Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-13079

 

 

RYMAN HOSPITALITY PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   73-0664379
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

One Gaylord Drive

Nashville, Tennessee 37214

(Address of Principal Executive Offices)

(Zip Code)

(615) 316-6000

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐   Yes    ☒  No

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

   Outstanding as of July 31, 2018

Common Stock, par value $.01

   51,322,460 shares

 

 

 


Table of Contents

RYMAN HOSPITALITY PROPERTIES, INC.

FORM 10-Q

For the Quarter Ended June 30, 2018

INDEX

 

     Page  

Part I - Financial Information

  

Item 1. Financial Statements.

  

Condensed Consolidated Balance Sheets (Unaudited) — June  30, 2018 and December 31, 2017

     3  

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) — For the Three Months and Six Months Ended June 30, 2018 and 2017

     4  

Condensed Consolidated Statements of Cash Flows (Unaudited) — For the Six Months Ended June 30, 2018 and 2017

     5  

Notes to Condensed Consolidated Financial Statements (Unaudited)

     6  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     25  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     47  

Item 4. Controls and Procedures.

     47  

Part II - Other Information

  

Item 1. Legal Proceedings.

     48  

Item 1A. Risk Factors.

     48  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     48  

Item 3. Defaults Upon Senior Securities.

     48  

Item 4. Mine Safety Disclosures.

     48  

Item 5. Other Information.

     48  

Item 6. Exhibits.

     49  

SIGNATURES

     50  

 

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Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. – FINANCIAL STATEMENTS.

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

     June 30,     December 31,  
     2018     2017  

ASSETS:

    

Property and equipment, net of accumulated depreciation

   $ 2,121,165     $ 2,065,657  

Cash and cash equivalents—unrestricted

     61,779       57,557  

Cash and cash equivalents—restricted

     32,181       21,153  

Notes receivable

     113,789       111,423  

Investment in Gaylord Rockies joint venture

     88,993       88,685  

Trade receivables, less allowance of $762 and $651, respectively

     79,694       57,520  

Deferred income tax assets, net

     43,056       50,117  

Prepaid expenses and other assets

     66,645       72,116  
  

 

 

   

 

 

 

Total assets

   $ 2,607,302     $ 2,524,228  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

    

Debt and capital lease obligations

   $ 1,674,792     $ 1,591,392  

Accounts payable and accrued liabilities

     176,145       179,649  

Dividends payable

     44,552       42,129  

Deferred management rights proceeds

     175,541       177,057  

Other liabilities

     162,578       155,845  

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, $.01 par value, 100,000 shares authorized, no shares issued or outstanding

     —         —    

Common stock, $.01 par value, 400,000 shares authorized, 51,322 and 51,198 shares issued and outstanding, respectively

     513       512  

Additional paid-in capital

     897,185       896,759  

Treasury stock of 579 and 567 shares, at cost

     (14,195     (13,253

Accumulated deficit

     (483,279     (479,170

Accumulated other comprehensive loss

     (26,530     (26,692
  

 

 

   

 

 

 

Total stockholders’ equity

     373,694       378,156  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,607,302     $ 2,524,228  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     2018     2017  

Revenues:

        

Rooms

   $ 121,745     $ 110,674     $ 229,309     $ 214,043  

Food and beverage

     141,053       128,441       273,992       254,610  

Other hotel revenue

     28,958       24,258       53,566       48,874  

Entertainment

     42,178       35,405       65,437       57,293  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     333,934       298,778       622,304       574,820  

Operating expenses:

        

Rooms

     30,059       28,359       58,987       56,387  

Food and beverage

     72,394       68,285       144,372       137,442  

Other hotel expenses

     76,733       73,536       152,615       147,774  

Management fees, net

     8,635       6,178       15,765       11,709  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total hotel operating expenses

     187,821       176,358       371,739       353,312  

Entertainment

     30,254       22,135       49,620       38,986  

Corporate

     7,640       7,468       15,969       14,877  

Preopening costs

     1,525       494       3,672       710  

Depreciation and amortization

     29,995       27,679       58,661       55,316  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     257,235       234,134       499,661       463,201  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     76,699       64,644       122,643       111,619  

Interest expense

     (19,625     (17,155     (36,354     (33,019

Interest income

     2,766       2,969       5,519       5,917  

Income (loss) from joint ventures

     1,346       (943     (1,242     (1,717

Other gains and (losses), net

     36       (1,324     204       (1,396
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     61,222       48,191       90,770       81,404  

Provision for income taxes

     (5,676     (899     (7,885     (1,492
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 55,546     $ 47,292     $ 82,885     $ 79,912  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per share

   $ 1.08     $ 0.92     $ 1.62     $ 1.56  
  

 

 

   

 

 

   

 

 

   

 

 

 

Fully diluted income per share

   $ 1.08     $ 0.92     $ 1.61     $ 1.56  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share

   $ 0.85     $ 0.80     $ 1.70     $ 1.60  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income, net of taxes

   $ 55,630     $ 47,326     $ 83,047     $ 79,957  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

     Six Months Ended  
     June 30,  
     2018     2017  

Cash Flows from Operating Activities:

    

Net income

   $ 82,885     $ 79,912  

Amounts to reconcile net income to net cash flows provided by operating activities:

    

Provision (benefit) for deferred income taxes

     7,065       (129

Depreciation and amortization

     58,661       55,316  

Amortization of deferred financing costs

     2,841       2,567  

Write-off of deferred financing costs

     1,956       925  

Stock-based compensation expense

     3,929       3,213  

Changes in:

    

Trade receivables

     (22,074     (17,758

Accounts payable and accrued liabilities

     (4,268     (11,390

Other assets and liabilities

     720       1,252  
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     131,715       113,908  
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Purchases of property and equipment

     (95,353     (79,472

Investment in Gaylord Rockies joint venture

     —         (16,309

Investment in other joint ventures

     (2,199     (1,969

Purchase of remaining interest in Opry City Stage

     (3,948     —    

Other investing activities

     (4,687     (3,654
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (106,187     (101,404
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Net borrowings (repayments) under revolving credit facility

     80,500       (241,900

Borrowings under term loan A

     —         200,000  

Borrowings under term loan B

     —         500,000  

Repayments under term loan B

     (1,250     (391,250

Deferred financing costs paid

     (637     (12,220

Payment of dividends

     (85,110     (79,788

Payment of tax withholdings for share-based compensation

     (3,771     (3,769

Other financing activities

     (10     18  
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (10,278     (28,909
  

 

 

   

 

 

 

Net change in cash, cash equivalents, and restricted cash

     15,250       (16,405

Cash, cash equivalents, and restricted cash, beginning of period

     78,710       81,190  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of period

   $ 93,960     $ 64,785  
  

 

 

   

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash to balance sheet:

    

Cash and cash equivalents—unrestricted

   $ 61,779     $ 49,610  

Cash and cash equivalents—restricted

     32,181       15,175  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of period

   $ 93,960     $ 64,785  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION:

On January 1, 2013, Ryman Hospitality Properties, Inc. (“Ryman”) and its subsidiaries (collectively with Ryman, the “Company”) began operating as a real estate investment trust (“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 upscale, meetings-focused resorts that are managed by Marriott International, Inc. (“Marriott”) under the Gaylord Hotels brand. These resorts, which the Company refers to as the Gaylord Hotels properties, consist of the Gaylord Opryland Resort & Convention Center in Nashville, Tennessee (“Gaylord Opryland”), the Gaylord Palms Resort & Convention Center near Orlando, Florida (“Gaylord Palms”), the Gaylord Texan Resort & Convention Center near Dallas, Texas (“Gaylord Texan”) and the Gaylord National Resort & Convention Center near Washington D.C. (“Gaylord National”). The Company’s other owned hotel assets managed by Marriott include the Inn at Opryland, an overflow hotel adjacent to Gaylord Opryland, and the AC Hotel at National Harbor, Washington D.C. (“AC Hotel”), an overflow hotel adjacent to Gaylord National. The Company also owns a 35% interest in a joint venture that is developing and owns Gaylord Rockies Resort & Convention Center near Denver, Colorado (“Gaylord Rockies”), which is scheduled to open in late 2018 and will be managed by Marriott.

The Company also owns a number of media and entertainment assets, including the Grand Ole Opry, the legendary weekly showcase of country music’s finest performers; the Ryman Auditorium, the storied live music venue and former home of the Grand Ole Opry; WSM-AM, the Opry’s radio home; Ole Red, a brand of Blake Shelton-themed bar, music venue and event spaces, with a flagship location in Nashville that opened in May 2018; Opry City Stage, a four-level entertainment complex in Times Square that opened in December 2017 under a joint venture agreement and of which the Company acquired the remaining 50% joint venture interest in the second quarter of 2018 for a combination of $3.9 million in cash and the forgiveness of a note receivable previously due to the Company from the other joint venture partner of $7.9 million; and three Nashville-based assets managed by Marriott – Gaylord Springs Golf Links, the Wildhorse Saloon, and the General Jackson Showboat.

The condensed consolidated financial statements include the accounts of Ryman and its subsidiaries and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from this report pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods have been included. All adjustments are of a normal, recurring nature. The results of operations for such interim periods are not necessarily indicative of the results for the full year because of seasonal and short-term variations.

The Company conducts its business through an umbrella partnership REIT, in which all of its assets are held by, and all of its operations are conducted through, RHP Hotel Properties, LP, a subsidiary operating partnership (the “Operating Partnership”) that the Company formed in connection with its REIT conversion. Ryman is the sole limited partner of the Operating Partnership and currently owns, either directly or indirectly, all of the partnership units of the Operating Partnership. RHP Finance Corporation, a Delaware corporation (“Finco”), was formed as a wholly-owned subsidiary of the Operating Partnership for the sole purpose of being a co-issuer of debt securities with the Operating Partnership. Neither Ryman nor Finco has any material assets, other than Ryman’s investment in the Operating Partnership and its 100%-owned subsidiaries. As 100%-owned subsidiaries of Ryman, neither the Operating Partnership nor Finco has any business, operations, financial results or other material information, other than the business, operations, financial results and other material information described in this Quarterly Report on Form 10-Q and Ryman’s other reports, documents or other information filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended.

 

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The Company principally operates, through its subsidiaries and its property managers, as applicable, in the following business segments: Hospitality, Entertainment, and Corporate and Other.

Newly Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers,” the core principle of which is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Under this guidance, companies will need to use more judgment and make more estimates than under previous guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Due to the short-term, day-to-day nature of the Company’s hospitality and entertainment segment revenues, the pattern of revenue recognition did not change significantly upon adoption. The Company adopted this ASU in the first quarter of 2018 using the modified retrospective approach and has applied the standard to all contracts at the date of initial application. As such, prior period amounts have not been restated, and the Company recorded a transition adjustment to retained earnings of $0.1 million, which is reflected in the condensed consolidated balance sheet for June 30, 2018 included herein. See Note 2 of this Quarterly Report on Form 10-Q for further disclosures.

In February 2016, the FASB issued ASU No. 2016-02,Leases,” that requires lessees to record most leases on their balance sheet, but recognize expenses on their income statements in a manner similar to previous accounting. The ASU also eliminates the required use of bright-line tests for determining lease classification. The ASU is effective for the Company in the first quarter of 2019, and the Company plans to adopt this standard at that time using the modified retrospective approach, with a cumulative-effect adjustment, if any, to retained earnings in the period of adoption. Prior period amounts will not be restated. The Company is creating an inventory of its leases, and the primary impact of the adoption is estimated to be the inclusion of the Company’s 75-year ground lease at Gaylord Palms on its balance sheet. See Note 12 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for a further disclosure of the Company’s outstanding leases.

In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments,” which will change how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The ASU is effective for the Company in the first quarter of 2020. The Company is currently evaluating the effects of this ASU on its financial statements, and such effects have not yet been determined.

In November 2016, the FASB issued ASU No. 2016-18,Restricted Cash,” which requires entities to disclose changes in the total of cash and restricted cash in the statement of cash flows. As a result, entities no longer present transfers between cash and restricted cash in the statement of cash flows, and present a reconciliation of the totals in the statement of cash flows to the related captions on the balance sheet. The Company adopted this ASU in the first quarter of 2018, and this adoption did not have a material impact on the Company’s financial statements. The prior period presentation has been updated to conform to the current year presentation.

 

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In March 2017, the FASB issued ASU No. 2017-07,Compensation – Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the cost of benefits in the income statement. Under the new guidance, the service cost component of net periodic benefit cost is presented in the same income statement line items as other employee compensation costs. In addition, the other components of net periodic benefit cost are presented separately from service cost and outside of operating income, which the Company has included in other gains and (losses), net in the accompanying condensed consolidated statements of operations and comprehensive income. The Company adopted this ASU in the first quarter of 2018, and this adoption did not have a material impact on the Company’s financial statements. The prior period presentation has been updated to conform to the current year presentation.

2. REVENUES:

Revenues from occupied hotel rooms are recognized over time as the daily hotel stay is provided to hotel groups and guests. Revenues from concessions, food and beverage sales, and group meeting services are recognized over the period or at the point in time those goods or services are delivered to the hotel group or guest. Revenues from ancillary services at the Company’s hotels, such as spa, parking, and transportation services, are generally recognized at the time the goods or services are provided. Cancellation fees and attrition fees, which are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for, are recognized as revenue in the period the Company determines it is probable that a significant reversal in the amount of revenue recognized will not occur, which is the period these fees are collected. The Company generally recognizes revenues from the Entertainment segment at the point in time that services are provided or goods are delivered or shipped to the customer, as applicable. Almost all of the Company’s revenues are either cash-based or, for meeting and convention groups who meet the Company’s credit criteria, billed and collected on a short-term receivables basis. The Company is required to collect certain taxes from customers on behalf of government agencies and remit these to the applicable governmental entity on a periodic basis. These taxes are collected from customers at the time of purchase, but are not included in revenue. The Company records a liability upon collection of such taxes from the customer and relieves the liability when payments are remitted to the applicable governmental agency.

