Ryman Hospitality Properties, Inc. Reports Second Quarter 2013 Results; Updates Outlook for 2013

Ryman Hospitality Properties, Inc. (NYSE: RHP), a lodging real estate investment trust ("REIT") specializing in group-oriented, destination hotel assets in urban and resort markets, today reported financial results for the second quarter ended June 30, 2013.

Colin V. Reed, chairman, chief executive officer and president of Ryman Hospitality Properties, stated, “We continued to face near-term challenges in the second quarter, as the headwinds related to the management transition to Marriott, as well as overall weakness in the group sector, impacted our results. As communicated in June, lower than expected in-the-year, for-the-year group bookings, cost synergies not being realized as quickly as anticipated, and margin disruption related to the transition adversely impacted this quarter.

“Frankly, we are disappointed in several elements of our hotel results this quarter related to near-term group business as well as management transition issues. However, we have been working extremely closely with Marriott to manage these transition concerns as rapidly and thoroughly as possible, and to ensure that the challenges related to the transition are isolated to our 2013 performance. There is now a plan in place that we support that focuses on specific actions to be taken to improve performance in key areas. These efforts include supplementing resources to accelerate the transition and drive short-term revenues. The plan also includes tailoring the sales process to better align with the dynamics of large group hotels such as ours and reducing expenses to drive margin improvement at the property level.

Reed continued, “In terms of our performance, the strong level of advanced group business on the books for future years, our solid transient room night performance, which increased 22 percent in the second quarter, and the steady realization of our corporate cost synergies all support our confidence in the long-term value of our REIT conversion and the performance of our hotel assets moving forward.”

Arne Sorenson, Marriott International President and Chief Executive Officer said, “We are disappointed with the results at the Gaylord hotels in the second quarter and are working closely with Ryman to achieve the revenue and cost synergies that both companies expect. To improve the top line, we are increasing both on-property and above-property group sales staff and increasing incentives for group sales performance. On the cost side, we are pursuing department by department cost saving initiatives to improve margin performance while retaining the uniqueness and strong customer preference for which the Gaylord brand is known. We believe that the action plans we are implementing will improve results, ensuring the long-term success of these hotels and the brand.”

Second Quarter 2013 Results (as compared to Second Quarter 2012):

• Hospitality Revenue Per Available Room, or RevPAR, decreased 3.9% to $130.37
• Hospitality Total RevPAR decreased 3.2% to $302.29 compared to Hospitality Retail Adjusted Total RevPAR in the second quarter 2012, or a decrease of 4.4% compared to unadjusted Hospitality Total RevPAR in the second quarter 2012
• Total Revenue decreased 2.0% to $245.2 million compared to Total Retail Adjusted Revenue in the second quarter 2012, or a decrease of 3.2% compared to unadjusted Total Revenue in the second quarter 2012
• Hospitality Revenue decreased 3.2% to $222.8 million compared to Hospitality Retail Adjusted Revenue in the second quarter 2012, or a decrease of 4.4% compared to unadjusted Hospitality Revenue in the second quarter 2012
• Net income was $16.4 million compared to net income of $9.0 million in second quarter 2012
• Adjusted EBITDA on a consolidated basis decreased 2.9% to $70.9 million
• Hospitality Adjusted EBITDA decreased 13.0% to $68.0 million
• Adjusted Funds from Operations, or Adjusted FFO, was $48.8 million, an increase of 56.0% over the prior-year quarter. Adjusted FFO excluding REIT conversion costs was $51.5 million, an increase of 54.2% over prior-year quarter.
• Gross advanced group bookings for all future periods decreased 41.5% to 346,705 room nights; Net advanced group bookings for all future periods decreased 60.9% to 189,894 room nights
• Transient room night bookings, aided by the Marriott Rewards program and transient delivery channels, increased by 23,961 room nights or 21.9 % and transient Average Daily Rate, or ADR, grew by $4.89
• Cancellations in-the-year, for-the-year included 21,415 group rooms compared to 14,997 group rooms in the second quarter 2012
• Attrition for groups that traveled in the second quarter of 2013 was 12.9% of the agreed-upon room block compared to 6.7% in the same period in 2012; Attrition and cancellation fees collected during the quarter were $1.3 million compared to $1.7 million in the same period in 2012

