Earnings

Gaylord Entertainment Company Reports Second Quarter 2012 Results

August 7, 2012   ·   0 Comments

NASHVILLE, Tenn.–(www.hospitalitybusinessnews.com)–Gaylord Entertainment Co. today reported its financial results for the second quarter of 2012. Highlights include:

• Consolidated revenue increased 6.9 percent to $253.2 million in the second quarter of 2012 from $236.8 million in the same period last year. Gaylord Hotels total revenue increased 6.8 percent to $233.0 million in the second quarter of 2012 compared to $218.2 million in the prior-year quarter.
• Gaylord Hotels revenue per available room¹ (“RevPAR”) increased 7.5 percent and Gaylord Hotels total revenue per available room² (“Total RevPAR”) increased 6.7 percent in the second quarter of 2012, each compared to the second quarter of 2011. Gaylord Hotels Total RevPAR for the second quarter of 2012 included attrition and cancellation fees of $1.7 million collected during the quarter compared to $2.9 million collected in the prior-year quarter.
• Income from continuing operations was $9.0 million, or $0.17 per fully diluted share (based on 53.2 million weighted average shares outstanding) in the second quarter of 2012 compared to income from continuing operations of $8.6 million, or $0.17 per fully diluted share, in the prior-year quarter (based on 50.9 million weighted average shares outstanding). Income from continuing operations for the second quarter 2012 includes $3.4 million in expenses related to the Company’s process of exploring opportunities to unlock shareholder value.
• Adjusted EBITDA³ increased 2.3 percent to $61.9 million in the second quarter of 2012 compared to $60.5 million in the prior-year quarter.
• Consolidated Cash Flow⁴ (“CCF”) increased 2.0 percent to $64.0 million in the second quarter of 2012 compared to $62.8 million in the same period last year. CCF for the second quarter 2012 includes $3.4 million in expenses related to the Company’s process of exploring opportunities to unlock shareholder value.
• Gaylord Hotels gross advance group bookings in the second quarter of 2012 for all future periods were 592,257 room nights, an increase of 45.7 percent compared to the same period last year. Net of attrition and cancellations, advance group bookings in the second quarter of 2012 for all future periods were 486,219 room nights, an increase of 79.1 percent compared to the same period last year.

Colin V. Reed, chairman and chief executive officer of Gaylord Entertainment, stated, “Our business performed well this quarter, highlighted by our strong bookings results and occupancy levels. We booked over 486,000 net room nights in the second quarter, an increase of over 79 percent from the same period last year. On a gross room night basis, we booked over 592,000 room nights, an over 45 percent increase from the second quarter in 2011. This performance is a promising indication that group bookings are continuing to strengthen, and a testament to the value groups and meeting planners recognize in our unique properties and the experience we provide.

“We achieved an occupancy level of just over 79 percent in the second quarter, a nearly six percentage point increase over the second quarter last year. Along with increases in outside-the-room spending, our occupancy results helped drive solid revenue growth of nearly 7 percent in the second quarter. This translated into a RevPAR increase of 7.5 percent and a Total RevPAR increase of 6.7 percent. As a result of both our revenue growth and our continued efforts to drive efficiencies throughout our business, we delivered solid profitability growth in our hotels and our Gaylord Hotels CCF Margin⁴ increased 40 basis points.”

Segment Operating Results

Hospitality

Key components of the Company’s hospitality segment performance in the second quarter of 2012 include:

• Gaylord Hotels RevPAR increased 7.5 percent to $136.75 in the second quarter of 2012 compared to $127.20 in the prior-year quarter. Gaylord Hotels Total RevPAR increased 6.7 percent to $318.72 in the second quarter of 2012 compared to $298.84 in the prior-year quarter.
• Gaylord Hotels CCF increased 8.3 percent in the second quarter of 2012 to $74.4 million compared to $68.7 million in the prior-year quarter. Gaylord Hotels CCF Margin increased 40 basis points to 31.9 percent in the second quarter of 2012 compared to 31.5 percent for the same period last year.
• Gaylord Hotels attrition that occurred for groups that traveled in the second quarter of 2012 was 6.7 percent of the agreed-upon room block compared to 10.3 percent for the same period in 2011. Gaylord Hotels in-the-year, for-the-year cancellations in the second quarter of 2012 totaled 14,997 room nights compared to 16,916 in the same period of 2011. Gaylord Hotels attrition and cancellation fee collections totaled $1.7 million in the second quarter of 2012 compared to $2.9 million for the same period in 2011.