The Company’s revenues disaggregated by major source are as follows (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2018      2017      2018      2017  

Hotel group rooms

   $ 89,329      $ 80,488      $ 172,546      $ 161,364  

Hotel transient rooms

     32,416        30,186        56,763        52,679  

Hotel food and beverage—banquets

     101,719        90,342        197,987        181,542  

Hotel food and beverage—outlets

     39,334        38,099        76,005        73,068  

Hotel other

     28,958        24,258        53,566        48,874  

Entertainment admissions/ticketing

     21,207        18,678        32,067        28,298  

Entertainment food and beverage

     11,813        8,394        18,394        14,518  

Entertainment retail and other

     9,158        8,333        14,976        14,477  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 333,934      $ 298,778      $ 622,304      $ 574,820  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The Company’s Hospitality segment revenues disaggregated by location are as follows (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2018      2017      2018      2017  

Gaylord Opryland

   $ 94,915      $ 80,260      $ 177,660      $ 155,222  

Gaylord Palms

     50,274        48,184        108,170        102,381  

Gaylord Texan

     58,611        52,772        116,968        109,517  

Gaylord National

     79,687        73,995        140,443        136,452  

AC Hotel

     3,511        3,679        5,882        6,138  

Inn at Opryland and other

     4,758        4,483        7,744        7,817  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Hospitality segment revenues

   $ 291,756      $ 263,373      $ 556,867      $ 517,527  
  

 

 

    

 

 

    

 

 

    

 

 

 

Almost all of the Company’s Entertainment segment revenues are concentrated in Nashville, Tennessee.

The Company records deferred revenues when cash payments are received in advance of its performance obligations, primarily related to advanced deposits on hotel rooms in its Hospitality segment and advanced ticketing in its Entertainment segment. At June 30, 2018 and December 31, 2017, the Company had $54.5 million and $51.2 million, respectively, in deferred revenues, which are included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. Of the amount outstanding at December 31, 2017, approximately $41.4 million was recognized in revenue during the six months ended June 30, 2018.

3. INCOME PER SHARE:

The weighted average number of common shares outstanding is calculated as follows (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2018      2017      2018      2017  

Weighted average shares outstanding—basic

     51,303        51,154        51,259        51,100  

Effect of dilutive stock-based compensation

     173        180        200        216  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding—diluted

     51,476        51,334        51,459        51,316  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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4. ACCUMULATED OTHER COMPREHENSIVE LOSS:

The Company’s balance in accumulated other comprehensive loss is comprised of amounts related to the Company’s minimum pension liability and amounts related to an other-than-temporary impairment of a held-to-maturity investment with respect to the notes receivable discussed in Note 6 of this Quarterly Report on Form 10-Q and Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Changes in accumulated other comprehensive loss by component for the six months ended June 30, 2018 and 2017 consisted of the following (in thousands):

 

     Minimum
Pension
Liability
     Other-Than-
Temporary
Impairment of
Investment
     Total  

Balance, December 31, 2017

   $ (20,149    $ (6,543    $ (26,692

Amounts reclassified from accumulated other comprehensive loss

     (9      166        157  

Income tax benefit

     5        —          5  
  

 

 

    

 

 

    

 

 

 

Net other comprehensive income (loss)

     (4      166        162  
  

 

 

    

 

 

    

 

 

 

Balance, June 30, 2018

   $ (20,153    $ (6,377    $ (26,530
  

 

 

    

 

 

    

 

 

 
     Minimum
Pension
Liability
     Other-Than-
Temporary
Impairment of
Investment
     Total  

Balance, December 31, 2016

   $ (22,268    $ —        $ (22,268

Amounts reclassified from accumulated other comprehensive loss

     45        —          45  

Income tax benefit

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Net other comprehensive income

     45        —          45  
  

 

 

    

 

 

    

 

 

 

Balance, June 30, 2017

   $ (22,223    $ —        $ (22,223
  

 

 

    

 

 

    

 

 

 

5. PROPERTY AND EQUIPMENT:

Property and equipment at June 30, 2018 and December 31, 2017 is recorded at cost and summarized as follows (in thousands):

 

     June 30,
2018
     December 31,
2017
 

Land and land improvements

   $ 268,316      $ 267,051  

Buildings

     2,547,565        2,440,471  

Furniture, fixtures and equipment

     707,836        647,988  

Construction-in-progress

     80,555        138,702  
  

 

 

    

 

 

 
     3,604,272        3,494,212  

Accumulated depreciation

     (1,483,107      (1,428,555
  

 

 

    

 

 

 

Property and equipment, net

   $ 2,121,165      $ 2,065,657  
  

 

 

    

 

 

 

6. NOTES RECEIVABLE:

As further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, in connection with the development of Gaylord National, the Company is currently holding two issuances of governmental bonds and receives debt service and principle payments thereon, payable from property tax increments, hotel taxes and special hotel rental taxes generated from Gaylord National through the maturity dates of July 1, 2034 and September 1, 2037, respectively. The Company records interest income over the life of the notes using the effective interest method.

 

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During the three months ended June 30, 2018 and 2017, the Company recorded interest income of $2.7 million and $2.9 million, respectively, on these bonds. During the six months ended June 30, 2018 and 2017, the Company recorded interest income of $5.3 million and $5.9 million, respectively, on these bonds. The Company received payments of $3.1 million and $3.2 million during the six months ended June 30, 2018 and 2017, respectively, relating to these notes receivable.

7. DEBT:

The Company’s debt and capital lease obligations at June 30, 2018 and December 31, 2017 consisted of (in thousands):

 

     June 30,
2018
     December 31,
2017
 

$700 Million Revolving Credit Facility, interest at LIBOR plus 1.55%, maturing May 23, 2021, less unamortized deferred financing costs of $7,828 and $9,076

   $ 243,672      $ 161,924  

$200 Million Term Loan A, interest at LIBOR plus 1.50%, maturing May 23, 2022, less unamortized deferred financing costs of $1,390 and $1,557

     198,610        198,443  

$500 Million Term Loan B, interest at LIBOR plus 2.00%, maturing May 11, 2024, less unamortized deferred financing costs of $5,743 and $7,595

     489,257        488,655  

$350 Million Senior Notes, interest at 5.0%, maturing April 15, 2021, less unamortized deferred financing costs of $2,862 and $3,340

     347,138        346,660  

$400 Million Senior Notes, interest at 5.0%, maturing April 15, 2023, less unamortized deferred financing costs of $4,513 and $4,929

     395,487        395,071  

Capital lease obligations

     628        639  
  

 

 

    

 

 

 

Total debt

   $ 1,674,792      $ 1,591,392  
  

 

 

    

 

 

 

The majority of amounts due within one year consist of the amortization payments for the $500 million term loan B of 1.0% of the original principal balance, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

At June 30, 2018, the Company was in compliance with all of its covenants related to its outstanding debt.

$500 Million Term Loan B

On June 26, 2018, the Company entered into an Amendment No. 2 (the “Amendment”) to the Company’s Fifth Amended and Restated Credit Agreement (as amended, the “Credit Agreement”). The Amendment reduces the applicable interest rate margins for borrowings under the term loan B to, at the Company’s option, either (i) LIBOR plus 2.00% or (ii) a base rate as set in the Credit Agreement. In addition, the Amendment extends the date of commencement of any excess cash flow payments by one year to December 31, 2019. The Amendment did not change the maturity dates existing under the Credit Agreement or result in any increase or decrease in outstanding borrowings.

As a result of the repricing of the term loan B, the Company wrote off $2.0 million of deferred financing costs during the three months and six months ended June 30, 2018, which is included in interest expense in the accompanying condensed consolidated statement of operations.

 

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For descriptions of the Company’s other outstanding debt obligations, see “Principal Debt Agreements” within “Liquidity and Capital Resources” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q.

8. DEFERRED MANAGEMENT RIGHTS PROCEEDS:

On October 1, 2012, the Company consummated its agreement to sell the Gaylord Hotels brand (the “IP Rights”) and rights to manage the Gaylord Hotels properties (the “Management Rights”) to Marriott for $210.0 million in cash. Effective October 1, 2012, Marriott assumed responsibility for managing the day-to-day operations of the Gaylord Hotels properties pursuant to a management agreement for each Gaylord Hotel property. The Company allocated $190.0 million of the purchase price to the Management Rights and $20.0 million to the IP Rights.

For financial accounting purposes, the amount related to the Management Rights was deferred and is amortized on a straight line basis over the 65-year term of the hotel management agreements, including extensions, as a reduction in management fee expense. The amount related to the IP Rights was recognized into income as other gains and losses during 2012.

9. STOCK PLANS:

During the six months ended June 30, 2018, the Company granted 0.1 million restricted stock units with a weighted-average grant date fair value of $71.34 per award. There were 0.4 million restricted stock units outstanding at June 30, 2018 and December 31, 2017.

The compensation expense that has been charged against pre-tax income for all of the Company’s stock-based compensation plans was $2.0 million and $1.6 million for the three months ended June 30, 2018 and 2017, respectively, and $3.9 million and $3.2 million for the six months ended June 30, 2018 and 2017, respectively.

10. PENSION AND POSTRETIREMENT BENEFITS OTHER THAN PENSION PLANS:

Net periodic pension (income) expense reflected in the accompanying condensed consolidated statements of operations included the following components for the respective periods (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2018      2017      2018      2017  

Interest cost

   $ 803      $ 901      $ 1,614      $ 1,815  

Expected return on plan assets

     (1,070      (1,011      (2,172      (2,047

Amortization of net actuarial loss

     264        297        519        579  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net periodic pension (income) expense

   $ (3    $ 187      $ (39    $ 347  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Net postretirement benefit income reflected in the accompanying condensed consolidated statements of operations included the following components for the respective periods (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2018      2017      2018      2017  

Interest cost

   $ 24      $ 28      $ 48      $ 54  

Amortization of net actuarial loss

     65        66        129        123  

Amortization of prior service credit

     (329      (329      (657      (657
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net postretirement benefit income

   $ (240    $ (235    $ (480    $ (480
  

 

 

    

 

 

    

 

 

    

 

 

 

11. INCOME TAXES:

The Company has elected to be taxed as a REIT effective January 1, 2013, pursuant to the U.S. Internal Revenue Code of 1986, as amended. As a REIT, generally the Company will not be subject to federal corporate income taxes on ordinary taxable income and capital gains income from real estate investments that it distributes to its stockholders. The Company will continue to be required to pay federal and state corporate income taxes on earnings of its taxable REIT subsidiaries (“TRSs”).

The Company recorded an income tax provision of $5.7 million and $0.9 million for the three months ended June 30, 2018 and 2017, respectively, and $7.9 million and $1.5 million for the six months ended June 30, 2018 and 2017, respectively, related to the current period operations of the Company. These results differ from the statutory rate primarily due to the REIT dividends paid deduction in both periods and the change in valuation allowance required at the TRSs for the three months and six months ended June 30, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted and included a reduction to the U.S. federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The Company has not fully completed its accounting for the income tax effects of the TCJA. As discussed in SEC Staff Accounting Bulletin No. 118, the accounting for the TCJA should be completed within one year from enactment. During the six months ended June 30, 2018, the Company has made no adjustments to the provisional amounts recorded at December 31, 2017. Any adjustments to the provisional amounts recorded at December 31, 2017 will be reflected upon the completion of the Company’s accounting for the TCJA.

At June 30, 2018 and December 31, 2017, the Company had no unrecognized tax benefits.

12. COMMITMENTS AND CONTINGENCIES:

The Company owns a 35% interest in a joint venture that is developing and owns Gaylord Rockies, which is expected to open in late 2018. In connection with the joint venture, the Company agreed to provide guarantees of the hotel’s construction loan, including a principal repayment guarantee of up to $21 million of the total $500 million principal amount of the construction loan previously obtained from a consortium of eight banks, with such amount reducing to $14 million and further reducing to $8.75 million upon the hotel’s satisfaction of designated debt service coverage requirements following completion and opening of the hotel. The Company has also provided a completion guarantee under the construction loan capped at its pro rata share of all costs necessary to complete the project within the time specified in the joint venture’s loan documents. Further, the Company has agreed to a guarantee capped at its pro rata share of the joint venture’s obligations under the construction loan prior to the hotel’s opening related to interest accruing under the construction loan and the operating expenses of the property (estimated pro rata share of interest prior to the hotel opening is $9.8 million). In addition to guarantees related to the construction loan, the Company agreed to provide a guarantee of the mezzanine debt related to the hotel including a payment guarantee capped at $8.75 million for which the Company is only liable in the event there is a casualty or condemnation event at the hotel and the construction lenders elect to apply those

 

13


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proceeds to the construction loan balance and release the construction loan guarantees and liens. The guarantee related to the mezzanine debt also includes an uncapped completion guarantee and an uncapped guarantee of the joint venture’s obligations under the mezzanine loan prior to the hotel’s opening related to interest accruing under the mezzanine loan and the operating expenses of the property to the extent not already satisfied by the parties under the guarantees related to the construction loan. As of June 30, 2018, the Company had not recorded any liability in the consolidated balance sheet associated with these guarantees.

The Company has entered into employment agreements with certain officers, which provide for severance payments upon certain events, including certain terminations in connection with a change of control.

The Company, in the ordinary course of business, is involved in certain legal actions and claims on a variety of matters. It is the opinion of management that such legal actions will not have a material effect on the results of operations, financial condition or liquidity of the Company.

13. STOCKHOLDERS’ EQUITY:

On February 23, 2018, the Company’s board of directors declared the Company’s first quarter 2018 cash dividend in the amount of $0.85 per share of common stock, or an aggregate of approximately $43.6 million in cash, which was paid on April 16, 2018 to stockholders of record as of the close of business on March 30, 2018.