For the Company’s definitions of RevPAR, Total RevPAR, Adjusted EBITDA, Retail Adjusted Revenue, Retail Adjusted Total RevPAR, and Adjusted FFO as well as a reconciliation of the non-GAAP financial measure Adjusted EBITDA to Net Income, a reconciliation of the non-GAAP financial measure Retail Adjusted Revenue to revenue, and a reconciliation of the non-GAAP financial measure Adjusted FFO to Net Income, see “Retail Adjusted Revenue”, “Calculation of RevPAR and Total RevPAR”, “Non-GAAP Financial Measures”, and “Supplemental Financial Results” below.

Hospitality

Property-level results and operating metrics for the second quarter of 2013 and 2012 are presented in greater detail below and under “Supplemental Financial Results.”

• Gaylord Opryland RevPAR decreased 12.7 percent to $112.12 compared to the second quarter of 2012. Total RevPAR decreased 9.4 percent to $250.17 as compared to Retail Adjusted Total RevPAR and margin declined 3.1 percentage points compared to the same period last year. The decline in Total RevPAR from the prior year was primarily related to a drop in group room nights and related outside the room spending. This decline in group rooms was partially offset by a 50.8% increase in transient room nights. The property experienced its highest second quarter attrition level on record.
• Gaylord Palms RevPAR decreased 5.8 percent to $129.18 compared to the second quarter of 2012. Total RevPAR decreased 4.4 percent to $331.31 and margin declined 3.6 percentage points compared to the same period last year. The decrease in RevPAR is primarily related to a decline in room nights for the Association segment with a modest decline in ADR for that particular group segment. This decline was partially offset by a 45.6% increase in transient room nights and a 13.2% increase in transient ADR compared to the second quarter of 2012. The property had a tough comparison to a strong second quarter 2012, particularly June 2012.
• Gaylord Texan RevPAR increased 4.9 percent to $129.99 compared to the second quarter of 2012. Total RevPAR increased slightly to $319.69 as compared to Retail Adjusted Total RevPAR and margin declined 2.4 percentage points compared to the same period last year. The increase in RevPAR was related to both an increase in group room nights and group ADR; however, group performance in the quarter was negatively impacted by high levels of cancellation and attrition among large groups traveling to the property. The property also experienced a 14.6 percent decline in transient room nights compared to the same period last year. This drop in transient room nights was primarily related to a number of groups whose peak occupancy occurred over weekend patterns, which are typically transient demand periods.
• Gaylord National RevPAR increased 1.4 percent to $165.28 compared to the second quarter of 2012. Total RevPAR increased 1.8 percent to $372.87 as compared to Retail Adjusted Total RevPAR and margin declined 3.4 percentage points compared to the same period last year. The slight increase in RevPAR compared to the prior year quarter was driven primarily by an increase in ADR in all group and transient segments. In addition, the property experienced high attrition during the quarter, which was nearly twice as high as the same period last year. The property continued to experience the effects from the Federal budget sequestration and its negative impact on the behavior of government-related groups during the quarter, as well as general group softness. In spite of these headwinds, the property’s year-over-year RevPAR increase for the quarter slightly exceeded the greater Washington DC market.

Reed continued, “While we anticipated a challenging comparison to the second quarter last year at our properties, largely due to exceptional 2012 second quarter performances at Gaylord Opryland and Gaylord Palms, the negative trends across the group sector were more significant than expected. This resulted in elevated cancellation and attrition levels at our properties.”

