Ryman Hospitality (RHP) investors received a phenomenal gift for the holidays. Earlier in the month, results were posted about the special dividend of $6.84 /share. Depending on how investors voted, they either received a mixture of cash and shares or an all share distribution. A large percentage of shareholders elected to receive the mixture of cash and stock, while leaving those who failed to cast a vote or voluntarily voted to elect for distributions entirely in stock. So far these are gifts that I expect to keep on giving.
For those unfamiliar with Ryman Hospitality Properties Inc., opinion of management's execution on the restructuring, this newly renamed company has made substantial progress toward restructuring assets and operations in order to be identified as Lodging/hospitality real estate investment trust (REIT) which they intend to be effective as of January 1, 2013. Following the restructuring, Ryman Properties will specialize in group-oriented, destination hotel assets in urban and resort markets.
Ryman Hospitality Properties, based in Nashville, Tennessee, assets include four meetings-focused resorts totaling 7,795 rooms that are managed by Marriott International under the Gaylord Hotels brand. Other assets (Gaylord Springs Golf Links, the Wildhorse Saloon, the General Jackson Showboat and the Radisson Hotel Opryland, a 303-room overflow hotel adjacent to Gaylord Opryland) will be managed by an independent third-party manager prior to the REIT election.
Ryman also owns and operates a number of media and entertainment assets including the Grand Ole Opry (opry.com), the legendary weekly showcase of country music's finest performers for nearly 90 years; the Ryman Auditorium, the storied former home of the Grand Ole Opry located in downtown Nashville; and WSM-AM, the Opry's radio home and the only clear-channel station in the U.S. broadcasting music.
Ryman represents an opportunity to buy a $3 billion group Lodging and Entertainment REIT firm which intends to generate acquisitions outside of their well renowned brands. I see an upside of 40 - 70% in two to three years depending on how soon the first batch of acquisitions are made and how much of the top line organic growth stemming from the near term pricing power trickles down to the bottom line.
Ryman's financial health
At the end of Q3 2012, Ryman held contractual obligations of $1.87 billion and $2.51 billion in total assets. Interest-bearing debt stands around $1.27 billion of which outstanding principal matures during Q3 of 2014:
- $925 million credit facility w/ 665 million outstanding
- $360 million of 3.75% Convertible Senior Notes due 01 Oct. 2014
- $225 million of 6.75% Senior Notes due 15 November 2014
Price & Value Analysis
Figuring how much the company is worth and if the current price of $38 provides a large enough margin for any erroneous valuation assessments should allow for a better reflection of what we are pay for. The company's full year 2012 EBITDA guidance is $230 million on the high end and estimates for 2013 adjusted funds from operations (AFFO) ranges around $196 - $203.
|Stock Price||$ 38|
|less: cash||$ 24|
|Ryman Funds From Operations (FFO) and AFFO||2013E|
|Add: Non-Cash Grnd Rent||6|
|Add: Amort. of Debt||15|
|Add: Amort. of DFC||5|
Despite any opinion of management's execution on the restructuring, management has done a decent job of producing a catalyst to unlock the company's value. Certainly, the price you pay at $38/share, gets you a valuation range of $38 to $70 a share using the expected dividend yield range of what others are projecting which bases my valuation range. Another yield range may be drawn from the list of comparable Resort & Lodging REITs:
Resort & Lodging REIT Comps
|Company (ticker)||Price||Dividend||Div. Yield|
|Ashford Hospitality Trust, Inc. (AHT)||$10.32||.44||4.28%|
|Chatham Lodging Trust (CLDT)||$14.97||.80||5.34%|
|Chesapeake Lodging Trust (CHSP)||$20.47||.88||4.30%|
|DiamondRock Hospitality Company (DRH)||$9.26||.32||3.49%|
|FelCor Lodging Trust Incorporated (FCH)||$4.65||n/a||5.65%*|
|Hersha Hospitality (HT)||$5.09||.24||4.74%|
|Hospitality Properties Trust (HPT)||$23.25||1.88||8.14%|
|Host Hotels and Resorts Inc. (HST)||$15.78||.36||2.29%|
|LaSalle Hotel Properties (LHO)||$25.74||.80||3.12%|
|Pebblebrook Hotel Trust (PEB)||$23.16||.48||2.10%|
|RLJ Lodging Trust (RLJ)||$19.55||.82||4.23%|
|Strategic Hotels & Resorts Inc. (BEE)||$6.42||n/a||5.80%*|
|Summit Hotel Properties Inc. (INN)||$9.31||.45||4.83%|
|Sunstone Hotel Investors Inc. (SHO)||$10.66||n/a||7.10%*|
|in bold* - yields were based on pre-2008 #'s|
Adding the increased brand quality by allocating management of the Gaylord hotels brand and four properties to Marriott International (MAR), should allow for a lower yield. Currently, Marriott holds a dividend yield of 1.40%, one should see a higher valuation range than the one I present.
Management recently made announcements prior to the Christmas holiday in regards to the new REIT structure which turned out to be great gifts:
1. A special dividend was payable on December 21, 2012 to stockholders of record as of the close of business on November 13, 2012 (meaning for every 1,000 shares owned you received either $1,992.10 plus 131 shares of common stock or you received $29.60 plus 184 shares in common stock.)
2. New dividend policy for which the company intends to pay a quarterly cash dividend in amount to at least 50% of AFFO or 100% of taxable income, whatever is larger.
3. A share repurchase program for up to $100 million of the Company's common stock using cash on hand and borrowings under its revolving credit line. (Those familiar with Warren Buffett or Henry Singleton understand the efficiency of this indirect cash distribution especially when used to repurchase undervalued shares in relation to future business performance.)