On June 18, 2018, the Company’s board of directors declared the Company’s second quarter 2018 cash dividend in the amount of $0.85 per share of common stock, or an aggregate of approximately $43.6 million in cash, which was paid on July 16, 2018 to stockholders of record as of the close of business on June 29, 2018.

14. FAIR VALUE MEASUREMENTS:

The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

At June 30, 2018 and December 31, 2017, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included investments held in conjunction with the Company’s non-qualified contributory deferred compensation plan. These investments consist of mutual funds traded in an active market. The Company determined the fair value of these mutual funds based on the net asset value per unit of the funds or the portfolio, which is based upon quoted market prices in an active market. Therefore, the Company has categorized these investments as Level 1.

The Company has consistently applied the above valuation techniques in all periods presented and believes it has obtained the most accurate information available for each type of instrument.

 

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The Company had no liabilities required to be measured at fair value at June 30, 2018 and December 31, 2017. The Company’s assets measured at fair value on a recurring basis at June 30, 2018 and December 31, 2017, were as follows (in thousands):

 

            Markets for      Observable      Unobservable  
     June 30,      Identical Assets      Inputs      Inputs  
     2018      (Level 1)      (Level 2)      (Level 3)  

Deferred compensation plan investments

   $ 25,420      $ 25,420      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 25,420      $ 25,420      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 
            Markets for      Observable      Unobservable  
     December 31,      Identical Assets      Inputs      Inputs  
     2017      (Level 1)      (Level 2)      (Level 3)  

Deferred compensation plan investments

   $ 25,055      $ 25,055      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 25,055      $ 25,055      $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

The remainder of the assets and liabilities held by the Company at June 30, 2018 are not required to be recorded at fair value, and the carrying value of these assets and liabilities approximate fair value.

15. FINANCIAL REPORTING BY BUSINESS SEGMENTS:

The Company’s operations are organized into three principal business segments:

 

   

Hospitality, which includes Gaylord Opryland, Gaylord Palms, Gaylord Texan, Gaylord National, the Inn at Opryland, the AC Hotel, and the Company’s equity investment in Gaylord Rockies;

 

   

Entertainment, which includes the Grand Ole Opry, the Ryman Auditorium, WSM-AM, Ole Red, Opry City Stage, and the Company’s Nashville-based attractions; and

 

   

Corporate and Other, which includes the Company’s corporate expenses.

 

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The following information is derived directly from the segments’ internal financial reports used for corporate management purposes (amounts in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2018      2017      2018      2017  

Revenues:

           

Hospitality

   $ 291,756      $ 263,373      $ 556,867      $ 517,527  

Entertainment

     42,178        35,405        65,437        57,293  

Corporate and Other

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 333,934      $ 298,778      $ 622,304      $ 574,820  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization:

           

Hospitality

   $ 27,233      $ 25,547      $ 53,433      $ 50,725  

Entertainment

     2,315        1,592        4,272        3,500  

Corporate and Other

     447        540        956        1,091  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 29,995      $ 27,679      $ 58,661      $ 55,316  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income:

           

Hospitality

   $ 76,702      $ 61,468      $ 131,695      $ 113,490  

Entertainment

     9,609        11,678        11,545        14,807  

Corporate and Other

     (8,087      (8,008      (16,925      (15,968

Preopening costs

     (1,525      (494      (3,672      (710
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating income

     76,699        64,644        122,643        111,619  

Interest expense

     (19,625      (17,155      (36,354      (33,019

Interest income

     2,766        2,969        5,519        5,917  

Income (loss) from joint ventures

     1,346        (943      (1,242      (1,717

Other gains and (losses), net

     36        (1,324      204        (1,396
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

   $ 61,222      $ 48,191      $ 90,770      $ 81,404  
  

 

 

    

 

 

    

 

 

    

 

 

 

16. INFORMATION CONCERNING GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:

The $350 Million 5% Senior Notes and the $400 Million 5% Senior Notes were each issued by the Operating Partnership and Finco and are guaranteed on a senior unsecured basis by the Company, each of the Company’s four wholly-owned subsidiaries that own the Gaylord Hotels properties, and certain other of the Company’s subsidiaries, each of which guarantees the Operating Partnership’s Credit Agreement (such subsidiary guarantors, together with the Company, the “Guarantors”). The subsidiary Guarantors are 100% owned, and the guarantees are full and unconditional and joint and several. Not all of the Company’s subsidiaries have guaranteed the Company’s $350 Million 5% Senior Notes and the $400 Million 5% Senior Notes.

The following condensed consolidating financial information includes certain allocations of expenses based on management’s best estimates, which are not necessarily indicative of financial position, results of operations and cash flows that these entities would have achieved on a stand-alone basis.

 

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2018

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

ASSETS:

            

Property and equipment, net of accumulated depreciation

   $ —       $ —       $ 1,647,578     $ 473,587     $ —       $ 2,121,165  

Cash and cash equivalents—unrestricted

     82       998       30       60,669       —         61,779  

Cash and cash equivalents—restricted

     —         —         —         32,181       —         32,181  

Notes receivable

     —         —         —         113,789       —         113,789  

Investment in Gaylord Rockies joint venture

     —         —         —         88,993       —         88,993  

Trade receivables, less allowance

     —         —         —         79,694       —         79,694  

Deferred income tax assets, net

     —         —         (299     43,355       —         43,056  

Prepaid expenses and other assets

     —         83       3       66,559       —         66,645  

Intercompany receivables, net

     —         —         1,800,263       —         (1,800,263     —    

Investments

     1,010,151       2,890,033       650,582       1,384,814       (5,935,580     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,010,233     $ 2,891,114     $ 4,098,157     $ 2,343,641     $ (7,735,843   $ 2,607,302  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

            

Debt and capital lease obligations

   $ —       $ 1,674,163     $ —       $ 629     $ —       $ 1,674,792  

Accounts payable and accrued liabilities

     69       9,758       7,426       158,892       —         176,145  

Dividends payable

     44,552       —         —         —         —         44,552  

Deferred management rights proceeds

     —         —         —         175,541       —         175,541  

Other liabilities

     —         —         97,573       65,005       —         162,578  

Intercompany payables, net

     591,918       935,823       —         272,522       (1,800,263     —    

Commitments and contingencies

            

Stockholders’ equity:

            

Preferred stock

     —         —         —         —         —         —    

Common stock

     513       1       1       2,387       (2,389     513  

Additional paid-in-capital

     897,185       586,861       2,835,468       2,093,817       (5,516,146     897,185  

Treasury stock

     (14,195     —         —         —         —         (14,195

Accumulated deficit

     (483,279     (315,492     1,157,689       (398,622     (443,575     (483,279

Accumulated other comprehensive loss

     (26,530     —         —         (26,530     26,530       (26,530
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     373,694       271,370       3,993,158       1,671,052       (5,935,580     373,694  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,010,233     $ 2,891,114     $ 4,098,157     $ 2,343,641     $ (7,735,843   $ 2,607,302  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2017

 

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

ASSETS:

            

Property and equipment, net of accumulated depreciation

   $ —       $ —       $ 1,640,274     $ 425,383     $ —       $ 2,065,657  

Cash and cash equivalents—unrestricted

     38       759       36       56,724       —         57,557  

Cash and cash equivalents—restricted

     —         —         —         21,153       —         21,153  

Notes receivable

     —         —         —         111,423       —         111,423  

Investment in Gaylord Rockies joint venture

     —         —         —         88,685       —         88,685  

Trade receivables, less allowance

     —         —         —         57,520       —         57,520  

Deferred income tax assets, net

     —         —         (301     50,418       —         50,117  

Prepaid expenses and other assets

     —         —         5       72,111       —         72,116  

Intercompany receivables, net

     —         —         1,717,157       —         (1,717,157     —    

Investments

     1,006,461       2,890,032       651,006       1,364,814       (5,912,313     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,006,499     $ 2,890,791     $ 4,008,177     $ 2,248,231     $ (7,629,470   $ 2,524,228  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

            

Debt and capital lease obligations

   $ —       $ 1,590,753     $ —       $ 639     $ —       $ 1,591,392  

Accounts payable and accrued liabilities

     150       11,180       15,795       152,524       —         179,649  

Dividends payable

     42,129       —         —         —         —         42,129  

Deferred management rights proceeds

     —         —         —         177,057       —         177,057  

Other liabilities

     —         —         95,078       60,767       —         155,845  

Intercompany payables, net

     586,064       895,408       —         235,685       (1,717,157     —    

Commitments and contingencies

            

Stockholders’ equity:

            

Preferred stock

     —         —         —         —         —         —    

Common stock

     512       1       1       2,387       (2,389     512  

Additional paid-in-capital

     896,759       671,875       2,835,468       2,073,818       (5,581,161     896,759  

Treasury stock

     (13,253     —         —         —         —         (13,253

Accumulated deficit

     (479,170     (278,426     1,061,835       (427,954     (355,455     (479,170

Accumulated other comprehensive loss

     (26,692     —         —         (26,692     26,692       (26,692
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     378,156       393,450       3,897,304       1,621,559       (5,912,313     378,156  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,006,499     $ 2,890,791     $ 4,008,177     $ 2,248,231     $ (7,629,470   $ 2,524,228  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

For the Three Months Ended June 30, 2018

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues:

            

Rooms

   $ —       $ —       $ —       $ 121,745     $ —       $ 121,745  

Food and beverage

     —         —         —         141,053       —         141,053  

Other hotel revenue

     —         —         76,773       33,376       (81,191     28,958  

Entertainment

     —         —         —         42,178         42,178  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         —         76,773       338,352       (81,191     333,934  

Operating expenses:

            

Rooms

     —         —         —         30,059       —         30,059  

Food and beverage

     —         —         —         72,394       —         72,394  

Other hotel expenses

     —         —         11,050       142,341       (76,658     76,733  

Management fees, net

     —         —         —         8,635       —         8,635  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total hotel operating expenses

     —         —         11,050       253,429       (76,658     187,821  

Entertainment

     —         —         —         30,254       —         30,254  

Corporate

     62       364       2       7,212       —         7,640  

Preopening costs

     —         —         —         1,525       —         1,525  

Corporate overhead allocation

     2,495       —         2,038       —         (4,533     —    

Depreciation and amortization

     —         —         15,305       14,690       —         29,995  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,557       364       28,395       307,110       (81,191     257,235  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,557     (364     48,378       31,242       —         76,699  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     —         (19,618     —         (7     —         (19,625

Interest income

     —         —         —         2,766       —         2,766  

Income from joint ventures

     —         —         —         1,346       —         1,346  

Other gains and (losses), net

     —         —         —         36       —         36  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (2,557     (19,982     48,378       35,383       —         61,222  

Provision for income taxes

     —         —         (449     (5,227     —         (5,676

Equity in subsidiaries’ earnings, net

     58,103       —         —         —         (58,103     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 55,546     $ (19,982   $ 47,929     $ 30,156     $ (58,103   $ 55,546  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 55,630     $ (19,982   $ 47,929     $ 30,240     $ (58,187   $ 55,630  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


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RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

For the Three Months Ended June 30, 2017

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues:

            

Rooms

   $ —       $ —       $ —       $ 110,674     $ —       $ 110,674  

Food and beverage

     —         —         —         128,441       —         128,441  

Other hotel revenue

     —         —         78,827       28,144       (82,713     24,258  

Entertainment

     —         —         —         35,405       —         35,405  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         —         78,827       302,664       (82,713     298,778  

Operating expenses:

            

Rooms

     —         —         —         28,359       —         28,359  

Food and beverage

     —         —         —         68,285       —         68,285  

Other hotel expenses

     —         —         10,409       141,847       (78,720     73,536  

Management fees, net

     —         —         —         6,178       —         6,178  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total hotel operating expenses

     —         —         10,409       244,669       (78,720     176,358  

Entertainment

     —         —         —         22,134       1       22,135  

Corporate

     45       396       1       7,026       —         7,468  

Preopening costs

     —         —         —         494       —         494  

Corporate overhead allocation

     2,233       —         1,761       —         (3,994     —    

Depreciation and amortization

     —         —         14,877       12,802       —         27,679  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,278       396       27,048       287,125       (82,713     234,134  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,278     (396     51,779       15,539       —         64,644  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     —         (17,149     —         (6     —         (17,155

Interest income

     —         —         —         2,969       —         2,969  

Loss from joint ventures

     —         —         —         (943     —         (943

Other gains and (losses), net

     —         —         —         (1,324     —         (1,324
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (2,278     (17,545     51,779       16,235       —         48,191  

Provision for income taxes

     —         —         (55     (844     —         (899

Equity in subsidiaries’ earnings, net

     49,570       —         —         —         (49,570     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 47,292     $ (17,545   $ 51,724     $ 15,391     $ (49,570   $ 47,292  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 47,326     $ (17,545   $ 51,724     $ 15,425     $ (49,604   $ 47,326  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2018

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues:

            

Rooms

   $ —       $ —       $ —       $ 229,309     $ —       $ 229,309  

Food and beverage

     —         —         —         273,992       —         273,992  

Other hotel revenue

     —         —         153,016       62,614       (162,064     53,566  

Entertainment

     —         —         —         65,461       (24     65,437  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         —         153,016       631,376       (162,088     622,304  

Operating expenses:

            

Rooms

     —         —         —         58,987       —         58,987  

Food and beverage

     —         —         —         144,372       —         144,372  

Other hotel expenses

     —         —         22,877       282,528       (152,790     152,615  

Management fees, net

     —         —         —         15,765       —         15,765  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total hotel operating expenses

