|Shares Out. (in M):||57||P/E||148.0x||22.0x|
|Market Cap (in $M):||2,267||P/FCF||58.0x||10.0x|
|Net Debt (in $M):||941||EBIT||238||313|
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Ryman Hospitality Properties (NYSE: RHP - $39.77) is a ~$3.2 billion lodging company with a unique focus on large group meetings and conventions.
In May of this year, RHP completed a strategic review process and announced:
1)REIT Conversion: Will reorganize from a C-Corp to a REIT by December 31, 2012
2)Brand Sale: Sold its Gaylord hotel brand to Marriott International (MAR) for $210 million
3)Incentive Driven Management Agreement: Entered into a long term property management agreement with Marriott, with fees determined by property level earnings
RHP’s REIT conversion is transformational, and will create significant value for shareholders through cost synergies, revenue growth, and a new focus on return of capital to shareholders.
Currently valued as a C-Corp, RHP is trading at a 25-50% discount to its lodging REIT peers, despite better operating metrics, a more stable/predictable business, and a higher quality asset base.
Post conversion, RHP will institute a dividend of at least $2.00/share, and which is likely to be in the range of $2.50 – $3.00/share.
At peer EBITDA multiples, RHP offers 30% upside. At the low end of peer dividend yields, RHP offers 50% upside. At EBITDA multiples of other short duration lease operators, RHP offers 80% upside. Current valuation is protected by a ~7% yield.
What is RHP?
RHP owns four lodging properties in Nashville, Washington DC, Dallas, and Orlando and a collection of tourist attractions in Nashville. RHP has a unique focus on the large group / meeting market, generating 75% - 80% of revenues from group bookings.
Gaylord Gaylord Gaylord Gaylord Radisson
Summary Opryland Palms Texan National Nashville
Year completed 1977 2002 2004 2008 to be managed
Location Nashville FL Dallas Wash DC by 3rd party
Rooms 2882 1406 1511 1996
Meeting space (sq ft) 640k 400k 400k 470k
Atriums 9 acres 4 acres 4 acres 2 acres
F&B Outlets 17 9 11 10
Retail Outlets 25 9 7 5
2011 business mix Group Transient
RHP 78% 22%
National Average 35% 65%
In total, these are four unique 1,400+ room convention style hotels in attractive, non-Vegas markets. RHP owns some of the largest hotels in the United states.
2006 2007 2008 2009 2010 2011 2012 2013
Organic Sales 722 748 931 873 770 952 1,001 1,032
Revenue synergies 46
TOTAL SALES 722 748 931 873 770 952 1,001 1,078
Organic Ebitda 126 138 186 173 137 206 238 248
Cost synergies 40
Revenue synergies margin 25
TOTAL EBITDA 126 138 186 173 137 206 238 313
Ebitda margin % 17% 18% 20% 20% 18% 22% 24% 29%
FFO/Share $0.62 $4.83 $3.36 $3.32 $1.75 $2.48 $2.43 $4.92
AFFO/Share ($6.15) ($8.86) ($6.22) $2.08 ($2.37) $0.37 $0.68 $3.95
Share price $39.77
Market Cap $2,267
Note receivable 145
LT Debt 1,179
Net proceeds from MAR 69
–RHP customers typically book 2.3 years in advance vs. 4 months for the average lodging REIT,driving earnings stability and visibility
–Cancellation fees smooth earnings in economic downturns
2. REIT conversion and Marriott transaction provide catalyst and significant upside
–Material long term tax savings
–Management estimates $33 - $40 million of recurring cost savings
–Marriott platform (expanded sales force, Marriott Rewards program, sophisticated yield management) will accelerate RevPar growth, with revenue synergies likely to exceed cost synergies over time
3. Compelling valuation with significant margin of safety
–RHP is the least expensive REIT in the lodging sector despite superior operating metrics and greater cash flow predictability
–Trading ~7% prospective dividend yield, RHP will likely have the highest dividend in the lodging REIT universe
–Initiation of dividend in February will attract yield focused investors and serve as a catalyst
In summary, these are premium assets, trading at a discounted price, with a near term catalyst.
Unique Assets with Highly Differentiated Value Proposition
RHP operates four of the ten largest meeting/hotel spaces in the country and two of the three largest such hotels outside of Las Vegas. (see table) –
Top 10 Largest US hotel meeting spaces -
space (000 sq ft)
Gaylord Opryland 640
Gaylord National Resort 470
Marriott Orlando 450
Rosen Shingle Creek 445
Gaylord Texan 400
Gaylord Palms 400
Hilton Anatole 345
Portfolio of properties allows meeting planners to rotate through the network -
–Approximately 50% of core group customers rotate meetings throughout the Gaylord network of hotels
RHP’s Group Meeting Business Drives Earnings Stability
Approximately 65% of RHP’s expected room nights are booked at the beginning of the year, with the average group booking made 2.3 years in advance.
-In contrast, transient focused REITs book and recognize the vast majority of revenues in the current period, creating greater near term economic sensitivity.
Additionally, contract cancellation fees provide RHP with a profit buffer to smooth earnings through economic cycles.
-RHP generated $21 million of cancellations fees in 2009 (12% of EBITDA), stabilizing earnings.
Throughout a lodging cycle, RHP should outperform peers while incurring less volatility –
RHP RevPar growth vs Industry Composite Average
2006 8.7% 12.3%
2007 6.6% 5.1%
2008 -2.2% -0.6%
2009 -18.8% -9.9%
2010 4.9% 9.9%
2011 7.1% 0.6%
2012 6.1% 3.9%
RHP is More Stable than its Lodging REIT Peers
RHP’s revenue and EBITDA are significantly less volatile than those of its traditional lodging peers.