“At an operational level, there continues to be a learning curve associated with the adoption of new Marriott systems and procedures. However, we are confident that as we work with Marriott our business will continue to make improvements in near-term group bookings and occupancy, margin performance at the property level, and overall profitability.”

Reed continued, “After a very strong sales production in the first quarter, our overall year-to-date gross room night production remains in-line with average production across our properties over the past three years, despite a decline in gross group room night production compared to the second quarter last year. We were pleased with the 21.9 percent increase in transient room nights resulting from Marriott’s strong transient delivery channels, which we believe will only become more effective with the integration completed.”

Opry and Attractions

Opry and Attractions segment had a record quarter in both revenue and profitability. Revenue for the segment rose 10.8 percent to $22.4 million in the second quarter of 2013 from $20.2 million in the prior-year quarter. The segment’s Adjusted EBITDA rose 27.0 percent to $7.9 million in the second quarter of 2013, from $6.2 million in the prior-year quarter.

Corporate

Corporate and Other Adjusted EBITDA totaled a loss of $5.0 million in the second quarter of 2013 compared to a loss of $11.4 million in the same period last year. The reduction in costs at the Corporate level is directly related to the transition of the Company to a REIT and are in-line with previously discussed estimated cost synergies.

Impact of July Water Outage on Gaylord National

Due to a water emergency in southern Prince George’s County, the Gaylord National suspended operations on July 17, 2013, until July 18, 2013. According to the Company’s current analysis, this incident resulted in an estimated loss of approximately $1.5 million in revenue and approximately $0.8 million in profitability, which will be reflected in the Company’s third quarter 2013 results.

REIT Conversion Costs

The Company has segregated all conversion costs associated with our conversion to a REIT and reported these amounts separately as REIT conversion costs in the accompanying financial information. During the second quarter of 2013, the Company incurred $5.4 million of costs associated with this conversion compared to $3.4 million in the second quarter of 2012.

Dividend Update

The Company paid its second quarter cash dividend of $0.50 per share of common stock on July 15, 2013 to stockholders of record on June 26, 2013. It is the Company’s current plan to distribute total annual dividends of approximately $2.00 per share for 2013 in cash in equal quarterly payments in April, July, October, and January, subject to our board of directors’ future determinations as to the amount of quarterly distributions and the timing thereof.

Balance Sheet/Liquidity Update

As of June 30, 2013, the Company had total debt outstanding of $1,154.7 million and unrestricted cash of $44.4 million. At June 30, 2013, $463.0 million of borrowings were drawn under the Company’s $1 billion credit facility, and the lending banks had issued $6.9 million in letters of credit, which left $530.1 million of availability for borrowing under the credit facility.

During the quarter, the Company successfully refinanced its $925 million credit facility that was scheduled to mature in August 2015. The increased and extended $1 billion credit facility will mature in April 2017 and is comprised of a $700 million revolving credit line and a fully funded $300 million term loan. The Company was able to secure favorable pricing on the facility with initial pricing set at LIBOR + 1.75%. Pricing is determined on a grid pricing structure based on a consolidated funded indebtedness to total asset value ratio. The extended facility reflects both a reduction in the term loan and an increase in the revolving credit line, as well as improved pricing.

During the quarter, the Company completed a private placement of $350 million aggregate principal amount of 5.0% senior notes due 2021 (the “Notes”), which closed on April 3, 2013. The Notes are senior unsecured obligations of the Company’s issuing subsidiaries and are guaranteed by the Company and all of the Company’s subsidiaries that guarantee its senior credit facility. Aggregate net proceeds from the sale of the notes were approximately $342 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses. The Company used substantially all of the net proceeds of the offering to repay amounts outstanding under its revolving credit facility.

During the quarter, the Company repurchased and cancelled approximately 1.0 million shares of its common stock for an aggregate purchase price of $44.3 million, which the Company funded using cash on hand and borrowings under the revolving credit line of its credit facility.

