NASHVILLE, Tennessee—Ryman Hospitality Properties, Inc. reported financial results for the third quarter of 2012.
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Highlights include:
- The transformation of Gaylord Entertainment into Ryman Hospitality Properties was put into motion during the third quarter.
- Despite the disruption to the business resulting from the sale of Gaylord Hotels to Marriott International on October 1, 2012, consolidated revenue increased 1.3 percent to $228.1 million in the third quarter of 2012 from $225.2 million in the same period last year. The hospitality segment, which includes Gaylord Opryland, Gaylord Palms, Gaylord Texan, Gaylord National and the Radisson Hotel at Opryland delivered total revenue of $207.9 million in the third quarter of 2012, an increase of 0.4 percent compared to $207.1 million in the prior-year quarter.
- Revenue per available room (“RevPAR”) for the third quarter of 2012 for the hospitality segment decreased 0.9 percent and total revenue per available room (“Total RevPAR”) was flat, each compared to the third quarter of 2011. Total RevPAR for the third quarter of 2012 for the hospitality segment included attrition and cancellation fees of $1.7 million collected during the quarter compared to $1.4 million collected in the prior-year quarter.
- Loss from continuing operations was $26.7 million, or $0.57 per fully diluted share (based on 46.5 million weighted average shares outstanding) in the third quarter of 2012 compared to a loss from continuing operations of $1.7 million, or $0.03 per fully diluted share, in the prior-year quarter (based on 48.4 million weighted average shares outstanding). Income from continuing operations for the third quarter 2012 includes $51.4 million in pretax expenses related to the Company’s conversion to a real estate investment trust (“REIT”). REIT conversion costs for the full year 2012, which have been segregated from the normal operating costs of the Company and presented separately in the accompanying financial information, include conversion costs incurred in the first and second quarter of 2012.
- Adjusted EBITDA, which includes REIT conversion costs of $51.4 million, was a loss of $2.7 million in the third quarter of 2012 compared to income of $46.2 million in the prior-year quarter.
- Consolidated Cash Flow (“CCF”) was $22.6 million in the third quarter of 2012 compared to $48.8 million in the same period last year. CCF in the third quarter of 2012 included $30.3 million of costs associated with the REIT conversion process.
- Gross advance group bookings in the third quarter of 2012 for all future periods were 338,434 room nights for the hospitality segment, a decrease of 22.2 percent compared to the same period last year. Net of attrition and cancellations, advance group bookings in the third quarter of 2012 for all future periods were 221,540 room nights, a decrease of 30.7 percent compared to the same period last year.
Colin V. Reed, chairman, chief executive officer and president of Ryman Hospitality Properties, stated, “This was an important quarter for our company, as we completed our transaction with Marriott and took another step closer to officially operating under the REIT structure. In the third quarter our focus was on achieving a smooth transition of the transfer of management of our resort hotel properties to Marriott on October 1st, completing the legal and regulatory steps associated with the conversion from Gaylord Entertainment to Ryman Hospitality Properties, establishing our new corporate organizational structure, and executing a stock repurchase and secondary offering. Our team has made significant progress on each of these fronts and is well-positioned to complete the REIT conversion process and elect REIT status effective January 1, 2013.
“Against the backdrop of the enormous change that took place across the entire company, we are pleased with how our business performed this quarter. We delivered an improved profitability performance at our properties, with a hospitality segment CCF margin increase of 100 basis points compared to the third quarter last year. We also saw slight increases in ADR and revenue in our hospitality segment, with Gaylord Palms and Gaylord National each posting particularly solid performances for the second consecutive quarter.
“In the third quarter we booked over 338,000 gross room nights and over 221,000 on a net room night basis. While these totals both were declines from the same period last year, given the magnitude of the disruption to our sales team as they prepared for integration into the Marriott system, we were pleased with this performance. We are confident that with the transaction behind us, the bookings performance should improve. In fact, during the month of October, group sales leads and tentative bookings for our hospitality segment each increased by over 20%, a solid indicator that the bookings pipeline is filling again and sales activity is increasing.”