     —         —         22,877       501,652       (152,790     371,739  

Entertainment

     —         —         —         49,644       (24     49,620  

Corporate

     125       725       2       15,117       —         15,969  

Preopening costs

     —         —         —         3,672       —         3,672  

Corporate overhead allocation

     5,110       —         4,164       —         (9,274     —    

Depreciation and amortization

     —         —         30,035       28,626       —         58,661  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     5,235       725       57,078       598,711       (162,088     499,661  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (5,235     (725     95,938       32,665       —         122,643  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     —         (36,341     —         (13     —         (36,354

Interest income

     —         —         —         5,519       —         5,519  

Loss from joint ventures

     —         —         —         (1,242     —         (1,242

Other gains and (losses), net

     —         —         —         204       —         204  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (5,235     (37,066     95,938       37,133       —         90,770  

Provision for income taxes

     —         —         (84     (7,801     —         (7,885

Equity in subsidiaries’ earnings, net

     88,120       —         —         —         (88,120     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 82,885     $ (37,066   $ 95,854     $ 29,332     $ (88,120   $ 82,885  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 83,047     $ (37,066   $ 95,854     $ 29,494     $ (88,282   $ 83,047  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2017

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Consolidated  

Revenues:

            

Rooms

   $ —       $ —       $ —       $ 214,043     $ —       $ 214,043  

Food and beverage

     —         —         —         254,610       —         254,610  

Other hotel revenue

     —         —         158,321       56,577       (166,024     48,874  

Entertainment

     —         —         —         57,317       (24     57,293  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         —         158,321       582,547       (166,048     574,820  

Operating expenses:

            

Rooms

     —         —         —         56,387       —         56,387  

Food and beverage

     —         —         —         137,442       —         137,442  

Other hotel expenses

     —         —         22,356       283,523       (158,105     147,774  

Management fees, net

     —         —         —         11,709       —         11,709  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total hotel operating expenses

     —         —         22,356       489,061       (158,105     353,312  

Entertainment

     —         —         —         39,009       (23     38,986  

Corporate

     90       802       2       13,983       —         14,877  

Preopening costs

     —         —         —         710       —         710  

Corporate overhead allocation

     4,429       —         3,491       —         (7,920     —    

Depreciation and amortization

     —         —         29,684       25,632       —         55,316  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,519       802       55,533       568,395       (166,048     463,201  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (4,519     (802     102,788       14,152       —         111,619  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     —         (33,006     —         (13     —         (33,019

Interest income

     —         —         —         5,917       —         5,917  

Loss from joint ventures

     —         —         —         (1,717     —         (1,717

Other gains and (losses), net

     —         —         —         (1,396     —         (1,396
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (4,519     (33,808     102,788       16,943       —         81,404  

Provision for income taxes

     —         —         (37     (1,455     —         (1,492

Equity in subsidiaries’ earnings, net

     84,431       —         —         —         (84,431     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 79,912     $ (33,808   $ 102,751     $ 15,488     $ (84,431   $ 79,912  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 79,957     $ (33,808   $ 102,751     $ 15,533     $ (84,476   $ 79,957  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2018

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations      Consolidated  

Net cash provided by (used in) operating activities

   $ 88,925     $ (78,374   $ 39,783     $ 81,381     $ —        $ 131,715  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Purchases of property and equipment

     —         —         (39,789     (55,564     —          (95,353

Investment in other joint ventures

     —         —         —         (2,199     —          (2,199

Purchase of remaining interest in Opry City Stage

     —         —         —         (3,948     —          (3,948

Other investing activities

     —         —         —         (4,687     —          (4,687
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     —         —         (39,789     (66,398     —          (106,187
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net borrowings under revolving credit facility

     —         80,500       —         —         —          80,500  

Repayments under term loan B

     —         (1,250     —         —         —          (1,250

Deferred financing costs paid

     —         (637     —         —         —          (637

Payment of dividends

     (85,110     —         —         —         —          (85,110

Payment of tax withholdings for share-based compensation

     (3,771     —         —         —         —          (3,771

Other financing activities

     —         —         —         (10     —          (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     (88,881     78,613       —         (10     —          (10,278
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net change in cash, cash equivalents, and restricted cash

     44       239       (6     14,973       —          15,250  

Cash, cash equivalents, and restricted cash, beginning of period

     38       759       36       77,877       —          78,710  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash, cash equivalents, and restricted cash, end of period

   $ 82     $ 998     $ 30     $ 92,850     $ —        $ 93,960  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

23


Table of Contents

RYMAN HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2017

 

 

(in thousands)    Parent
Guarantor
    Issuer     Guarantors     Non-
Guarantors
    Eliminations      Consolidated  

Net cash provided by (used in) operating activities

   $ 83,581     $ (55,377   $ 35,875     $ 49,829     $ —        $ 113,908  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Purchases of property and equipment

     —         —         (35,871     (43,601     —          (79,472

Investment in Gaylord Rockies joint venture

     —         —         —         (16,309     —          (16,309

Investment in other joint ventures

     —         —         —         (1,969     —          (1,969

Other investing activities

     —         —         —         (3,654     —          (3,654
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     —         —         (35,871     (65,533     —          (101,404
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net repayments under revolving credit facility

     —         (241,900     —         —         —          (241,900

Borrowings under term loan A

     —         200,000       —         —         —          200,000  

Borrowings under term loan B

     —         500,000       —         —         —          500,000  

Repayments under term loan B

     —         (391,250     —         —         —          (391,250

Deferred financing costs paid

     —         (12,220     —         —         —          (12,220

Payment of dividends

     (79,788     —         —         —         —          (79,788

Payment of tax withholdings for share-based compensation

     (3,769     —         —         —         —          (3,769

Other financing activities

     28       —         —         (10     —          18  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     (83,529     54,630       —         (10     —          (28,909
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net change in cash, cash equivalents, and restricted cash

     52       (747     4       (15,714     —          (16,405

Cash, cash equivalents, and restricted cash, beginning of period

     28       1,234       23       79,905       —          81,190  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash, cash equivalents, and restricted cash, end of period

   $ 80     $ 487     $ 27     $ 64,191     $ —        $ 64,785  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Ryman Hospitality Properties, Inc. (“Ryman”) is a Delaware corporation that conducts its operations so as to maintain its qualification as a real estate investment trust (“REIT”) for federal income tax purposes. The Company conducts its business through an umbrella partnership REIT, in which all of its assets are held by, and operations are conducted through, RHP Hotel Properties, LP, a subsidiary operating partnership (the “Operating Partnership”). RHP Finance Corporation, a Delaware corporation (“Finco”), was formed as a wholly-owned subsidiary of the Operating Partnership for the sole purpose of being a co-issuer of debt securities with the Operating Partnership. Neither Ryman nor Finco has any material assets, other than Ryman’s investment in the Operating Partnership and its 100%-owned subsidiaries. As 100%-owned subsidiaries of Ryman, neither the Operating Partnership nor Finco has any business, operations, financial results or other material information, other than the business, operations, financial results and other material information described in this Quarterly Report on Form 10-Q and Ryman’s other reports, documents or other information filed with the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In this report, we use the terms, the “Company,” “we” or “our” to refer to Ryman Hospitality Properties, Inc. and its subsidiaries unless the context indicates otherwise.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report and our audited consolidated financial statements and related notes for the year ended December 31, 2017, included in our Annual Report on Form 10-K that was filed with the SEC on February 27, 2018.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern our goals, beliefs, expectations, strategies, objectives, plans, future operating results and underlying assumptions, and other statements that are not necessarily based on historical facts. Without limitation, you can identify these statements by the fact that they do not relate strictly to historical or current facts, and these statements may contain words such as “may,” “will,” “could,” “should,” “might,” “projects,” “expects,” “believes,” “anticipates,” “intends,” “plans,” “continue,” “estimate,” or “pursue,” or the negative or other variations thereof or comparable terms. In particular, they include statements relating to, among other things, future actions, strategies, future performance, the outcome of contingencies such as legal proceedings and future financial results. These also include statements regarding (i) the effect of our election to be taxed as a REIT for federal income tax purposes; (ii) the holding of our non-qualifying REIT assets in one or more taxable REIT subsidiaries (“TRSs”); (iii) our announced dividend policy, including the frequency and amount of any dividend we may pay; (iv) potential growth opportunities, including future expansion of the geographic diversity of our existing asset portfolio through acquisitions and our investment in the Gaylord Rockies joint venture (defined below); (v) Marriott International, Inc.’s (“Marriott”) ability to effectively manage our hotels and other properties; (vi) our anticipated capital expenditures and investments; (vii) the potential operating and financial restrictions imposed on our activities under existing and future financing agreements and other contractual arrangements with third parties, including management agreements with Marriott; and (viii) any other business or operational matters. We have based these forward-looking statements on our current expectations and projections about future events.

We caution the reader that forward-looking statements involve risks and uncertainties that cannot be predicted or quantified, and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other things, the risks and uncertainties associated with economic conditions affecting the hospitality business generally, the geographic concentration of our hotel properties, business levels at our hotels, the effect of our election to be taxed as a REIT for federal income tax purposes

 

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commencing with the year ended December 31, 2013, our ability to remain qualified as a REIT, our ability to execute our strategic goals as a REIT, our ability to generate cash flows to support dividends, future board determinations regarding the timing and amount of dividends and changes to the dividend policy, our ability to borrow funds pursuant to our credit agreements and to refinance indebtedness, and those factors described in our Annual Report on Form 10-K for the year ended December 31, 2017 or described from time to time in our other reports filed with the SEC.

Any forward-looking statement made in this Quarterly Report on Form 10-Q speaks only as of the date on which the statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements we make in this Quarterly Report on Form 10-Q, except as may be required by law.

Overview

We operate as a REIT for federal income tax purposes, specializing in group-oriented, destination hotel assets in urban and resort markets. Our owned assets include a network of four upscale, meetings-focused resorts totaling 8,114 rooms that are managed by Marriott under the Gaylord Hotels brand. These four resorts, which we refer to as our Gaylord Hotels properties, consist of the Gaylord Opryland Resort & Convention Center in Nashville, Tennessee (“Gaylord Opryland”), the Gaylord Palms Resort & Convention Center near Orlando, Florida (“Gaylord Palms”), the Gaylord Texan Resort & Convention Center near Dallas, Texas (“Gaylord Texan”) and the Gaylord National Resort & Convention Center near Washington D.C. (“Gaylord National”). Our other owned hotel assets managed by Marriott include the Inn at Opryland, a 303-room overflow hotel adjacent to Gaylord Opryland, and the AC Hotel at National Harbor, Washington D.C. (“AC Hotel”), a 192-room overflow hotel adjacent to Gaylord National. We also own a 35% interest in a joint venture that is developing and owns the Gaylord Rockies Resort & Convention Center near Denver, Colorado (“Gaylord Rockies”), which is scheduled to open in late 2018 and will be managed by Marriott.

We also own and operate media and entertainment assets including the Grand Ole Opry, the legendary weekly showcase of country music’s finest performers for over 90 years; the Ryman Auditorium, the storied live music venue and former home of the Grand Ole Opry located in downtown Nashville; WSM-AM, the Opry’s radio home; Ole Red, a brand of Blake Shelton-themed bar, music venue and event spaces, with a flagship location in Nashville that opened in May 2018; Opry City Stage, a four-level entertainment complex in Times Square that opened in December 2017 under a joint venture agreement and of which we acquired the remaining 50% joint venture interest in the second quarter of 2018; and three Nashville-based assets managed by Marriott – Gaylord Springs Golf Links, the Wildhorse Saloon, and the General Jackson Showboat.

Each of our award-winning Gaylord Hotels properties incorporates not only high quality lodging, but also at least 400,000 square feet of meeting, convention and exhibition space, superb food and beverage options and retail and spa facilities within a single self-contained property. As a result, our Gaylord Hotels properties provide a convenient and entertaining environment for convention guests. Our Gaylord Hotels properties focus on the large group meetings market in the United States.

See “Cautionary Note Regarding Forward-Looking Statements” in this Item 2 and Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2017 for important information regarding forward-looking statements made in this report and risks and uncertainties we face.

Dividend Policy

Pursuant to our current dividend policy, we plan to continue to pay a quarterly cash dividend to shareholders in an amount equal to an annualized payment of at least 50% of adjusted funds from operations (as defined by us) less maintenance capital expenditures or 100% of REIT taxable income, whichever is greater. On February 27, 2018, our board of directors declared our first quarter 2018 cash dividend in the amount of $0.85 per share of common

 

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stock, or an aggregate of approximately $43.6 million in cash, which was paid on April 16, 2018 to stockholders of record as of the close of business on March 30, 2018. On June 18, 2018, our board of directors declared our second quarter 2018 cash dividend in the amount of $0.85 per share of common stock, or an aggregate of approximately $43.6 million in cash, which was paid on July 16, 2018 to stockholders of record as of the close of business on June 29, 2018.We currently plan to pay a quarterly cash dividend of $0.85 per share of common stock in October 2018 and January 2019. The declaration, timing and amount of dividends will be determined by action of our board of directors. Our dividend policy may be altered at any time by our board of directors.

Our Strategic Plan

Our goal is to become the nation’s premier hospitality REIT for group-oriented meeting hotel assets in urban and resort markets.

Existing Hotel Property Design. Our Gaylord Hotels properties focus on the large group meetings market in the United States and incorporate meeting and exhibition space, signature guest rooms, food and beverage offerings, fitness and spa facilities and other attractions within a large hotel property so attendees’ needs are met in one location. This strategy creates a better experience for both meeting planners and guests, and has led to our current Gaylord Hotels properties claiming a place among the leading convention hotels in the country.