At the property level, Gaylord Opryland generated revenue of $74.2 million in the second quarter of 2012, a 1.5 percent increase compared to the prior-year quarter of $73.1 million, driven by an increase in occupancy. Occupancy for the second quarter of 2012 was up 5.8 percentage points to 81.6 percent compared to the prior-year quarter. Average Daily Rate (“ADR”) during the second quarter of 2012 decreased 1.6 percent to $157.31, compared to $159.83 in the prior-year quarter, driven by an increase in lower-rated SMERF (Social, Military, Educational, Religious, and Fraternal) groups. RevPAR in the second quarter of 2012 increased 6.1 percent to $128.41 compared to $121.08 in the prior-year quarter, as the increase in occupancy offset the decline in ADR. Total RevPAR increased 1.4 percent for the second quarter of 2012 to $282.84 compared to $278.88 in the prior-year quarter, as the increase in occupancy offset a decline in outside-the-room spending that resulted from the business mix shift towards more association and SMERF business and less corporate business in the second quarter of 2012. CCF was $23.5 million for the second quarter of 2012, a 10.5 percent decrease compared to $26.3 million in the prior-year quarter, driven by lower outside-the-room spending and lower-rated group business. Gaylord Opryland’s CCF in the second quarter was negatively impacted by a natural gas explosion on June 19^th which resulted in a profitability loss of approximately $1.3 million. The Company is pursuing a business interruption claim related to this explosion. CCF Margin was 31.7 percent in the second quarter of 2012, a 430 basis point decrease over the prior-year quarter.

Gaylord Palms posted revenue of $44.4 million in the second quarter of 2012, a 17.5 percent increase compared to $37.7 million in the prior-year quarter. The increase was driven by the growth in occupancy, ADR, and outside-the-room spending. Occupancy for the second quarter of 2012 increased 12.0 percentage points over the prior-year quarter to 85.8 percent, as occupied group room nights grew across all customer segments for a total increase of approximately 12,600 room nights despite approximately 6,800 being out-of-service for renovations. ADR for the second quarter of 2012 increased 2.1 percent to $168.73, compared to $165.32 in the prior-year quarter. Second quarter 2012 RevPAR increased 18.7 percent to $144.78 compared to $122.02 in the prior-year quarter, driven by the increase in occupancy and ADR. Total RevPAR in the second quarter of 2012 increased 24.1 percent to $366.14 compared to $295.02 in the prior-year quarter dri
ven by the increase in group outside-the-room spending. CCF in the second quarter of 2012 increased 34.9 percent to $13.9 million compared to $10.3 million in the prior-year quarter. This resulted in a CCF Margin for the second quarter of 2012 of 31.3 percent, a 400 basis point increase compared to 27.3 percent in the prior-year quarter.

Gaylord Texan posted revenue of $44.5 million in the second quarter of 2012, a decrease of 2.7 percent from $45.7 million in the prior-year quarter. The decrease was driven by decreases in occupancy and outside-the-room spending. The late cancellation in April of a large group scheduled to arrive in June contributed to these decreases. Occupancy for the second quarter of 2012 decreased by 4.9 percentage points to 71.3 percent compared to the second quarter of 2011. ADR increased 0.2 percent to $172.53 in the second quarter of 2012 compared to $172.15 in the prior-year quarter. RevPAR in the second quarter of 2012 decreased 6.3 percent to $122.96 compared to $131.24 in the prior-year quarter, driven by the decrease in occupancy. Total RevPAR decreased 3.4 percent in the second quarter of 2012 to $321.11 from $332.29 in the prior-year quarter, driven by the decreases in occupancy and outside-the-room spending. CCF in the second quarter of 2012 decreased 13.2 percent to $12.6 million compared to $14.6 million in the prior-year quarter, resulting in a 28.4 percent CCF Margin, a 350 basis point decrease from 31.9 percent in the prior-year quarter.

Gaylord National generated revenue of $67.0 million in the second quarter of 2012, an 11.9 percent increase compared to the prior-year quarter of $59.9 million, driven by increases in occupancy and outside-the-room spending. Occupancy for the second quarter of 2012 was up 10.6 percentage points to 78.5 percent compared to the prior-year quarter, driven by an increase in group room nights and stronger government, association and SMERF group attendance than in the prior-year quarter. ADR decreased 1.7 percent in the second quarter of 2012 to $207.62 compared to $211.25 in the prior-year quarter due to the shift from corporate to association and SMERF groups. RevPAR in the second quarter of 2012 increased 13.6 percent to $162.94 compared to $143.39 in the prior-year quarter, driven by the increase in occupancy. Total RevPAR increased 11.9 percent to $369.08 in the second quarter of 2012 compared to $329.85 in the prior-year quarter, driven by the increase in occupancy and outside-the-room spending. CCF increased 35.5 percent to $23.4 million in the second quarter of 2012 compared to $17.2 million in the prior-year quarter. CCF Margin increased 600 basis points to 34.8 percent in the second quarter of 2012 compared to 28.8 percent in the prior-year quarter, driven by continued margin management efforts at the property level that drove favorable food costs and reduced labor costs.

