and leverage.
The timing and economics of Opry City Stage’s repositioning, including whether additional impairment or operating losses occur.
Actual 2018 capital expenditures and the funding of the Gaylord Opryland waterpark and other expansion projects.
Group booking trends, occupancy, ADR, RevPAR, Total RevPAR, and attrition or cancellation fee collections.
Exposure to rising LIBOR and the company’s ability to maintain debt covenants while funding dividends, capital expenditures, and Gaylord Rockies commitments.
The sustainability of the $0.85 quarterly dividend relative to adjusted funds from operations, maintenance capital expenditures, taxable income, and operating cash flow.
Potential liabilities from Gaylord Rockies construction, completion, mezzanine, environmental, and pre-opening guarantees that were not recorded on the balance sheet.