Subsequent to the end of the quarter, the Company announced that it repurchased in private transactions $54.7 million in principal amount of its 3.75% convertible senior notes due 2014, which were cancelled, and settled $1.2 million in principal amount of the convertible notes that were converted by a holder. After these transactions, $304.1 million in principal amount of the notes remains outstanding. The repurchases were made for aggregate consideration of $98.6 million funded by draws under the Company’s revolving credit facility. The Company expects to record a loss on extinguishment of debt of approximately $3 million in the third quarter related to these repurchases.

In connection with the repurchase of notes, the Company proportionately reduced the number of options and warrants underlying the bond hedge transaction related to the convertible notes. In consideration for these adjustments, the counterparties to the bond hedge transactions paid the Company 157,886 shares of the Company’s common stock, which were subsequently cancelled. The adjustments to the options and warrants were considered modifications to the terms of the agreements, and the Company recognized a charge of $4.9 million in the second quarter, which reduced net income available to common shareholders and earnings per share available to common shareholders.

Guidance Update:

The Company is revising its 2013 guidance on a consolidated as well as a segment basis. The revised guidance reflects lower than anticipated actual performance for the hospitality segment during the second quarter in May and June, continued softness in group demand during the third quarter, lower than anticipated near-term cost synergies at our properties, and steady, but slower, margin recovery during the second half of 2013. Furthermore, the revised guidance reflects better than expected performance in our Opry and Attractions businesses, as well as refining our estimates of corporate cost synergies.

Reed continued, “The fact is the management transition is not going as smoothly as both Ryman and Marriott had planned, which includes the ramping up of the regional sales office, and cost synergy materialization. This, coupled with a weak group sector, has put additional pressure on the second half of the year. Therefore, we feel it is prudent to further adjust our guidance for 2013.”

For our definitions of RevPAR, Total RevPAR, Adjusted EBITDA, and Adjusted FFO as well as a reconciliation of the non-GAAP financial measure Adjusted EBITDA to Net Income, a reconciliation of the non-GAAP financial measure Adjusted FFO to Net Income, and 2012 Retail Adjusted Revenue and Total RevPAR amounts, see “Calculation of RevPAR and Total RevPAR”, “Non-GAAP Financial Measures”, “Supplemental Financial Results” and “Reconciliation of Forward-Looking Statements” below.

Earnings Call information

Ryman Hospitality Properties will hold a conference call to discuss this release today at 10:00 a.m. ET. Investors can listen to the conference call over the Internet at www.rymanhp.com. To listen to the live call, please go to the Investor Relations section of the website (Investor Relations/Presentations, Earnings, and Webcasts) at least 15 minutes prior to the call to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will run for at least 30 days.

About Ryman Hospitality Properties, Inc.:

