RHP - From Surviving To Thriving: Ryman's First Quarter Earnings Show Resilience And Growth

2023-05-06 10:22:56 ET

Summary

• Ryman Hospitality Properties reported impressive first-quarter results, including record-breaking revenue and operating income from its hospitality segment.
• Management raised guidance for 2023, anticipating significant free cash flow to invest in high-return capital projects throughout its portfolio.
• Ryman offers a low payout ratio and a juicy dividend yield for income-oriented investors.
• Despite its strong growth potential, Ryman is currently trading at a relatively cheap valuation, with a price-to-AFFO multiple of 13x.

Ryman Hospitality Properties, Inc. ( RHP ) faced significant challenges during the pandemic, as the company's core business of hosting conferences and operating hotels ground to a halt. As a result, the stock price dropped dramatically, falling from $90 a share to just $13 in a matter of weeks. However, Ryman has since made an impressive recovery, with double and triple-digit growth compared to pre-pandemic levels, allowing the stock price to return to trade around the $90 level.

In fact, Ryman's most recent earnings release showed better-than-expected results, with positive revisions to guidance. The company beat both top and bottom-line expectations, demonstrating the strength of its recovery. Despite the near-term maturities that increase the company's risk profile, I believe that Ryman's properties are undervalued. At present, shares trade at a multiple of 13x adjusted funds from operations (AFFO), indicating that there may be significant upside potential for investors.

First Quarter 2023 Results

Ryman recently announced its fourth consecutive profitable quarter, marking a significant milestone for the company. In this quarter, the company achieved its highest hotel revenue and net operating income ever. The total RevPAR (revenue per available room) saw a remarkable surge of 60% compared to the first quarter of 2022 as group events resumed.

The entertainment segment of the company also showed promising growth, with a revenue increase of 77%. The segment has several big growth catalysts for 2023 and beyond, including the upcoming flagship Ole Red location in Las Vegas. These results are a testament to Ryman's resilient fundamentals and demonstrate its ability to adapt to the changing business environment.

Looking closely at the Q1 earnings data, Ryman managed to increase its total revenue by 65% to $491 million, driven by the Hospitality segment that achieved record first-quarter revenue of $424.4 million. Notably, the food and beverage segment grew the most, with a 92% increase. The operating income margin increased to 21.5%, surpassing pre-pandemic levels. Additionally, Ryman managed to increase the FFO constant on a quarter-over-quarter basis, compared to quarter one in 2019.

Despite an increase of ~$20 million in entertainment operating expenses and an uptick of $11 million in interest expenses, these expense increases were offset by the significant revenue growth, resulting in a net income of $61 million, a substantial improvement from a loss of $25 million in the previous year. Overall, these results highlight Ryman's strong financial performance and position the company for continued success in the years to come.

Dividend Payout Is Becoming Attractive, Again!

Ryman Hospitality Properties' dividend was temporarily suspended at the height of the pandemic, but with the company's strong performance in recent quarters, it has made a strong comeback. After reinstating its dividend at $0.1 per share in September, the company has been able to consistently increase it to $1 per share, with the possibility of further increases in the future. Ryman left the door open to the possibility to increase it again, the current plan is to distribute aggregate minimum dividends for 2023 of $3.75 per share in cash. This represents a yield of almost 4% at current trading levels.

What's even more reassuring is the company's low payout ratio, with the adjusted funds from operations payout ratio for the quarter standing at 53%. This suggests that the dividend is secure, as it provides a significant margin of safety in case of any unforeseen challenges.

Moreover, Ryman’s CEO Fioravanti pointed out :

The strength of our first quarter performance and our healthy forward book of business supports the Board’s decision to raise the Company’s dividend again this quarter to $1.00 per share, which now exceeds the quarterly dividend rate that the Company had achieved prior to the onset of the COVID-19 pandemic.

Why Do I Like Ryman?

The pandemic forced Ryman to pivot its business strategy to survive. During the shutdown, the company invested in its properties and expanded its Gaylord Palms resort, acquired the remaining portion of Gaylord Rockies, and renovated rooms and food and beverage outlets at Gaylord National. These efforts paid off, as Ryman’s hotel occupancy rate is now within 3 percentage points of pre-pandemic levels.

The company's first-quarter results demonstrate a strong rebound. The hospitality segment generated record-breaking revenue and operating income, with RevPAR hitting an all-time high, and it increased by 60% year over year on the surge in demand for group events. Looking ahead, Ryman has already booked over 348 thousand future room nights for all future years at an ADR of $251 an increase of 9.1% over Q1 2022 ADR for future bookings and 22.9% above Q1 2019 ADR for future bookings.

Ryman's growth catalysts are equally exciting. The most significant expansion of its Ole Red chain is underway, with a flagship location on the Las Vegas Strip. The company plans to open the Las Vegas branch in late 2023. It will have a 27 thousand-square foot, four-level live entertainment venue with a 686-seat capacity. Located across from the Bellagio fountains and in the heart of the Las Vegas strip, which is visited by over 100,000 pedestrians daily and approx. 38 million tourists annually. The company also acquired Block 21 in Austin for $260 million. It had planned to do so prior to the pandemic but decided to back out. Additionally, Ryman sold a 30% stake in the entertainment segment (formerly known as Opry Entertainment Group) to Atairos and NBC Universal in June 2022. This partnership could be leveraged for future value creation.

Guidance

Looking to the future, Ryman Hospitality Properties is well-positioned to continue its growth trajectory. Management anticipates generating significant free cash flow in 2023 to invest in high-return capital projects throughout its portfolio. With $319 million in unrestricted cash and $700 million available on its revolving credit facility, the company has ample liquidity to support these initiatives. Additionally, the upcoming $800 million maturity in July 2023 is under control, as Ryman has three 1-year extension options, and has already fulfilled the necessary requirements to exercise the first of these extension options.

Management raised guidance for 2023 suggesting a strong growth potential, with a projected 38% increase in operating income and 21% growth in adjusted FFO, which would translate to about $7.33 per share.

Despite this, the stock is currently trading at about $94 per share, offering an attractive price-to-AFFO multiple of 12.82x. In my opinion, this valuation is considered cheap, given the company's double-digit growth rate and its management's track record of execution, particularly during challenging times.

Final Thoughts

The combination of Ryman's successful pivot during the pandemic, strategic investments in its properties, and impressive first-quarter results have positioned the company for continued growth. While I am aware that the growth will slow down, Ryman's solid financial position and ability to generate significant free cash flow in 2023 allow for investment in high-return capital projects. The recent expansion of its flagship Ole Red chain to Las Vegas and the acquisition of Block 21 in Austin provide exciting growth catalysts for the future.

Furthermore, Ryman's low payout ratio and attractive dividend yield make it an enticing option for income-oriented investors. Its strong first-quarter performance raised guidance for 2023, and consistent dividend payments suggest a potential for both capital appreciation and dividend income. With management's track record of execution, Ryman has proven its ability to thrive even during challenging times, further supporting my bullish outlook for the company.

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