Reed continued, “We were pleased with how our properties performed this quarter. The results at Gaylord National were particularly encouraging, as the property posted double-digit percent increases in revenue, occupancy, RevPAR, and Total RevPAR, helping drive a 600 basis point increase in CCF margin. This performance reinforces our confidence that the D.C. group market is continuing to improve. Gaylord Palms had a very strong quarter aided by the full renovation of the hotel’s guest rooms and the addition of the new amenities that were opened earlier this year. Gaylord Palms second quarter performance was highlighted by a Total RevPAR increase of over 24 percent and a CCF margin increase of 400 basis points. Gaylord Opryland also performed well yet again, posting occupancy, RevPAR and Total RevPAR increases despite a difficult comparison against a record second quarter in 2011. Although the results across the board at Gaylord Texan were negatively impacted by the last-minute cancellation of a large 5,000 room night group, the property performed solidly.”

Opry and Attractions

Opry and Attractions segment revenue increased 8.5 percent to $20.2 million in the second quarter of 2012, compared to $18.6 million in the year-ago quarter driven by increased attendance and additional shows at the Grand Ole Opry. The segment’s CCF increased to $6.1 million in the second quarter of 2012 from $5.2 million in the prior-year quarter.

Corporate and Other

Corporate and Other operating loss totaled $19.2 million in the second quarter of 2012 compared to an operating loss of $13.9 million in the same period last year. Corporate and Other CCF in the second quarter of 2012 was a loss of $16.1 million compared to a loss of $10.7 million in the same period last year. Corporate and Other operating loss and CCF for the second quarter 2012 reflects $3.4 million in expenses related to the Company’s process of exploring opportunities to unlock shareholder value.

Real Estate Investment Trust (REIT) Conversion

On May 31, 2012, the Company announced that it had agreed to sell the Gaylord Hotels brand and the rights to manage its four resort hotels to Marriott International, Inc. for $210 million in cash. Following consummation of the sale, Gaylord will continue to own its hotel properties and other businesses and will reorganize and elect to be treated as a real estate investment trust (REIT) effective January 1, 2013. The Company will be the only lodging REIT focused primarily on group-oriented destination hotels in urban and resort markets. The Company intends to hold a special meeting of shareholders on September 19, 2012 to approve proposals that will facilitate the REIT conversion.

The transaction is the result of a comprehensive review of strategic options to maximize long-term value for shareholders. In concluding to pursue this option, the Board of Directors and management team focused on three elements: the cash received in connection with the sale of the brand and management rights, the opportunity to realize substantial cost savings and revenue enhancements due to Marriott’s scale and reach in the hospitality market, and the Company’s positioning as a well-capitalized REIT focused on group-oriented destination hotels in urban and resort markets.

Reed stated, “Following our months-long review of various options to unlock shareholder value, our board of directors and management are confident that the REIT structure represents the best pathway to realize the long-term value of our business and to position our company for future growth. We are also thrilled to be to be partnering with Marriott, an organization that consistently receives the industry’s highest praise among group customers and meeting planners and shares our commitment to provide a distinctive guest experience. The collaboration with Marriott is going extremely well and the conversion process is progressing according to our previously announced timeline. As such, we remain on schedule to complete the anticipated management transfer in October of 2012.”

Development Update

As a REIT, the Company will no longer view large scale development of resort and convention center hotels as a means for growth. As a result, the Company will not proceed with its previously announced development projects in the form previously anticipated. Gaylord is reexamining how previously announced projects could be completed with minimal financial commitment through the development phase. This examination will be undertaken with investor expectations at the forefront, and management will keep investors informed as the process evolves.

Liquidity

As of June 30, 2012, the Company had long-term debt outstanding, including current portion, of $1,035.2 million and unrestricted cash of $29.5 million. At June 30, 2012, $370.0 million of borrowings were undrawn under the Company’s $925.0 million credit facility, and the lending banks had issued $8.0 million in letters of credit, which left $362.0 million of availability under the credit facility.

="bwuline">Outlook

The following business performance outlook is based on current information as of August 7, 2012. The Company does not expect to update the guidance provided below before next quarter’s earnings release. However, the Company may update its full business outlook or any portion thereof at any time for any reason.

Reed concluded, “With our announcement of our planned REIT conversion this quarter, our focus remains on delivering solid results at our properties while ensuring a smooth transition to Marriott and a successful reorganization as a REIT. The profitability performance of our properties and our solid advance group bookings production in the second quarter reinforces our confidence that our business is well positioned as we move through 2012. Our guidance for Gaylord Hotels RevPAR remains as an increase of 3 percent to 6 percent, and a Total RevPAR increase of 3 percent to 6 percent year-over-year. We are reaffirming our Gaylord Hotels CCF guidance as a range of $274 million to $286 million. We are also reaffirming our expectations for the Opry and Attractions segment as a CCF range of $15 million to $17 million. In the first quarter of 2012, we incurred $3.1 million of expense as part of our effort to explore opportunities to unlock shareholder value, and we have incurred an additional $3.4 million as a result of that same process during the second quarter. As we stated last quarter, we are not including the expense we incurred in the second quarter or the expenses we will incur in the second half of the year as a result of this process in our Corporate and Other CCF guidance. Therefore, we reaffirm our Corporate and Other segment expectations as a CCF loss range of $54 million to $51 million. On a consolidated basis, total Company CCF expectations remain as a range of $235 million to $252 million in 2012.”

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