Expansion of Hotel Asset Portfolio. While our short-term capital allocation strategy has focused on returning capital to stockholders, part of our long-term growth strategy includes acquisitions of other hotels, particularly in the group meetings sector of the hospitality industry, either alone or through joint ventures or alliances with one or more third parties. We intend to pursue attractive investment opportunities which meet our acquisition parameters, specifically, group-oriented large hotels and overflow hotels with existing or potential leisure appeal. We are interested in highly accessible upper-upscale assets with over 400 hotel rooms in urban and resort group destination markets. We also consider assets that possess or are located near convention centers that present a repositioning opportunity and/or would significantly benefit from capital investment in additional rooms or meeting space. We plan to expand the geographic diversity of our existing asset portfolio through acquisitions. As a REIT, we do not view independent, large-scale development of resort and convention hotels as a part of our long-term growth strategy.

Leverage Brand Name Awareness. We believe the Grand Ole Opry is one of the most recognized entertainment brands in the United States. We promote the Grand Ole Opry name through various media, including our WSM-AM radio station, the Internet and television, and through performances by the Grand Ole Opry’s members, many of whom are renowned country music artists. As such, we have alliances in place with multiple distribution partners in an effort to foster brand extension. We are continuously exploring additional products, such as television specials and retail products, through which we can capitalize on our brand affinity and awareness. To this end, we have invested in Opry City Stage, a four-level entertainment complex in Times Square, as well as a Company-owned, Blake Shelton-themed four-level bar, music venue and event space in Nashville named after the Shelton hit “Ole Red.” We believe that licensing our brand for products may provide an opportunity to increase revenues and cash flow with relatively little capital investment.

 

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Our Current Operations

Our ongoing operations are organized into three principal business segments:

 

   

Hospitality, consisting of our Gaylord Hotels properties, the Inn at Opryland, the AC Hotel, and our investment in the Gaylord Rockies joint venture.

 

   

Entertainment, consisting of the Grand Ole Opry, the Ryman Auditorium, WSM-AM, Ole Red, Opry City Stage, and our other Nashville-based attractions.

 

   

Corporate and Other, consisting of our corporate expenses.

For the three months and six months ended June 30, 2018 and 2017, our total revenues were divided among these business segments as follows:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

Segment

   2018     2017     2018     2017  

Hospitality

     87     88     89     90

Entertainment

     13     12     11     10

Corporate and Other

     0     0     0     0

Key Performance Indicators

The operating results of our Hospitality segment are highly dependent on the volume of customers at our hotels and the quality of the customer mix at our hotels, which are managed by Marriott. These factors impact the price that Marriott can charge for our hotel rooms and other amenities, such as food and beverage and meeting space. The following key performance indicators are commonly used in the hospitality REIT industry:

 

   

hotel occupancy – a volume indicator;

 

   

average daily rate (“ADR”) – a price indicator calculated by dividing room revenue by the number of rooms sold;

 

   

Revenue per Available Room (“RevPAR”) –a summary measure of hotel results calculated by dividing room revenue by room nights available to guests for the period;

 

   

Total Revenue per Available Room (“Total RevPAR”) – a summary measure of hotel results calculated by dividing the sum of room, food and beverage and other ancillary service revenue by room nights available to guests for the period; and

 

   

Net Definite Group Room Nights Booked – a volume indicator which represents, on an aggregate basis, the total number of definite group bookings for future room nights at our Gaylord Hotels properties confirmed during the applicable period, net of cancellations.

Hospitality segment revenue from our occupied hotel rooms is recognized over time as the daily hotel stay is provided to hotel groups and guests. Revenues from concessions, food and beverage sales, and group meeting services are recognized over the period or at the point in time those goods or services are delivered to the group or hotel guest. Revenues from ancillary services at our hotels, such as spa, parking, and transportation services, are generally recognized at the time the goods or services are provided. Cancellation fees, as well as attrition fees that

 

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are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for, are recognized as revenue in the period we determine it is probable that a significant reversal in the amount of revenue recognized will not occur, which is the period these fees are collected. Almost all of our Hospitality segment revenues are either cash-based or, for meeting and convention groups who meet our credit criteria, billed and collected on a short-term receivables basis. The hospitality industry is capital intensive, and we rely on the ability of our hotels to generate operating cash flow to repay debt financing and fund maintenance capital expenditures.

The results of operations of our Hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period. A variety of factors can affect the results of any interim period, including the nature and quality of the group meetings and conventions attending our hotels during such period, which meetings and conventions have often been contracted for several years in advance, the level of attrition our hotels experience, and the level of transient business at our hotels during such period. We rely on Marriott, as the manager of our hotels, to manage these factors and to offset any identified shortfalls in occupancy.

Selected Financial Information

The following table contains our unaudited selected summary financial data for the three months and six months ended June 30, 2018 and 2017. The table also shows the percentage relationships to total revenues and, in the case of segment operating income, its relationship to segment revenues (in thousands, except percentages).

 

           Unaudited                 Unaudited        
     Three Months Ended June 30,     Six Months Ended June 30,  
     2018     %     2017     %     2018     %     2017     %  

Income Statement Data:

                

REVENUES:

                

Rooms

   $ 121,745       36.5   $ 110,674       37.0   $ 229,309       36.8   $ 214,043       37.2

Food and beverage

     141,053       42.2     128,441       43.0     273,992       44.0     254,610       44.3

Other hotel revenue

     28,958       8.7     24,258       8.1     53,566       8.6     48,874       8.5

Entertainment

     42,178       12.6     35,405       11.8     65,437       10.5     57,293       10.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     333,934       100.0     298,778       100.0     622,304       100.0     574,820       100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

                

Rooms

     30,059       9.0     28,359       9.5     58,987       9.5     56,387       9.8

Food and beverage

     72,394       21.7     68,285       22.9     144,372       23.2     137,442       23.9

Other hotel expenses

     76,733       23.0     73,536       24.6     152,615       24.5     147,774       25.7

Hotel management fees, net

     8,635       2.6     6,178       2.1     15,765       2.5     11,709       2.0

Entertainment

     30,254       9.1     22,135       7.4     49,620       8.0     38,986       6.8

Corporate

     7,640       2.3     7,468       2.5     15,969       2.6     14,877       2.6

Preopening costs

     1,525       0.5     494       0.2     3,672       0.6     710       0.1

Depreciation and amortization:

                

Hospitality

     27,233       8.2     25,547       8.6     53,433       8.6     50,725       8.8

Entertainment

     2,315       0.7     1,592       0.5     4,272       0.7     3,500       0.6

Corporate and Other

     447       0.1     540       0.2     956       0.2     1,091       0.2
  

 

 

     

 

 

     

 

 

     

 

 

   

Total depreciation and amortization

     29,995       9.0     27,679       9.3     58,661       9.4     55,316       9.6
  

 

 

     

 

 

     

 

 

     

 

 

   

Total operating expenses

     257,235       77.0     234,134       78.4     499,661       80.3     463,201       80.6
  

 

 

     

 

 

     

 

 

     

 

 

   

OPERATING INCOME:

                

Hospitality

     76,702       26.3     61,468       23.3     131,695       23.6     113,490       21.9

Entertainment

     9,609       22.8     11,678       33.0     11,545       17.6     14,807       25.8

Corporate and Other

     (8,087     (A     (8,008     (A     (16,925     (A     (15,968     (A

Preopening costs

     (1,525     (A     (494     (A     (3,672     (A     (710     (A
  

 

 

     

 

 

     

 

 

     

 

 

   

Total operating income

     76,699       23.0     64,644       21.6     122,643       19.7     111,619       19.4

Interest expense

     (19,625     (A     (17,155     (A     (36,354     (A     (33,019     (A

Interest income

     2,766       (A     2,969       (A     5,519       (A     5,917       (A

Income (loss) from joint ventures

     1,346       (A     (943     (A     (1,242     (A     (1,717     (A

Other gains and (losses), net

     36       (A     (1,324     (A     204       (A     (1,396     (A

Provision for income taxes

     (5,676     (A     (899     (A     (7,885     (A     (1,492     (A
  

 

 

     

 

 

     

 

 

     

 

 

   

Net income

   $ 55,546       (A   $ 47,292       (A   $ 82,885       (A   $ 79,912       (A
  

 

 

     

 

 

     

 

 

     

 

 

   

 

(A)

These amounts have not been shown as a percentage of revenue because they have no relationship to revenue.

 

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Summary Financial Results

Results of Operations

The following table summarizes our financial results for the three months and six months ended June 30, 2018 and 2017 (in thousands, except percentages and per share data):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018      2017      % Change     2018      2017      % Change  

Total revenues

   $ 333,934      $ 298,778        11.8   $ 622,304      $ 574,820        8.3

Total operating expenses

     257,235        234,134        9.9     499,661        463,201        7.9

Operating income

     76,699        64,644        18.6     122,643        111,619        9.9

Net income

     55,546        47,292        17.5     82,885        79,912        3.7

Net income per share - fully diluted

     1.08        0.92        17.4     1.61        1.56        3.2

Total Revenues

The increase in our total revenues for the three months ended June 30, 2018, as compared to the same period in 2017, is attributable to increases in our Hospitality segment and Entertainment segment of $28.4 million and $6.8 million, respectively, each as discussed more fully below. The increase in our total revenues for the six months ended June 30, 2018, as compared to the same period in 2017, is attributable to increases in our Hospitality segment and Entertainment segment of $39.3 million and $8.1 million, respectively, each as discussed more fully below.

Total Operating Expenses

The increase in our total operating expenses for the three months ended June 30, 2018, as compared to the same period in 2017, is primarily the result of increases in our Hospitality segment and Entertainment segment expenses of $11.5 million and $8.1 million, respectively, as well as an increase in depreciation and amortization expenses of $2.3 million, each as discussed more fully below. The increase in our total operating expenses for the six months ended June 30, 2018, as compared to the same period in 2017, is primarily the result of increases in our Hospitality segment and Entertainment segment expenses of $18.4 million and $10.6 million, respectively, as well as increases in depreciation and amortization expenses and preopening expenses of $3.3 million and $3.0 million, respectively, each as discussed more fully below.

Net Income

The increase in our net income to $55.5 million for the three months ended June 30, 2018, as compared to $47.3 million for the same period in 2017, was due to the changes in our revenues and operating expenses reflected above and the following factors, each as described more fully below:

 

   

A $4.8 million increase in the provision for income taxes in the 2018 period.

 

   

A $2.5 million increase in interest expense for the 2018 period.

 

   

Income from joint ventures of $1.3 million in the 2018 period, compared to a loss from joint ventures of $0.9 million in the 2017 period.

 

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The increase in our net income to $82.9 million for the six months ended June 30, 2018, as compared to $79.9 million for the same period in 2017, was due to the changes in our revenues and operating expenses reflected above and the following factors, each as described more fully below:

 

   

A $6.4 million increase in the provision for income taxes in the 2018 period.

 

   

A $3.3 million increase in interest expense for the 2018 period.

Factors and Trends Contributing to Performance

The most important factors and trends contributing to our performance during the three months and six months ended June 30, 2018 described herein were:

 

   

Increased occupancy (an increase of 8.6 and 6.3 points of occupancy, respectively), ADR (an increase of 7.5% and 7.4%, respectively) and outside-the-room spending (an increase of 16.8% and 12.6%, respectively) at Gaylord Opryland during the 2018 periods, as compared to the 2017 periods, each primarily due to increases in group business partially attributable to a prior year rooms renovation project. The increase in ADR was also influenced by an increase in transient rates.

 

   

Increased ADR (an increase of 2.1% and 2.7%, respectively) and outside-the-room spending (an increase of 10.0% and 7.3%, respectively) at Gaylord Texan during the 2018 periods, as compared to the 2017 periods, each primarily due to increases in group business partially attributable to the recent rooms and meeting space expansion.

 

   

Increased ADR (an increase of 3.6% and 2.7%, respectively) at Gaylord Palms during the 2018 periods, as compared to the 2017 periods, due primarily to an increase in transient business, as well an increase in outside-the-room spending (an increase of 4.4% and 6.3%, respectively), due primarily to an increase in catering.

 

   

Increased ADR (an increase of 5.9% and 1.6%, respectively) and outside-the-room spending (an increase of 11.7% and 4.7%, respectively) at Gaylord National during the 2018 periods, as compared to the 2017 periods, each primarily due to increases in group business.

 

   

Increased revenue for our Entertainment segment during the 2018 periods, as compared to the 2017 periods (an increase of 19.1% and 14.2%, respectively), due primarily to the opening of our flagship Ole Red location in Nashville in May 2018.

 

   

Increased Net Definite Group Room Nights Booked during the 2018 periods, as compared to the 2017 periods (an increase of 62.0% and 21.3%, respectively).

 

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Operating Results – Detailed Segment Financial Information

Hospitality Segment

Total Segment Results. The following presents the financial results of our Hospitality segment for the three months and six months ended June 30, 2018 and 2017 (in thousands, except percentages and performance metrics):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Revenues:

            

Rooms

   $ 121,745     $ 110,674       10.0   $ 229,309     $ 214,043       7.1

Food and beverage

     141,053       128,441       9.8     273,992       254,610       7.6

Other hotel revenue

     28,958       24,258       19.4     53,566       48,874       9.6
  

 

 

   

 

 

     

 

 

   

 

 

   

Total hospitality revenue

     291,756       263,373       10.8     556,867       517,527       7.6

Hospitality operating expenses:

            

Rooms

     30,059       28,359       6.0     58,987       56,387       4.6

Food and beverage

     72,394       68,285       6.0     144,372       137,442       5.0

Other hotel expenses

     76,733       73,536       4.3     152,615       147,774       3.3

Management fees, net

     8,635       6,178       39.8     15,765       11,709       34.6

Depreciation and amortization

     27,233       25,547       6.6     53,433       50,725       5.3
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Hospitality operating expenses

     215,054       201,905       6.5     425,172       404,037       5.2
  

 

 

   

 

 

     

 

 

   

 

 

   

Hospitality operating income (1)

   $ 76,702     $ 61,468       24.8   $ 131,695     $ 113,490       16.0
  

 

 

   

 

 

     

 

 

   

 

 

   

Hospitality performance metrics:

            

Occupancy

     79.0     76.7     3.0     76.4     74.7     2.3

ADR

   $ 200.16     $ 191.00       4.8   $ 197.72     $ 190.68       3.7

RevPAR (2)

   $ 158.13     $ 146.42       8.0   $ 151.11     $ 142.37       6.1

Total RevPAR (3)

   $ 378.94     $ 348.45       8.8   $ 366.97     $ 344.24       6.6

Net Definite Group Room Nights Booked

     500,653       309,065       62.0     845,293       696,789       21.3

 

(1)

Hospitality segment operating income does not include preopening costs of $0.6 million and $0.2 million in the three months ended June 30, 2018 and 2017, respectively, and $2.0 million and $0.2 million in the six months ended June 30, 2018 and 2017, respectively. See discussion of preopening costs below.