Ryman Hospitality Properties, Inc. (NYSE: RHP) is a REIT for federal income tax purposes, specializing in group-oriented, destination hotel assets in urban and resort markets. The Company’s owned assets include a network of four upscale, meetings-focused resorts totaling 7,795 rooms that are managed by world-class lodging operator Marriott International, Inc. under the Gaylord Hotels brand. Other owned assets managed by Marriott International, Inc. include Gaylord Springs Golf Links, the Wildhorse Saloon, the General Jackson Showboat and The Inn at Opryland, a 303-room overflow hotel adjacent to Gaylord Opryland. The Company also owns and operates a number of media and entertainment assets, including the Grand Ole Opry (opry.com), the legendary weekly showcase of country music’s finest performers for nearly 90 years; the Ryman Auditorium, the storied former home of the Grand Ole Opry located in downtown Nashville; and WSM-AM, the Opry’s radio home. For additional information about Ryman Hospitality Properties, visit www.rymanhp.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains statements as to the Company’s beliefs and expectations of the outcome of future events that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Examples of these statements include, but are not limited to, statements regarding the future performance of our business, the effect of the Company’s election of REIT status, the amount of REIT conversion or other costs relating to the restructuring transactions, anticipated cost synergies and revenue enhancements from the Marriott relationship, the effect of and degree of success of the joint action plan to improve the performance of the Hospitality segment, the expected approach to making dividend payments, the board’s ability to alter the dividend policy at any time, and other business or operational issues. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These include the risks and uncertainties associated with economic conditions affecting the hospitality business generally, the geographic concentration of the Company’s hotel properties, business levels at the Company’s hotels, the effect of the Company’s election to be taxed as a REIT for federal income tax purposes effective for the year ending December 31, 2013, the Company’s ability to remain qualified as a REIT, the Company’s ability to execute its strategic goals as a REIT, the effects of business disruption related to the Marriott management transition and the REIT conversion, the Company’s ability to realize cost savings and revenue enhancements from the REIT conversion and the Marriott transaction, the Company’s ability to generate cash flows to support dividends, future board determinations regarding the timing and amount of dividends and changes to the dividend policy, which could be made at any time, the determination of Adjusted FFO and REIT taxable income, and the Company’s ability to borrow funds pursuant to its credit agreements. Other factors that could cause operating and financial results to differ are described in the filings made from time to time by the Company with the U.S. Securities and Exchange Commission (SEC) and include the risk factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013. The Company does not undertake any obligation to release publicly any revisions to forward-looking statements made by it to reflect events or circumstances occurring after the date hereof or the occurrence of unanticipated events.

Additional Information

This release should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent report on Form 10-K. Copies of our reports are available on our website at no expense at www.rymanhp.com and through the SEC’s Electronic Data Gathering Analysis and Retrieval System (“EDGAR”) at www.sec.gov.

Retail Adjusted Revenue

Under Marriott International, Inc.’s management of Gaylord Opryland, Gaylord Texan, and Gaylord National, the retail operations of such hotels were outsourced to a third party retailer beginning in the fourth quarter of 2012. The properties now receive rental lease payments rather than full retail revenue and associated expense. The net impact of this change lowered overall retail revenue for each affected property. During the second quarter of 2013 the change resulted in revenue decreases of approximately $2.9 million (Gaylord Opryland–$1.8 million, Gaylord Texan–$0.7 million, and Gaylord National–$0.5 million). The change impacted consolidated revenue, Hospitality segment revenue, property revenue, and Total RevPAR as explained below. To enable period-over-period comparison, we have included adjusted 2012 revenue and 2012 Total RevPAR figures to reflect the elimination of retail revenues from operations that have been outsourced in the 2013 period. No adjustments were made to the Gaylord Palms’ results due to the fact that during all periods presented, retail operations were outsourced at that property. A reconciliation of actual revenue to Retail Adjusted Revenue for the 2012 period is set forth below under “Supplemental Financial Results.”

Calculation of RevPAR and Total RevPAR

We calculate revenue per available room (“RevPAR”) for our hotels by dividing room revenue by room nights available to guests for the period. We calculate total revenue per available room (“Total RevPAR”) for our hotels by dividing the sum of room revenue, food & beverage, and other ancillary services revenue by room nights available to guests for the period. We calculate retail adjusted total revenue per available room (“Retail Adjusted Total RevPAR”) for our hotels for 2012 by dividing the sum of room revenue, food & beverage, and other ancillary services revenue minus the retail inventory adjustment for the period by room nights available to guests for the period.

Under Marriott International, Inc.’s management of Gaylord Opryland, Gaylord Texan, and Gaylord National, the retail operations of such hotels were outsourced to a third party retailer beginning in the fourth quarter of 2012. The properties now receive rental lease payments rather than full retail revenue and associated expense. The net impact of this change lowered overall retail revenue for each affected property. To enable period-over-period comparison, we have based 2013 Total RevPAR guidance on 2012 Retail Adjusted Revenue and 2012 Retail Adjusted Total RevPAR figures, which reflect the elimination from the 2012 figures of retail revenues from operations that have been outsourced in the 2013 period. No adjustments were made to the Gaylord Palms’ revenue due to the fact that during all periods presented, retail operations were outsourced at that property. A presentation of actual revenue and Retail Adjusted Revenue for the 2012 period is set forth below under “Supplemental Financial Results.”

