Colin Reed, the CEO of Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP), directly acquired 20,000 shares of the company’s stock on June 10th at an average price of $34.27 per share, according to a filing with the SEC. This gives him a total of nearly 660,000 shares held directly with more owned by associated family trusts. Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) is a $1.9 billion market cap real estate investment trust which has two segments: one which owns several resorts and convention centers, and one which operates a number of tourist attractions in the Nashville, Tennessee area. We track insider purchases because economic theory holds that insiders should tend to avoid buying shares unless they are more confident than usual in the company, preferring to diversify their wealth in other cases. In fact, studies do show a small outperformance effect for stocks bought by insiders on average (learn more about studies on insider trading).
As a real estate investment trust, Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) receives favorable tax treatment conditional on distributing a large share of its taxable income to shareholders. At many REITs this results in high dividend yields and Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) is no exception to this rule. Currently the company makes quarterly payments of 50 cents per share, making for an annual yield of 5.5%. Last quarter the hospitality segment experienced 7% lower revenue than in the first quarter of 2012, with operating income dropping by over 40% as total operating costs were about flat; the attractions segment reported an operating loss as it saw lower sales and higher costs. As a result even with the high yield we would be wary of the health of Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP)’s underlying business.
In addition to insider trading activity, we also track quarterly 13F filings from hundreds of hedge funds and other notable investors. We’ve found that the information in 13Fs can be used to help develop investing strategies (for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and can also track interest in individual stocks. We can see that billionaire John Paulson’s Paulson & Co. reported a position of 2.2 million shares in Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) as of the end of March (see Paulson’s stock picks). JANA Partners, managed by Barry Rosenstein, disclosed ownership of 2.8 million shares in its 13F (find Rosenstein’s favorite stocks).
Other REITs focused on operating hotels include Pebblebrook Hotel Trust (NYSE:PEB), Sotherly Hotels Inc (NASDAQ:SOHO), RLJ Lodging Trust (NYSE:RLJ), and LaSalle Hotel Properties (NYSE:LHO). RLJ has the highest yield of these four peers, at 3.6%. This places even it well below the dividend yield that Ryman offers, although its business appears to be performing better than Ryman’s in any case; revenue, at least, rose by 18% in its most recent quarter compared to the same period in the previous fiscal year. Pebblebrook, which has investments in the Doubletree hotel and convention center in Bethesda, Maryland among other assets, offers the lowest yield of this peer group at 2.6% though its revenue numbers have been looking even better than RLJ’s. Sotherly and LaSalle each pay annual yields of 3.3% at current prices and dividend levels. We would note that these two companies have been paying dividend yields for quite some time (the other three REITs we’ve discussed here only began or resumed their dividend payments more recently) and each of them reduced their quarterly payments to as low as 1 cent per share in 2009. This suggests that their dividends- and, presumably, those of these other companies as well- are vulnerable to negative economic shocks.
With Ryman’s business not doing so well recently, the bull case for the stock seems to depend on the high yield. We’ve mentioned that poor economic times could lead to a cut in the company’s dividend, and business conditions currently do not seem that strong in any case. As a result, we think that income investors looking for more speculative, high yield stocks to supplement their portfolios might be better served looking elsewhere.
Disclosure: I own no shares of any stocks mentioned in this article.