(2)

We calculate Hospitality RevPAR by dividing room revenue by room nights available to guests for the period. Hospitality RevPAR is not comparable to similarly titled measures such as revenues.

(3)

We calculate Hospitality Total RevPAR by dividing the sum of room, food and beverage, and other ancillary services revenue (which equals Hospitality segment revenue) by room nights available to guests for the period. Hospitality Total RevPAR is not comparable to similarly titled measures such as revenues.

The increase in total Hospitality segment revenue in the three months ended June 30, 2018, as compared to the same period in 2017, is primarily due to increases of $14.7 million, $5.8 million, $5.7 million and $2.1 million at Gaylord Opryland, Gaylord Texan, Gaylord National and Gaylord Palms, respectively. The increase in total Hospitality segment revenue in the six months ended June 30, 2018, as compared to the same period in 2017, is primarily due to increases of $22.4 million, $7.5 million, $5.8 million and $4.0 million at Gaylord Opryland, Gaylord Texan, Gaylord Palms and Gaylord National, respectively. See below for further discussion.

Total Hospitality segment revenues in the three months and six months ended June 30, 2018 include $3.9 million and $5.1 million, respectively, in attrition and cancellation fee collections, an increase of $2.4 million and $0.8 million, respectively, from the 2017 periods.

 

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The percentage of group versus transient business based on rooms sold for our Hospitality segment for the periods presented was approximately as follows:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     2018     2017  

Group

     75     75     77     77

Transient

     25     25     23     23

Rooms operating expenses increased in the three months and six months ended June 30, 2018, as compared to the same periods in 2017, due primarily to increases at Gaylord Opryland and Gaylord National, as described below.

Food and beverage operating expenses increased in the three months ended June 30, 2018, as compared to the same period in 2017, primarily due to increases at Gaylord National and Gaylord Opryland, as described below. Food and beverage operating expenses increased in the six months ended June 30, 2018, as compared to the same period in 2017, primarily due to increases at Gaylord Opryland, Gaylord National and Gaylord Texan, as described below.

Other hotel expenses for the three months and six months ended June 30, 2018 and 2017 consist of the following (in thousands):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018      2017      % Change     2018      2017      % Change  

Administrative employment costs

   $ 27,963      $ 26,542        5.4   $ 56,395      $ 53,905        4.6

Utilities

     6,915        6,968        -0.8     13,173        13,328        -1.2

Property taxes

     8,369        7,643        9.5     16,670        16,806        -0.8

Other

     33,486        32,383        3.4     66,377        63,735        4.1
  

 

 

    

 

 

      

 

 

    

 

 

    

Total other hotel expenses

   $ 76,733      $ 73,536        4.3   $ 152,615      $ 147,774        3.3
  

 

 

    

 

 

      

 

 

    

 

 

    

Administrative employment costs include salaries and benefits for hotel administrative functions, including, among others, senior management, accounting, human resources, sales, conference services, engineering and security. Administrative employment costs increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017. The three-month 2018 increase is primarily due to increases at Gaylord Texan and Gaylord Opryland, and the six-month 2018 increase is primarily due to increases at Gaylord Texan and Gaylord National. Utility costs decreased slightly during the three months and six months ended June 30, 2018, as compared to the same periods in 2017. Property taxes increased during the three months ended June 30, 2018, as compared to the 2017 period, primarily due to an increase at Gaylord Opryland due to the prior year period including an accrual reduction for a decreased tax rate and an increase at Gaylord Texan related to the property’s recent expansion. Property taxes decreased slightly during the six months ended June 30, 2018, as compared to the same period in 2017, as the increase at Gaylord Texan was offset by a decrease at Gaylord National due to prior period tax settlements. Other expenses, which include supplies, advertising, maintenance costs and consulting costs, increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily as a result of various increases at Gaylord Opryland, Gaylord National and Gaylord Palms, partially offset by various decreases at Gaylord Texan.

 

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Each of our management agreements with Marriott requires us to pay Marriott a base management fee of approximately 2% of gross revenues from the applicable property for each fiscal year or portion thereof. Additionally, an incentive management fee is based on the profitability of our Gaylord Hotels properties calculated on a pooled basis. In the three months ended June 30, 2018 and 2017, we incurred $5.9 million and $5.4 million, respectively, and in the six months ended June 30, 2018 and 2017, we incurred $11.2 million and $10.5 million, respectively, related to base management fees for our Hospitality segment. In the three months ended June 30, 2018 and 2017, we also incurred $3.5 million and $1.6 million, respectively, and in the six months ended June 30, 2018 and 2017, we incurred $6.0 million and $2.8 million, respectively, related to incentive management fees for our Hospitality segment. Management fees are presented throughout this Quarterly Report on Form 10-Q net of the amortization of the $190.0 million in deferred management rights proceeds discussed in Note 8 to the accompanying condensed consolidated financial statements included herein.

Total Hospitality segment depreciation and amortization expense increased in the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to increases at Gaylord Texan and Gaylord Opryland, as described below.

Property-Level Results. The following presents the property-level financial results of our Hospitality segment for the three months and six months ended June 30, 2018 and 2017.

Gaylord Opryland Results. The results of Gaylord Opryland for the three months and six months ended June 30, 2018 and 2017 are as follows (in thousands, except percentages and performance metrics):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Revenues:

            

Rooms

   $ 41,406     $ 34,447       20.2   $ 77,164     $ 65,947       17.0

Food and beverage

     43,155       36,916       16.9     81,151       71,672       13.2

Other hotel revenue

     10,354       8,897       16.4     19,345       17,603       9.9
  

 

 

   

 

 

     

 

 

   

 

 

   

Total revenue

     94,915       80,260       18.3     177,660       155,222       14.5

Operating expenses:

            

Rooms

     9,288       8,299       11.9     17,971       16,246       10.6

Food and beverage

     20,647       18,711       10.3     40,885       37,289       9.6

Other hotel expenses

     23,878       22,103       8.0     46,464       45,160       2.9

Management fees, net

     3,304       2,144       54.1     5,990       3,950       51.6

Depreciation and amortization

     8,859       8,373       5.8     17,537       16,470       6.5
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expenses

     65,976       59,630       10.6     128,847       119,115       8.2

Performance metrics:

            

Occupancy

     81.4     72.8     11.8     76.9     70.6     8.9

ADR

   $ 193.54     $ 180.11       7.5   $ 192.07     $ 178.76       7.4

RevPAR

   $ 157.55     $ 131.07       20.2   $ 147.62     $ 126.16       17.0

Total RevPAR

   $ 361.16     $ 305.40       18.3   $ 339.87     $ 296.95       14.5

Rooms revenue and RevPAR increased at Gaylord Opryland during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, as the result of increases in occupancy and ADR, due to increases in both group and transient room nights and rates. Rooms revenue and RevPAR were negatively impacted during the 2017 periods by a rooms renovation project, which resulted in approximately 18,800 and 37,050 room nights out of service, respectively. The rooms renovation project was completed in September 2017. Rooms expenses increased during the 2018 periods, as compared to the 2017 periods, primarily due to increased variable costs associated with the increase in occupancy.

 

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The increase in food and beverage revenue at Gaylord Opryland during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, was primarily due to increased catering revenue associated with the increased group business. Food and beverage expenses increased in the 2018 periods, as compared to the 2017 periods, due to increased variable costs associated with the increase in revenue, partially offset by improved food, beverage, and labor margins.

Other hotel revenue increased at Gaylord Opryland during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to an increase in ancillary revenue, such as parking and resort fees associated with the increase in occupancy, as well as an increase in attrition and cancellation fee collections. Other hotel expenses increased in the 2018 periods, as compared to the 2017 periods, primarily due to increased sales and marketing expenses.

Depreciation and amortization increased at Gaylord Opryland during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily as a result of recent rooms renovation projects that resulted in increased depreciable asset levels.

Gaylord Palms Results. The results of Gaylord Palms for the three months and six months ended June 30, 2018 and 2017 are as follows (in thousands, except percentages and performance metrics):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Revenues:

            

Rooms

   $ 19,587     $ 18,801       4.2   $ 41,691     $ 39,859       4.6

Food and beverage

     25,383       24,808       2.3     55,649       53,305       4.4

Other hotel revenue

     5,304       4,575       15.9     10,830       9,217       17.5
  

 

 

   

 

 

     

 

 

   

 

 

   

Total revenue

     50,274       48,184       4.3     108,170       102,381       5.7

Operating expenses:

            

Rooms

     4,354       4,113       5.9     8,561       8,620       -0.7

Food and beverage

     13,180       13,000       1.4     27,451       27,258       0.7

Other hotel expenses

     16,064       15,767       1.9     32,910       32,062       2.6

Management fees, net

     1,501       1,158       29.6     3,036       2,387       27.2

Depreciation and amortization

     4,799       4,759       0.8     9,588       9,554       0.4
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expenses

     39,898       38,797       2.8     81,546       79,881       2.1

Performance metrics:

            

Occupancy

     80.8     80.3     0.6     81.5     80.1     1.7

ADR

   $ 188.15     $ 181.68       3.6   $ 199.48     $ 194.21       2.7

RevPAR

   $ 152.01     $ 145.91       4.2   $ 162.67     $ 155.52       4.6

Total RevPAR

   $ 390.16     $ 373.94       4.3   $ 422.05     $ 399.47       5.7

Rooms revenue and RevPAR increased at Gaylord Palms during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, due to an increase in both occupancy and ADR for transient business. Rooms expenses increased during the three-month 2018 period and decreased during the six-month 2018 period, as compared to the 2017 periods, as the increase in variable costs associated with the increase in occupancy was offset by decreased commission costs and improved labor margins during the six-month 2018 period.

Food and beverage revenue increased at Gaylord Palms during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, due primarily to increased catering revenue. Food and beverage expenses increased slightly in the 2018 periods, as compared to the 2017 periods, as the increase in variable costs associated with the increase in revenue was partially offset by improved labor margins and decreased food costs.

 

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Other hotel revenue at Gaylord Palms increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to an increase in attrition and cancellation fee collections, as well as an increase in ancillary revenue, such as parking and resort fees associated with the increase in occupancy. The six-month 2018 period increase was also impacted by increased holiday programming revenue that continued into January 2018. Other hotel expenses increased slightly in the three-month 2018 period, as compared to the 2017 period, and increased during the six-month 2018 period, as compared to the 2017 period, primarily as a result of expenses associated with the holiday programming that continued into January 2018.

Depreciation and amortization were stable at Gaylord Palms during the three months and six months ended June 30, 2018, as compared to the same periods in 2017.

Gaylord Texan Results. The results of Gaylord Texan for the three months and six months ended June 30, 2018 and 2017 are as follows (in thousands, except percentages and performance metrics):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Revenues:

            

Rooms

   $ 21,552     $ 19,067       13.0   $ 41,832     $ 39,504       5.9

Food and beverage

     30,403       29,047       4.7     63,572       59,613       6.6

Other hotel revenue

     6,656       4,658       42.9     11,564       10,400       11.2
  

 

 

   

 

 

     

 

 

   

 

 

   

Total revenue

     58,611       52,772       11.1     116,968       109,517       6.8

Operating expenses:

            

Rooms

     4,425       4,182       5.8     8,923       8,580       4.0

Food and beverage

     15,052       14,701       2.4     31,302       30,010       4.3

Other hotel expenses

     15,562       14,874       4.6     30,858       29,673       4.0

Management fees, net

     2,074       1,244       66.7     3,773       2,483       52.0

Depreciation and amortization

     6,001       5,140       16.8     11,168       10,250       9.0
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expenses

     43,114       40,141       7.4     86,024       80,996       6.2

Performance metrics:

            

Occupancy

     73.0     72.7     0.4     74.6     76.1     -2.0

ADR

   $ 194.82     $ 190.73       2.1   $ 194.87     $ 189.76       2.7

RevPAR

   $ 142.18     $ 138.66       2.5   $ 145.47     $ 144.44       0.7

Total RevPAR

   $ 386.67     $ 383.79       0.8   $ 406.75     $ 400.44       1.6

Rooms revenue and RevPAR increased at Gaylord Texan during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, due primarily to an increase in ADR for both groups and transient business. The 2018 periods were also positively impacted by additional room availability from the recently completed rooms expansion. Rooms expenses increased during the 2018 periods, as compared to the 2017 periods, primarily due an increase in group commissions.

Food and beverage revenue increased at Gaylord Texan during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, due to an increase in catering revenue. Food and beverage expenses increased in the 2018 periods, as compared to the 2017 periods, primarily due to the increase in variable costs associated with the increase in revenue, partially offset by decreased food costs.

Other hotel revenue at Gaylord Texan increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily as a result of an increase in attrition and cancellation fee collections. Other hotel expenses increased in the 2018 periods, as compared to the 2017 periods, due primarily to increased property tax and marketing expenses associated with the recent rooms and meeting space expansion.