Segment Operating Results
Hospitality
Key components of the Company’s hospitality segment performance in the third quarter of 2012 include:
- Hotel properties’ RevPAR decreased 0.9 percent to $116.24 in the third quarter of 2012 compared to $117.25 in the prior-year quarter. Total RevPAR for the hotel properties was $280.49 in the third quarter of 2012 compared to $280.56 in the prior-year quarter.
- Hotel properties’ CCF increased 4.1 percent in the third quarter of 2012 to $57.8 million compared to $55.5 million in the prior-year quarter. Hotel properties’ CCF Margin increased 100 basis points to 27.8 percent in the third quarter of 2012 compared to 26.8 percent for the same period last year.
- Attrition for our hotel properties that occurred for groups that traveled in the third quarter of 2012 was 10.2 percent of the agreed-upon room block compared to 9.4 percent for the same period in 2011. In-the-year, for-the-year cancellations in the third quarter of 2012 for the hotel properties totaled 21,912 room nights compared to 19,927 in the same period of 2011. Attrition and cancellation fee collections for the hotel properties totaled $1.7 million in the third quarter of 2012 compared to $1.4 million for the same period in 2011.
At the property level, Gaylord Opryland generated revenue of $63.5 million in the third quarter of 2012, a 12.3 percent decrease compared to the prior-year quarter of $72.4 million, driven by decreases in occupancy and Average Daily Rate (“ADR”), and a difficult comparison as a result of a record revenue and profitability performance at the property in the third quarter of 2011. Occupancy for the third quarter of 2012 was down 3.7 percentage points to 69.6 percent compared to the prior-year quarter. ADR during the third quarter of 2012 decreased 2.4 percent to $149.39, compared to $153.12 in the prior-year quarter, driven by lower-rated SMERF (Social, Military, Educational, Religious, and Fraternal) groups. RevPAR in the third quarter of 2012 decreased 7.3 percent to $104.01 compared to $112.17 in the prior-year quarter, as a result of the declines in occupancy and ADR. Total RevPAR decreased 12.4 percent for the third quarter of 2012 to $239.31 compared to $273.21 in the prior-year quarter, due to the unfavorable group mix described above. CCF was $16.9 million for the third quarter of 2012, a 29.2 percent decrease compared to $23.8 million in the prior-year quarter, driven by lower outside-the-room spending in food and beverage banquets and outlets as a result of lower-rated group business. CCF Margin was 26.6 percent in the third quarter of 2012, a decrease of 6.3 percentage points from the prior-year quarter.
Gaylord Palms posted revenue of $35.3 million in the third quarter of 2012, a 32.3 percent increase compared to $26.7 million in the prior-year quarter. The increase was driven by growth in occupancy, ADR, and outside-the-room spending. Occupancy for the third quarter of 2012 increased 7.8 percentage points over the prior-year quarter to 74.0 percent, and was positively impacted by an increase in group room nights. Room nights in the third quarter of 2012 included approximately 4,000 room nights out-of-service for renovations compared to approximately 6,340 room nights out-of-service in the same period last year. ADR for the third quarter of 2012 increased 9.8 percent to $144.37, compared to $131.43 in the prior-year quarter as the mix of business at Gaylord Palms shifted to higher-rated group business. Third quarter 2012 RevPAR increased 22.8 percent to $106.83 compared to $87.02 in the prior-year quarter. Total RevPAR in the third quarter of 2012 increased 29.4 percent to $281.01 compared to $217.09 in the prior-year quarter driven by the increase in outside-the-room spending as the group mix shifted to higher-rated groups that spent more on food and beverage – most notably in banquets. CCF in the third quarter of 2012 increased 235.6 percent to $8.1 million compared to $2.4 million in the prior-year quarter. This resulted in a CCF Margin for the third quarter of 2012 of 22.8 percent, a 13.8 percentage point increase compared to 9.0 percent in the prior-year quarter.