Given the resilient nature of its business model, RHP resembles a hybrid of more traditional REITs (5 to 10 year average lease) and lodging REITs (3 to 6 month average advance booking). see tables -
2009 Revenue and EBITDA decline
Lodging REITS -20.0% -34.0%
RHP -6.0% -7.0%
Shopping Center REITS -4.0% -8.0%
Years of Avg Lease Life/Years Advanced booking
Lodging REITS 0.5
Shopping Center REITS 5.8
In summary, RHP’s business model and stability are more analogous to shopping center REITs than lodging REITs.
RHP Should Trade at a Premium to Lodging Peers
Given their higher earnings volatility, lodging REITs trade at a discount to REIT peers with greater revenue and dividend visibility.
We believe that RHP’s differentiated business model merits a premium valuation, and should trade between REITs with relatively shorter duration leases (shopping centers) and traditional lodging REITs.
As shown below there is substantial room for a potential re-rating -
Student Housing 24.7x
Self storage 19.8x
Regional Mall 18.9x
Freestanding retail 17.7x
Shopping center 17.1x
Mixed office/industrial 16.2x
Manufactured homes 15.9x
Lodging reits 12.7x
On December 31, 2012 RHP will complete its transition from C-Corp to REIT
–This REIT conversion will generate significant tax savings and attract a new shareholder base
As part of the REIT conversion, RHP sold the management rights to its 4 properties and the Gaylord brand to Marriott International for $210 million
Corporate Tax Rate
~6% - 7.5% Yield
Sales Force Size
38M+ Marriott Rewards Members
80% Group /20% Transient
70% Group /30% Transient
Low Single Digit
Mid Single Digits+
Significant Cost Synergies from Marriott Transaction
As part of the divestiture of its hotel operations, RHP expects to recognize certain cost savings, which it initially estimated to be $33 - $40 million annually.
We believe these estimates are likely conservative
–On its Q3 2012 call, management suggested cost savings were likely to come in above the high end of guidance
Meaningful, Underappreciated Revenue Synergies
Expanded sales force -
- As a small company with only four properties, RHP’s group sales force consists of approximately 100 people. Pro forma for the transaction, Marriott’s 3,000 person group sales force will be responsible for bookings
–RHP currently has no international presence, while Marriott has the #1 position in US bookings of international groups
–RHP has limited traction with smaller executive groups, which tend to operate through corporate contracts with national vendors such as Marriott
Increased Transient Focused -
Given its large group orientation, RHP has neglected its transient/leisure business despite having first-rate assets in leisure markets
–Marriott has over 38 million loyalty members through its Marriott Rewards program, which should drive significant traffic
–RHP properties will now be featured on marriott.com, which drives 20% of all Marriott traffic and skews heavily towards leisure/transient business
–Average RevPar uplift when Marriott assumes management of an independent hotel and folds property into its Autograph collection has been 10%
Street Expectations –
Despite proven Marriott track record, Street estimates currently assume no revenue synergies
As a REIT, RHP will Become a Return of Capital Story
As a REIT, RHP will no longer pursue large scale development of convention center hotels as a means of growth
–$800 million, 1,500 room Colorado project scheduled for 2015 open put on hold
–RHP is now focused on returning cash to shareholders
This will Attract REIT Focused Investors
REIT investors have a significant presence in other lodging REITS, but minimal ownership of RHP (see table)
Large REIT Shareholder Ownership -
PF for the transaction, RHP will be the 2nd largest lodging REIT and is likely to be included in most REIT Indices -
The transition to a more traditional REIT investor base will occur once the REIT conversion becomes official at year end, and will be accelerated by new dividend guidance that will be announced at RHP’s February investor day
Attractive Valuation with Significant Margin of Safety
RHP is the least expensive REIT in the lodging sector –
Superior Operating Metrics, Discounted Valuation –
RHP has amongst the highest RevPar/Key and EBITDA/Key in the industry, which tend to be correlated with premium valuation –
RHP also has the lowest leverage of its REIT peers –
Total Debt / 2012 EBITDA Estimate
RHP Trades at a Significant Discount to Replacement Cost –
Gaylord Opryland 1,550
Gaylord Palms 675
Gaylord National Resort 1,000
Gaylord Texan 675
Proposed Colorado 800
RHP’s assets trade at a 30% discount to replacement cost, excluding hotel startup losses
–Permitting and constructing a 1,500 room hotel typically takes more than five years
Dividends Provide Substantial Valuation Support
RHP’s Current Yield is misleading. As it has not yet paid an ordinary dividend, RHP has not hit the screens of yield oriented investors. Initiation of a dividend will be a major catalyst for RHP.
In order to qualify for REIT status, RHP must pay out a dividend of $2.12/share (90% of estimated net income). However, in light of RHP’s current discounted valuation, management believes that returning excess cash flow through a higher dividend payout is prudent
–The Board will officially set its dividend policy in advance of the Company’s investor day in February
–We believe the announced dividend is likely to be $2.50 to $3.00/share, implying a dividend yield of 6.3% - 7.5%
At current levels, RHP will have the highest lodging REIT yield and one of the highest yields in the REIT universe –
RHP MIN CASE 6.3%
RHP HIGH CASE 7.5%
At a $59 stock price, RHP would trade at a 5% dividend yield, the high end of its lodging REIT peers. By re-rating as a REIT and increasing EBITDA under Marriott management, RHP has ~50% upside.
•Marriott transition disruption
•Macro uncertainty impacting large group meetings
•Potential tax changes to REIT status and dividend taxation
•Dividend policy not yet set
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