 

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Depreciation and amortization increased at Gaylord Texan during the three months and six months ended June 30, 2018, as compared to the 2017 periods, primarily as a result of the recent rooms and meeting space expansion that resulted in increased depreciable asset levels.

Gaylord National Results. The results of Gaylord National for the three months and six months ended June 30, 2018 and 2017 are as follows (in thousands, except percentages and performance metrics):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Revenues:

            

Rooms

   $ 32,415     $ 31,680       2.3   $ 57,608     $ 57,356       0.4

Food and beverage

     40,746       36,281       12.3     71,171       67,599       5.3

Other hotel revenue

     6,526       6,034       8.2     11,664       11,497       1.5
  

 

 

   

 

 

     

 

 

   

 

 

   

Total revenue

     79,687       73,995       7.7     140,443       136,452       2.9

Operating expenses:

            

Rooms

     10,468       10,309       1.5     20,676       20,181       2.5

Food and beverage

     22,468       20,896       7.5     42,810       41,073       4.2

Other hotel expenses

     18,970       18,597       2.0     37,992       36,696       3.5

Management fees, net

     1,368       1,255       9.0     2,363       2,284       3.5

Depreciation and amortization

     6,884       6,613       4.1     13,756       13,129       4.8
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expenses

     60,158       57,670       4.3     117,597       113,363       3.7

Performance metrics:

            

Occupancy

     78.6     81.3     -3.3     74.7     75.5     -1.1

ADR

   $ 227.17     $ 214.42       5.9   $ 213.54     $ 210.19       1.6

RevPAR

   $ 178.46     $ 174.41       2.3   $ 159.46     $ 158.76       0.4

Total RevPAR

   $ 438.72     $ 407.38       7.7   $ 388.74     $ 377.69       2.9

Rooms revenue and RevPAR increased at Gaylord National during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, due primarily to an increase in ADR for group business. Rooms expenses increased at Gaylord National during the 2018 periods, as compared to the 2017 periods, primarily due to increased labor costs.

Food and beverage revenue increased at Gaylord National during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily as a result of an increase in banquets. Food and beverage expenses increased in the 2018 periods, as compared to the 2017 periods, as a result of increased variable costs associated with the increase in revenue.

Other hotel revenue increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to an increase in attrition and cancellation fee collections. Other hotel expenses increased in the 2018 periods, as compared to the 2017 periods, due to an increase in sales and marketing expenses, partially offset by a decrease in property taxes due to prior period tax settlements.

Depreciation and amortization at Gaylord National increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to the completion of a new riverfront ballroom in 2017, and the resulting increase in depreciable asset levels.

 

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Entertainment Segment

Total Segment Results. The following presents the financial results of our Entertainment segment for the three months and six months ended June 30, 2018 and 2017 (in thousands, except percentages):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018      2017      % Change     2018      2017      % Change  

Revenues

   $ 42,178      $ 35,405        19.1   $ 65,437      $ 57,293        14.2

Operating expenses

     30,254        22,135        36.7     49,620        38,986        27.3

Depreciation and amortization

     2,315        1,592        45.4     4,272        3,500        22.1
  

 

 

    

 

 

      

 

 

    

 

 

    

Operating income (1)

   $ 9,609      $ 11,678        -17.7   $ 11,545      $ 14,807        -22.0
  

 

 

    

 

 

      

 

 

    

 

 

    

 

(1)

Entertainment segment operating income does not include preopening costs of $1.0 million and $0.3 million in the three months ended June 30, 2018 and 2017, respectively, and $1.6 million and $0.5 million in the six months ended June 30, 2018 and 2017, respectively. See discussion of preopening costs below.

Entertainment segment revenue increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to the opening of our flagship Ole Red location in Nashville in May 2018.

Entertainment operating expenses increased during the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily as a result of increased compensation and consulting costs, as well as increased variable costs associated with the increase in revenue.

Entertainment depreciation expense increased in the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily as a result of the opening of Ole Red Nashville that resulted in increased depreciable asset levels.

Corporate and Other Segment

Total Segment Results. The following presents the financial results of our Corporate and Other segment for the three months and six months ended June 30, 2018 and 2017 (in thousands, except percentages):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Operating expenses

   $ 7,640     $ 7,468       2.3   $ 15,969     $ 14,877       7.3

Depreciation and amortization

     447       540       -17.2     956       1,091       -12.4
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating loss

   $ (8,087   $ (8,008     1.0   $ (16,925   $ (15,968     6.0
  

 

 

   

 

 

     

 

 

   

 

 

   

Corporate and Other operating expenses, which consist primarily of costs associated with senior management salaries and benefits, legal, human resources, accounting, pension, information technology and other administrative costs, increased in the three months and six months ended June 30, 2018, as compared to the same periods in 2017, primarily due to increased administrative and employment costs associated with supporting our growth initiatives within our Hospitality and Entertainment segments.

 

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Corporate and Other depreciation and amortization expense decreased in the three months and six months ended June 30, 2018, as compared with the same periods in 2017.

Operating Results – Preopening Costs

Preopening costs of $1.5 million and $3.7 million during the three months and six months ended June 30, 2018 primarily include costs associated with an expansion of the guest rooms and convention space at Gaylord Texan, which opened in the second quarter of 2018, and costs associated with Ole Red Nashville, which opened in May 2018. Preopening costs of $0.5 million and $0.7 million during the three months and six months ended June 30, 2017, respectively, include costs associated with a riverfront ballroom at Gaylord National, which opened in the second quarter of 2017, and costs associated with our various Entertainment segment projects.

Non-Operating Results Affecting Net Income

General

The following table summarizes the other factors which affected our net income for the three months and six months ended June 30, 2018 and 2017 (in thousands, except percentages):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2018     2017     % Change     2018     2017     % Change  

Interest expense

   $ (19,625   $ (17,155     -14.4   $ (36,354   $ (33,019     -10.1

Interest income

     2,766       2,969       -6.8     5,519       5,917       -6.7

Income (loss) from joint ventures

     1,346       (943     242.7     (1,242     (1,717     27.7

Other gains and (losses), net

     36       (1,324     102.7     204       (1,396     114.6

Provision for income taxes

     (5,676     (899     -531.4     (7,885     (1,492     -428.5

Interest Expense

Interest expense increased $2.5 million during the three months and increased $3.3 million in the six months ended June 30, 2018, as compared to the same periods in 2017, due primarily to increased interest incurred in connection with our term loan A and increased borrowings under our term loan B, which were both refinanced in May 2017, and an increase of $1.0 million in interest expense related to the write-off of deferred financing costs associated with our refinancing in each of the 2018 and 2017 periods. These increases were partially offset by increased capitalized interest in the current periods.

Cash interest expense increased $2.8 million to $19.2 million in the three months and increased $4.8 million to $37.1 million in the six months ended June 30, 2018, as compared to the same periods in 2017. Non-cash interest expense, which includes amortization of deferred financing costs and the write-off of deferred financing costs, offset by capitalized interest, decreased $0.3 million to $0.4 million in the three months and decreased $1.5 million to $(0.7) million in the six months ended June 30, 2018, as compared to the same periods in 2017.

Our weighted average interest rate on our borrowings, excluding the write-off of deferred financing costs and capitalized interest, was 4.8% and 4.4% for the three months ended June 30, 2018 and 2017, respectively, and 4.7% and 4.4% for the six months ended June 30, 2018 and 2017, respectively.

 

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Interest Income

Interest income for the three months and six months ended June 30, 2018 and 2017 primarily includes amounts earned on the bonds that were received in connection with the development of Gaylord National, which we hold as notes receivable. See Note 6 to the accompanying condensed consolidated financial statements for additional discussion of interest income on these bonds.

Income (Loss) from Joint Ventures

The income (loss) from joint ventures for the three months and six months ended June 30, 2018 and 2017 primarily represents preopening expenses incurred by our Gaylord Rockies joint venture, which is anticipated to open in late 2018, as well as pre-opening expenses in the 2017 period, and losses incurred in the 2018 period, by our Opry City Stage joint venture in Times Square in New York City, which opened in December 2017. We acquired the remaining 50% joint venture interest in Opry City Stage in the second quarter of 2018. In addition, the 2018 periods included a gain of $2.8 million recognized from the re-measurement of the pre-existing Opry City Stage equity method investment prior to consolidation. We expect the results of operations of Opry City Stage will negatively impact the Entertainment segment in the near term as we continue to make investments to appropriately position this offering.

Other Gains and (Losses), net

Other gains and (losses), net for the three months and six months ended June 30, 2018 represents various miscellaneous items. Other gains and (losses), net for the three months and six months ended June 30, 2017 primarily represents a loss on certain assets that were disposed of in our Entertainment and Corporate segments.

Provision for Income Taxes

As a REIT, we generally will not be subject to federal corporate income taxes on ordinary taxable income and capital gains income from real estate investments that we distribute to our stockholders. We will continue to be required to pay federal and state corporate income taxes on earnings of our TRSs.

For the three months ended June 30, 2018 and 2017, we recorded an income tax provision of $5.7 million and $0.9 million, respectively. For the six months ended June 30, 2018 and 2017, we recorded an income tax provision of $7.9 million and $1.5 million, respectively. These results differ from the statutory rate primarily due to the REIT dividends paid deduction in both periods and the change in valuation allowance required at the TRSs for the 2017 periods.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted and included a reduction to the U.S. federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. We have not fully completed our accounting for the income tax effects of the TCJA. As discussed in SEC Staff Accounting Bulletin No. 118, the accounting for the TCJA should be completed within one year from enactment. During the six months ended June 30, 2018, we have made no adjustments to the provisional amounts recorded at December 31, 2017. Any adjustments to the provisional amounts recorded at December 31, 2017 will be reflected upon the completion of our accounting for the TCJA.

Liquidity and Capital Resources

Cash Flows From Operating Activities. Cash flow from operating activities is the principal source of cash used to fund our operating expenses, interest payments on debt, maintenance capital expenditures, and dividends to stockholders. During the six months ended June 30, 2018, our net cash flows provided by operating activities were $131.7 million, primarily reflecting cash provided by our income before depreciation expense, amortization expense and other non-cash charges of approximately $157.3 million, partially offset by unfavorable changes in working capital of approximately $25.6 million. During the six months ended June 30, 2017, our net cash flows provided by operating activities were $113.9 million, primarily reflecting cash provided by our income before

 

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depreciation expense, amortization expense and other non-cash charges of approximately $141.8 million, partially offset by unfavorable changes in working capital of approximately $27.9 million. The unfavorable changes in working capital in both periods primarily resulted from an increase in trade receivables due to a seasonal change in the timing of payments received from corporate group customers at our Gaylord Hotels properties, as well as a decrease in accounts payable and accrued liabilities primarily attributable to the payment of liabilities associated with our Christmas-related and incentive compensation programs.

Cash Flows From Investing Activities. During the six months ended June 30, 2018, our primary uses of funds for investing activities were purchases of property and equipment, which totaled $95.4 million, and consisted primarily of construction of the new waterpark at Gaylord Opryland, the expansion of the guest rooms and convention space at Gaylord Texan, construction of Ole Red Nashville, and ongoing maintenance capital expenditures for our existing properties.

During the six months ended June 30, 2017, our primary uses of funds for investing activities were purchases of property and equipment, which totaled $79.5 million, and our investment of $16.3 million in the Gaylord Rockies joint venture. Purchases of property and equipment consisted primarily of the expansion of the guest rooms and convention space at Gaylord Texan, the renovation of a portion of the guest rooms at Gaylord Opryland, a freestanding event ballroom and an expanded event space at Gaylord National, the commencement of construction of the new waterpark at Gaylord Opryland, and ongoing maintenance capital expenditures for our existing properties.

Cash Flows From Financing Activities. Our cash flows from financing activities primarily reflect the incurrence of debt, the repayment of long-term debt and the payment of cash dividends. During the six months ended June 30, 2018, our net cash flows used in financing activities were approximately $10.3 million, primarily reflecting the payment of $85.1 million in cash dividends, partially offset by $79.3 million in net borrowings under our credit facility.

During the six months ended June 30, 2017, our net cash flows used in financing activities were approximately $28.9 million, primarily reflecting the repayment of $241.9 million under our refinanced revolving credit facility, the payment of $79.8 million in cash dividends and the payment of $12.2 million in deferred financing costs related to our refinanced credit facility. These uses of cash were partially offset by $200.0 million in borrowings under our new term loan A and $108.8 million in net borrowings under our refinanced term loan B.

Liquidity

At June 30, 2018, we had $61.8 million in unrestricted cash and $446.1 million available for borrowing under our revolving credit facility. During the six months ended June 30, 2018, we net borrowed $79.3 million under our credit facility, incurred capital expenditures of $95.4 million and paid cash dividends of $85.1 million. These net outflows were offset by cash flows from operating activities discussed above, resulting in the increase in our cash balance from December 31, 2017 to June 30, 2018.

We currently plan to pay a quarterly cash dividend of $0.85 per share in October 2018 and January 2019, subject to determinations as to the timing and amount by our board of directors. We anticipate investing in our operations during the remainder of 2018 by spending between $85 million and $120 million in capital expenditures, which primarily includes ongoing maintenance capital of our current facilities and the construction of a luxury indoor/outdoor waterpark at Gaylord Opryland.

We believe that our cash on hand and cash from operations will be adequate to fund our general short-term commitments, as well as: (i) normal operating expenses, (ii) interest expense on long-term debt obligations, (iii) capital lease and operating lease obligations, and (iv) declared dividends. If our existing cash and cash from operations were inadequate to fund such items, as well as capital expenditures, we could draw on our credit facility, subject to the satisfaction of covenants in the credit facility.

 

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Our outstanding principal debt agreements, none of which mature prior to 2021, are described below. Based on current projections for compliance under our financial covenants contained in these agreements, we do not foresee a maturity issue prior to their scheduled maturity date.