Gaylord Texan posted revenue of $46.7 million in the third quarter of 2012, a 2.0 percent decrease compared to the prior-year quarter of $47.6 million. It is important to note that Gaylord Texan had a difficult comparison against the third quarter of 2011 when the property achieved its best third quarter revenue and profitability performance on record. Occupancy for the third quarter of 2012 decreased by 0.9 percentage points to 79.0 percent compared to the third quarter of 2011, driven by a decrease in transient room nights due to the July 4th holiday falling mid-week in 2012 and the resulting negative impact on leisure transient resort pool/room night packages. ADR decreased 0.4 percent to $166.84 in the third quarter of 2012 compared to $167.51 in the prior-year quarter, due to a decline in association group ADR. RevPAR in the third quarter of 2012 decreased 1.5 percent to $131.82 compared to $133.82 in the prior-year quarter. Total RevPAR decreased 2.0 percent in the third quarter of 2012 to $335.60 from $342.55 in the prior-year quarter, driven by a decrease in outside-the-room spending as the group mix shifted to lower-rated groups that spent less on banquet offerings and purchased fewer banqueted events. CCF in the third quarter of 2012 decreased 8.1 percent to $14.1 million compared to $15.3 million in the prior-year quarter, resulting in a 30.2 percent CCF Margin, a 2.0 percentage point decrease from 32.2 percent in the prior-year quarter.
Gaylord National generated revenue of $60.0 million in the third quarter of 2012, a 3.7 percent increase compared to the prior-year quarter of $57.9 million, driven by increases in ADR and outside-the-room spending. Occupancy for the third quarter of 2012 was down 6.0 percentage points to 69.9 percent compared to the prior-year quarter, driven by a decrease in small executive meetings which typically book in-the-year, for-the-year. ADR increased 6.1 percent in the third quarter of 2012 to $196.14 compared to $184.78 in the prior-year quarter due to an increase in higher-rated corporate groups with higher outside-the-room spending. RevPAR in the third quarter of 2012 decreased 2.3 percent to $137.07 compared to $140.25 in the prior-year quarter, driven by the decrease in occupancy. Total RevPAR increased 3.7 percent to $326.78 in the third quarter of 2012 compared to $315.19 in the prior-year quarter, driven by an increase in outside-the-room spending – most notably in banquets as several groups that traveled selected especially robust banquet packages. CCF increased to $18.2 million in the third quarter of 2012 compared to $13.3 million in the prior-year quarter. CCF in the third quarter in 2012 included a $2.3 million marketing and maintenance expense reimbursement associated with the municipal bonds received from Prince George’s County in 2008 in connection with the development of the hotel. Including the positive impact of the marketing and maintenance expense reimbursement, CCF increased 36.4 percent to $18.2 million in the third quarter of 2012 compared to $13.3 million in the prior year quarter. Including the positive impact of the marketing and maintenance expense reimbursement, CCF Margin increased 7.2 percentage points to 30.3 percent in the third quarter of 2012 compared to 23.1 percent in the prior-year quarter, driven by increases in ADR and continued margin management efforts at the property level that drove favorable food costs and reduced labor costs.
Reed continued, “Our properties performed solidly this quarter. Gaylord Palms delivered very strong results, posting impressive ADR and occupancy increases, which drove RevPAR and Total RevPAR growth of nearly 23 percent and over 29 percent, respectively. These results contributed to a 13.8 percentage point increase in CCF margin. While this type of growth is not sustainable every quarter, it is certainly an indicator that with the completed rooms renovation and amenity enhancements, Gaylord Palms is well positioned in the Orlando market moving forward. Gaylord Texan and Gaylord Opryland also performed solidly. However each posted modest declines compared to the third quarter of 2011, due to exceptionally difficult comparisons, as both properties delivered their best third quarter CCF performance of all time in 2011. Gaylord National was a strong performer this quarter, as lower occupancy was offset by a higher-rated group mix. This resulted in an increase in outside-the-room spending and Total RevPAR, which along with continued cost management contributed to a CCF margin increase. As a result of the improved performance of the hotel, we are pleased to report that we are now receiving both the marketing and maintenance reimbursement and cash on the accrued interest for the Prince George’s County series “B” municipal bonds. Going forward, we expect that the marketing and maintenance expense reimbursement will generate an incremental $2 million of annual proceeds as evident in the third quarter of 2012.”