RevPAR estimated annual change included in our guidance is based on 2012 RevPAR of $123.36 (as adjusted to reflect a change in room counting methods that does not exclude renovation rooms from the calculation of rooms available, per Marriott room counting methods), and Total RevPAR estimated annual change is based on 2012 Retail Adjusted Total RevPAR of $306.41 (as adjusted to reflect the elimination from the first three quarters of 2012 of revenues from retail operations that were outsourced to a third-party retailer beginning in the fourth quarter of 2012, as well as Marriott room counting methods).

Non-GAAP Financial Measures

We present the following non-GAAP financial measures we believe are useful to investors as key measures of our operating performance: Adjusted EBITDA, Adjusted FFO and Retail Adjusted Revenue, as described above.

To calculate Adjusted EBITDA, we determine EBITDA, which represents net income (loss) determined in accordance with GAAP, plus loss (income) from discontinued operations, net; provision (benefit) for income taxes; other (gains) and losses, net; (income) loss from unconsolidated entities; interest expense; and depreciation and amortization, less interest income. Adjusted EBITDA is calculated as EBITDA plus preopening costs; non-cash ground lease expense; equity-based compensation expense; impairment charges; any closing costs of completed acquisitions; interest income on Gaylord National bonds; other gains (and losses); REIT conversion costs and any other adjustments we have identified in this release. We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because this measure helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from our operating results. A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA and a reconciliation of segment operating income to segment Adjusted EBITDA are set forth below under “Supplemental Financial Results.” Our method of calculating Adjusted EBITDA as used herein differs from the method we used to calculate Adjusted EBITDA as presented in press releases covering periods prior to 2013. Our net income and Adjusted EBITDA do not reflect the impact of the loss on the call spread settlement related to our convertible notes repurchase.

We calculate Adjusted FFO to mean net income (loss) (computed in accordance with GAAP), excluding non-controlling interests, and gains and losses from sales of property; plus depreciation and amortization (excluding amortization of deferred financing costs and debt discounts) and impairment losses; we also exclude written-off deferred financing costs, non-cash ground lease expense, amortization of debt discounts and amortization of deferred financing costs; and gain (loss) on extinguishment of debt, and subtract certain capital expenditures (the required FF&E reserves for our managed properties plus maintenance capital expenditures for our non-managed properties). We also exclude the effect of the non-cash income tax benefit relating to the REIT conversion. We have presented Adjusted FFO both excluding and including REIT conversion costs. We believe that the presentation of Adjusted FFO provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of assets and certain other items which we believe are not indicative of the performance of our underlying hotel properties. We believe that these items are more representative of our asset base than our ongoing operations. We also use Adjusted FFO as one measure in determining our results after taking into account the impact of our capital structure. A reconciliation of net income (loss) to Adjusted FFO is set forth below under “Supplemental Financial Results.” Our Adjusted FFO does not reflect the impact of the loss on the call spread settlement related to our convertible notes repurchase.

We caution investors that amounts presented in accordance with our definitions of Adjusted EBITDA and Adjusted FFO may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the same manner. Adjusted EBITDA and Adjusted FFO, and any related per share measures, should not be considered as alternative measures of our net income (loss), operating performance, cash flow or liquidity. Adjusted EBITDA and Adjusted FFO may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that Adjusted EBITDA and Adjusted FFO can enhance an investor’s understanding of our results of operations, these non-GAAP financial measures, when viewed individually, are not necessarily better indicators of any trend as compared to GAAP measures such as net income (loss) or cash flow from operations. In addition, you should be aware that adverse economic and market and other conditions may harm our cash flow.