At June 30, 2018, we were in compliance with all covenants related to our outstanding debt.

Principal Debt Agreements

Credit Facility. On May 11, 2017, we entered into a Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) among the Company, as a guarantor, the Operating Partnership, as borrower, certain other subsidiaries of the Company party thereto, as guarantors, certain subsidiaries of the Company party thereto, as pledgors, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent, which amended and restated the Company’s existing credit facility. In addition, on May 23, 2017, we entered into an Amendment No. 1 (the “Amendment No. 1”) and on June 26, 2018, we entered into an Amendment No. 2 (the “Amendment No. 2”) to the Credit Agreement among the same parties, as discussed below. As amended, our credit facility consists of a $700.0 million senior secured revolving credit facility (the “Revolver”), a $200.0 million senior secured term loan A (the “Term Loan A”), and a $500.0 million senior secured term loan B (the “Term Loan B”), each as discussed below.

Each of the Revolver, Term Loan A and Term Loan B is guaranteed by us, each of our four wholly-owned subsidiaries that own the Gaylord Hotels properties, and certain of our other subsidiaries. Each is secured by (i) a first mortgage lien on the real property of each of our Gaylord Hotels properties, (ii) pledges of equity interests in our subsidiaries that own the Gaylord Hotels properties, (iii) our personal property and the personal property of the Operating Partnership and our guarantor subsidiaries and (iv) all proceeds and products from our Gaylord Hotels properties. Advances are subject to a 55% borrowing base, based on the appraisal value of the Gaylord Hotels properties (reduced to 50% in the event one of the Gaylord Hotels properties is sold).

In addition, each of the Revolver, Term Loan A and Term Loan B contains certain covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances and other matters customarily restricted in such agreements. The material financial covenants, ratios or tests contained in the Credit Agreement are as follows (and are unchanged from the previous credit agreement):

 

   

We must maintain a consolidated funded indebtedness to total asset value ratio as of the end of each calendar quarter of not more than .65 to 1.0.

 

   

We must maintain a consolidated tangible net worth (as defined in the Credit Agreement) of not less than $175 million plus 75% of the proceeds received by us or any of our subsidiaries in connection with any equity issuance.

 

   

We must maintain a consolidated fixed charge coverage ratio (as defined in the Credit Agreement) of not less than 1.50 to 1.00.

 

   

We must maintain an implied debt service coverage ratio (the ratio of adjusted net operating income to monthly principal and interest that would be required if the outstanding balance were amortized over 25 years at an assumed fixed rate) of not less than 1.60 to 1.00.

If an event of default shall occur and be continuing under the Credit Agreement, the commitments under the Credit Agreement may be terminated and the principal amount outstanding under the Credit Agreement, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.

 

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$700 Million Revolving Credit Facility. Pursuant to Amendment No. 1, we extended the maturity of the Revolver to May 23, 2021, with two additional six-month extension options, at our election. Borrowings under the Revolver bear interest at an annual rate equal to, at our option, either (i) LIBOR plus the applicable margin ranging from 1.55% to 2.40%, dependent upon our funded debt to total asset value ratio (as defined in the Credit Agreement) or (ii) a base rate as set in the Credit Agreement. At June 30, 2018, the interest rate on the Revolver was LIBOR plus 1.55%. Principal is payable in full at maturity. No additional amounts were borrowed under the Revolver at closing.

At June 30, 2018, $251.5 million of borrowings were outstanding under the Revolver, and the lending banks had issued $2.4 million of letters of credit under the Credit Agreement, which left $446.1 million of availability under the Revolver (subject to the satisfaction of debt incurrence tests under the indentures governing our $350 million in aggregate principal amount of senior notes due 2021 (the “$350 Million 5% Senior Notes”) and $400 million in aggregate principal amount of senior notes due 2023 (the “$400 Million 5% Senior Notes”), which we met at June 30, 2018).

$200 Million Term Loan A Facility. Amendment No. 1 also provides for the Term Loan A, which has a maturity date of May 23, 2022. Borrowings bear interest at an annual rate equal to, at our option, either (i) LIBOR plus the applicable margin ranging from 1.50% to 2.35%, dependent upon our funded debt to total asset value ratio (as defined in the Credit Agreement) or (ii) a base rate as set in the Credit Agreement. At June 30, 2018, the interest rate on the Term Loan A was LIBOR plus 1.50%. Amounts borrowed under the Term Loan A that are repaid or prepaid may not be reborrowed. At closing, we drew down on the Term Loan A in full and proceeds were used to pay down a portion of the Revolver.

$500 Million Term Loan B Facility. In May 2017, as part of the Credit Agreement discussed above, we increased the capacity under our previous $400 million term loan B to $500 million. The Term Loan B has a maturity date of May 11, 2024 and, prior to June 26, 2018, borrowings bore interest at an annual rate equal to, at our option, either (i) LIBOR plus 2.25% or (ii) a base rate as set in the Credit Agreement. On June 26, 2018, we entered into Amendment No. 2 that reduces the applicable interest rate margins for borrowings under the Term Loan B to, at our option, either (i) LIBOR plus 2.00% or (ii) a base rate as set in the Credit Agreement. At June 30, 2018, the interest rate on the Term Loan B was LIBOR plus 2.00%. The Term Loan B amortizes in equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal amount of $500.0 million, with the balance due at maturity. In addition, if for any fiscal year, there is Excess Cash Flow (as defined in the Credit Agreement), an additional principal amount is required. As a result of Amendment No. 2, the commencement date for any Excess Cash Flow payments has been extended to December 31, 2019. Amounts borrowed under the Term Loan B that are repaid or prepaid may not be reborrowed. At closing of Amendment No. 1, we drew down on the Term Loan B in full. Net proceeds, after the repayment of the original $400 million term loan B and certain transaction expenses payable at closing, were used to pay down a portion of the Revolver. Amendment No. 2 did not change the maturity dates existing under the Credit Agreement or result in any increase or decrease in outstanding borrowings.

As a result of the repricing of the Term Loan B in 2018, we wrote off $2.0 million of deferred financing costs during the three months and six months ended June 30, 2018, which is included in interest expense in the accompanying condensed consolidated statement of operations. At June 30, 2018, $495.0 million in borrowings were outstanding under the Term Loan B.

$350 Million 5% Senior Notes. In 2013, the Operating Partnership and Finco completed the private placement of $350.0 million in aggregate principal amount of senior notes due 2021, which are guaranteed by the Company and its subsidiaries that guarantee the Credit Agreement. The $350 Million 5% Senior Notes and guarantees were issued pursuant to an indenture by and among the issuing subsidiaries and the guarantors and U.S. Bank National Association as trustee. The $350 Million 5% Senior Notes have a maturity date of April 15, 2021 and bear interest at 5% per annum, payable semi-annually in cash in arrears on April 15 and October 15 of each year. The $350

 

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Million 5% Senior Notes are general unsecured and unsubordinated obligations of the issuing subsidiaries and rank equal in right of payment with such subsidiaries’ existing and future senior unsecured indebtedness and senior in right of payment to future subordinated indebtedness, if any. The $350 Million 5% Senior Notes are effectively subordinated to the issuing subsidiaries’ secured indebtedness to the extent of the value of the assets securing such indebtedness. The guarantees rank equally in right of payment with the applicable guarantor’s existing and future senior unsecured indebtedness and senior in right of payment to any future subordinated indebtedness of such guarantor. The $350 Million 5% Senior Notes will be effectively subordinated to any secured indebtedness of any guarantor to the extent of the value of the assets securing such indebtedness and structurally subordinated to all indebtedness and other obligations of the Operating Partnership’s subsidiaries that do not guarantee the $350 Million 5% Senior Notes.

The $350 Million 5% Senior Notes are redeemable, in whole or in part, at a redemption price expressed as a percentage of the principal amount thereof, which percentage is 101.25%, and 100.00% beginning on April 15 of 2018, and 2019, respectively, plus accrued and unpaid interest thereon to, but not including, the redemption date.

In connection with the issuance of the $350 Million 5% Senior Notes, we completed a registered offer to exchange the $350 Million 5% Senior Notes for registered notes with substantially identical terms as the $350 Million 5% Senior Notes in November 2013.

$400 Million 5% Senior Notes. In 2015, the Operating Partnership and Finco completed the private placement of $400.0 million in aggregate principal amount of senior notes due 2023. The $400 Million 5% Senior Notes are general unsecured senior obligations of the Company’s issuing subsidiaries and are guaranteed by the Company and its subsidiaries that guarantee the Credit Agreement. The $400 Million 5% Senior Notes and guarantees were issued pursuant to an indenture by and among the issuing subsidiaries and the guarantors and U.S. Bank National Association as trustee. The $400 Million 5% Senior Notes have a maturity date of April 15, 2023 and bear interest at 5% per annum, payable semi-annually in cash in arrears on April 15 and October 15 of each year. The $400 Million 5% Senior Notes are general unsecured and unsubordinated obligations of the issuing subsidiaries and rank equal in right of payment with such subsidiaries’ existing and future senior unsecured indebtedness, including the $350 Million 5% Senior Notes, and senior in right of payment to future subordinated indebtedness, if any. The $400 Million 5% Senior Notes are effectively subordinated to the issuing subsidiaries’ secured indebtedness to the extent of the value of the assets securing such indebtedness. The guarantees rank equally in right of payment with the applicable guarantor’s existing and future senior unsecured indebtedness and senior in right of payment to any future subordinated indebtedness of such guarantor. The $400 Million 5% Senior Notes are effectively subordinated to any secured indebtedness of any guarantor to the extent of the value of the assets securing such indebtedness and structurally subordinated to all indebtedness and other obligations of the Operating Partnership’s subsidiaries that do not guarantee the $400 Million 5% Senior Notes.

The $400 Million 5% Senior Notes are redeemable, in whole or in part, at any time on or after April 15, 2018 at a redemption price expressed as a percentage of the principal amount thereof, which percentage is 103.75%, 102.50%, 101.25%, and 100.00% beginning on April 15 of 2018, 2019, 2020, and 2021, respectively, plus accrued and unpaid interest thereon to, but not including, the redemption date.

In connection with the issuance of the $400 Million 5% Senior Notes, we completed a registered offer to exchange the $400 Million 5% Senior Notes for registered notes with substantially identical terms as the $400 Million 5% Senior Notes in September 2015.

 

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Additional Debt Limitations. Pursuant to the terms of the management agreements and pooling agreement with Marriott, we are subject to certain debt limitations described below.

The management agreements provide for the following limitations on indebtedness encumbering a hotel:

 

   

The aggregate principal balance of all mortgage and mezzanine debt encumbering the hotel shall be no greater than 75% of the fair market value of the hotel; and

 

   

The ratio of (a) aggregate Operating Profit (as defined in the management agreement) in the 12 months prior to the closing on the mortgage or mezzanine debt to (b) annual debt service for the hotel shall equal or exceed 1.2:1; but is subject to the pooling agreement described below.

The pooled limitations on Secured Debt (as defined in the pooling agreement) are as follows:

 

   

The aggregate principal balance of all mortgage and mezzanine debt on Pooled Hotels (as defined in the pooling agreement), shall be no more than 75% of the fair market value of Pooled Hotels.

 

   

The ratio of (a) aggregate Operating Profit (as defined in the pooling agreement) of Pooled Hotels in the 12 months prior to closing on any mortgage or mezzanine debt to (b) annual debt service for the Pooled Hotels, shall equal or exceed 1.2:1.

Off-Balance Sheet Arrangements

As described in Note 12 to our condensed consolidated financial statements included herein, we have invested in a joint venture that is building and owns Gaylord Rockies. In connection with this investment, we agreed to provide guarantees of the hotel’s construction loan, including a principal repayment guaranty of up to $21 million of the total $500 million principal amount of the construction loan previously obtained from a consortium of eight banks, with such amount reducing to $14 million and further reducing to $8.75 million upon Gaylord Rockies’ satisfaction of designated debt service coverage requirements following completion and opening of the hotel. We have also provided a completion guarantee under the construction loan capped at our pro rata share of all costs necessary to complete the project within the time specified in the senior loan documents. Further, we have agreed to a guaranty capped at our pro rata share of the joint venture’s obligations under the construction loan prior to the hotel’s opening related to interest accruing under the construction loan and the operating expenses of the property (estimated pro rata share of interest prior to the hotel opening is $9.8 million). In addition to guaranties related to the construction loan, we agreed to provide a guaranty of the mezzanine debt related to the hotel including a payment guaranty capped at $8.75 million for which we are only liable in the event there is a casualty or condemnation event at the hotel and the construction lenders elect to apply those proceeds to the construction loan balance and release the construction loan guaranties and liens. The guaranty related to the mezzanine debt also includes an uncapped completion guaranty and an uncapped guaranty of the joint venture’s obligations under the mezzanine loan prior to the hotel’s opening related to interest accruing under the mezzanine loan and the operating expenses of the property to the extent not already satisfied by the parties under the guaranties related to the construction loan. As of June 30, 2018, we have not recorded any liability in the condensed consolidated balance sheet associated with these guarantees.

In addition, we enter into commitments under letters of credit, primarily for the purpose of securing our deductible obligations with our insurers, and lending banks under our Credit Agreement had issued $2.4 million of letters of credit at June 30, 2018. Except as set forth in these paragraphs, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

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Commitments and Contractual Obligations

The following table summarizes our significant contractual obligations at June 30, 2018, including long-term debt and operating and capital lease commitments (amounts in thousands):

 

            Payment due by Period  
     Total amounts      Less than                    More than  

Contractual obligations

   committed      1 year      1-3 years      3-5 years      5 years  

Long-term debt (1)

   $ 1,696,500      $ 5,000      $ 611,500      $ 610,000      $ 470,000  

Capital leases

     628        21        44        48        515  

Operating leases (2)

     675,286        7,458        15,684        16,528        635,6