Opry and Attractions
Opry and Attractions segment revenue increased 11.4 percent to $20.2 million in the third quarter of 2012, compared to $18.1 million in the year-ago quarter driven by increased attendance at the Grand Ole Opry. The segment’s CCF increased to $6.0 million in the third quarter of 2012 from $4.8 million in the prior-year quarter.
Corporate and Other
Corporate and Other operating loss totaled $14.5 million in the third quarter of 2012 compared to an operating loss of $14.6 million in the same period last year. Corporate and Other CCF in the third quarter of 2012 was a loss of $10.7 million compared to a loss of $11.4 million in the same period last year. These figures exclude the REIT conversion expenses described below.
Real Estate Investment Trust (REIT) Conversion
On October 1, 2012, the Company completed the sale of the Gaylord Hotels brand and the rights to manage its four resort hotels to Marriott International for $210 million in cash. In addition to assuming the management responsibilities for these hotels, Marriott also assumed the management responsibilities for three local Nashville attractions – the General Jackson Showboat, Gaylord Springs Golf Links and Wildhorse Saloon. In addition, the Company expects that Marriott will assume management duties for the Radisson Hotel (to be renamed the Inn at Opryland) on December 1, 2012. The Company will continue to manage the Grand Ole Opry, the Ryman Auditorium and WSM-AM.
As a component of the REIT conversion, effective October 1, 2012 the Company’s predecessor, Gaylord Entertainment Company, merged with and into its wholly-owned subsidiary, Ryman Hospitality Properties, Inc. The merger was approved by the stockholders of Gaylord at a special meeting of stockholders held on September 25, 2012. As a result of the merger, each outstanding share of Gaylord common stock converted into the right to receive one share of Ryman Hospitality Properties common stock, and Ryman Hospitality Properties succeeded to and began conducting, directly or indirectly, all of the business conducted by Gaylord immediately prior to the merger. Ryman Hospitality Properties intends to elect to be taxed as a REIT for federal income tax purposes effective as of January 1, 2013. The Company believes it will be the only lodging REIT whose stated focus is on group-oriented destination hotels in urban and resort markets.
Also in conjunction with the REIT conversion, Ryman Hospitality Properties declared a special dividend on shares of its common stock on November 2, 2012 to purge its undistributed earnings and profits attributable to taxable periods ending prior to January 1, 2013. The special dividend will generally be treated as a taxable distribution to stockholders. Ryman Hospitality Properties stockholders as of the November 13, 2012 record date will have the option to elect to receive the special dividend in the form of cash or shares of Ryman Hospitality Properties common stock. Ryman Hospitality Properties expects to limit the total amount of cash payable in the special dividend to a maximum of 20% of the total value of the special dividend. The balance of the special dividend will be in the form of shares of Ryman Hospitality Properties common stock. If the total amount of cash elected by stockholders exceeds 20% of the total value of the special dividend, then, in general, the available cash will be prorated among those stockholders that elect to receive cash. Additional details and consequences of the special dividend will be described to stockholders in the election form and accompanying materials that will be mailed to stockholders in connection with the special dividend.
The Company has segregated all REIT conversion costs from normal operations and reported these amounts as REIT conversion costs in the accompanying financial information. During the third quarter of 2012, the Company incurred $51.4 million of various costs associated with this conversion. These costs include noncash impairment charges ($21.3 million), professional fees ($14.0 million), employment and severance costs ($10.3 million), underwriting costs ($2.8 million), and various other transition costs ($3.0 million).
Upon completion of the REIT conversion, the Company will no longer view independent, large-scale development of resort and convention hotels as a means of its growth. As a result of its decision to convert to a REIT, in connection with the preparation of its quarterly financial statements, the Company evaluated its previously capitalized costs associated with potential new developments and expansions of its existing properties. As discussed above, the Company incurred an impairment charge of $14.0 million with respect to the third quarter of 2012 to write off previously capitalized costs associated with a potential future expansion of Gaylord Opryland and the Company’s previous development project in Mesa, Arizona as a result of the Company’s decision to abandon these projects. In addition, the Company will not proceed with its previously announced Aurora, Colorado development project in the form previously anticipated. The Company will reexamine how the Aurora project can be completed with minimal financial commitment, although it may not identify such opportunity. The Company also abandoned certain other projects associated with its existing properties and recorded an additional impairment charge of $7.3 million with respect to the third quarter of 2012 to write off previously capitalized costs primarily associated with information technology projects.
