The latest buy for my Special Situations portfolio is Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) . The company operates four of the top ten largest convention hotels in the U.S. and has recently converted to a REIT, making it much more valuable. On the next market day, I’ll buy $2,000 of the stock.
The business
Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) is fully concentrated in a sub-segment of the lodging industry, convention hotels, with the most top 10 convention hotels of any company. It owns Gaylord Opryland (Nashville, 3rd largest by meeting space), Gaylord National (Washington, D.C., 5th), Gaylord Texan (Dallas, 8th), and Gaylord Palms (Orlando, 9th). Its hotels boast about 75% more meeting space per hotel room than peer Sunstone Hotel Investors Inc (NYSE:SHO) and 200% more than Host Hotels and Resorts Inc (NYSE:HST) for hotels with over 1,000 rooms.
These assets are high-quality cash generators that produce stable cash flows, despite the typical cyclicality of the lodging industry. Why? Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP)’s properties concentrate on groups and conventions that must books years in advance (average 2.7 years), meaning that the company has good revenue visibility but can also charge cancellation fees, helping to smooth revenue during tougher times.
With a recent deal struck with Marriott International Inc (NYSE:MAR) , that client mix will shift somewhat, but also help it to grow revenue per available room. Marriott is now providing distribution for Ryman’s properties for transient stays — a great move because Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) gets access to the Marriott Rewards customer base of more than 40 million members. In addition, the Marriott deal allows Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) to cut its own costs and increase cash flow.
Ryman has the best adjusted EBITDA per room, but trades at a multiple that is among the lowest in the industry. In addition, its balance sheet has among the lowest leverage and best interest coverage, meaning it has room (zing!) to expand the balance sheet to increase revenue. The premium segment also has substantially lower yields.
| Company | 2013 Adj. EBITDA/Room | EV / 2013 Adj. EBITDA | Debt / 2013 Adj. EBITDA | 2013 Adj. EBITDA / Cash Interest | Yield |
|---|---|---|---|---|---|
| Ryman | $35,700 | 11.8 | 3.7 | 7.2 | 4.5% |
| Sunstone | $19,300 | 13.3 | 5.8 | 3.0 | 0% |
| Host Hotels | $19,700 | 13.8 | 4.1 | 4.0 | 2.4% |
| Pebblebrook Hotel Trust (NYSE:PEB) | $27,000 | 15.8 | 4.6 | 4.1 | 2.7% |
Source: Ryman investor presentation, February 15, 2013.
So while having the best metrics, it doesn’t trade at the highest multiple.
The special situation
The special situations here are legion. Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) has just converted to a real estate investment trust and was formerly called Gaylord Entertainment. While we’re buying at a substantial premium to where the stock traded just a few months ago following a cash distribution, it looks like there’s still upside given where comparables are trading and some of the catalysts below.
The company has decided to pay out 50% of adjusted funds from operations, a dividend that comes to $2 per share this year. The rest of that FFO goes to share buybacks, and the company has already authorized a $100 million buyback, more than 4% of shares at current prices. That means virtually all FFO is being returned to shareholders.