Including the costs incurred in the first and second quarter and the costs noted above (but excluding non-cash impairment charges), the Company currently estimates that it will incur approximately $73 million in one-time costs related to the REIT conversion. The Company also anticipates that it will incur federal income taxes associated with the receipt of the purchase price in the Marriott sale transaction and other transactions related to the REIT conversion, net of remaining net operating losses, of approximately $10 million to $20 million. In addition, the Company will be required to make the special dividend on or before December 31, 2012 to be eligible to elect to be taxed as a REIT effective January 1, 2013.
Reed stated, “We are excited to have completed the Marriott transaction, and our relationship with Marriott to date has been an excellent one. The ongoing transition process is progressing smoothly and the Board and the management team would like to thank our employees, our partners at Marriott, and our stockholders for their ongoing efforts and support as we move through this challenging period. Looking towards the future we believe that our company will be well-positioned for sustained growth, and that with our focus on the group and meeting segment, we will offer a unique value proposition within the REIT sector.”
Development Update
As a REIT, the Company will no longer view large scale development of resort and convention center hotels as a means for growth. As a result, the Company will not proceed with its previously announced development projects in the form previously anticipated. In the third quarter, the Company informed the Mayor of Mesa, Arizona as well as DMB Associates, the land owner in Mesa that it will not be participating in the development phase of the Mesa project. Ryman Hospitality Properties is reexamining how the previously announced Aurora, Colorado project could be completed with minimal financial commitment through the development phase. This examination will be undertaken with investor expectations at the forefront, and management will keep investors informed as the process evolves.
Liquidity
As of September 30, 2012, the Company had long-term debt outstanding, including current portion, of $1,148.5 million and unrestricted cash of $24.2 million. At September 30, 2012, $260.0 million of borrowings were undrawn under the Company’s $925.0 million credit facility, and the lending banks had issued $8.0 million in letters of credit, which left $252.0 million of availability under the credit facility. Subsequent to the end of the quarter, the Company received $210 million from Marriott International upon the closing of the sale transaction. In addition, the Company expects to distribute up to approximately $61.9 million in cash during the fourth quarter of 2012 as part of the special dividend.
Outlook
The following business performance outlook is based on current information as of November 6, 2012. The Company does not expect to update the guidance provided below before next quarter’s earnings release. However, the Company may update its full business outlook or any portion thereof at any time for any reason.
Reed concluded, “The transformation that our company has been undergoing negatively impacted our short-term bookings production for the second half of the year. Additionally, we have seen short-term cancellations at our four large hotels as a result of Hurricane Sandy’s landfall on October 29th. While these cancellations were minor at Gaylord Opryland, Gaylord Palms received a cancellation notice from a 6,000+ room night military group whose attendees were unable to depart from the Washington, D.C. area due to the storm. Gaylord National received cancellations that totaled over 7,000 room nights as a result of the storm. We estimate the total CCF impact from the storm at approximately $3 million. As a result of the impact of this storm, coupled with the temporary slowdown in our bookings during the transition process, we believe it is appropriate to revise our guidance to more appropriately reflect our expectations for the remainder of the year. We are tightening the top end of our guidance for Hospitality Segment RevPAR from an increase of 3 percent to 6 percent to an increase of 3 percent to 4 percent, and we are revising our guidance for Total RevPAR from an increase of 3 percent to 6 percent to an increase of 3 percent to 4 percent year-over-year. While Hurricane Sandy has negatively impacted our hospitality segment results, we are achieving improved performance in our Opry and Attractions segment as well as our Corporate and Other segment. Therefore, we are tightening the top end of our consolidated guidance to reflect a total Company CCF range of $235 million to $245 million in 2012. We anticipate that we will provide guidance as a REIT for 2013 when we report our fourth quarter and 2012 full year results in February of 2013.”