The latest buy for my Special Situations portfolio is Ryman Hospitality (NYSE: RHP ) . The company operates four of the top 10 largest convention hotels in the U.S., and it converted to a REIT late last year, making it more likely to trade for a higher multiple. In March, I bought $2,000 of the stock, and it has since done little but go down. But Ryman is a solid company with premier properties that deserves to trade at a premium to peers, rather than a steep discount. So I'm adding another $1,000 to my position.
A brief recap
In my original write-up, I pointed out why you should love Ryman:
- A low relative valuation
- A high dividend -- at 5.8%
- A commitment to return all funds from operations (FFO) to shareholders this year, through dividends and buybacks
- The highest adjusted EBITDA per room
- The best collection of convention hotels in the U.S.
- Good revenue visibility despite being a lodging REIT
- Low leverage and good interest coverage
- CEO's statement that "we will continue to deploy our free cash flow into the equity of this company until we are satisfied that this company is being valued where it should be."
Why it's cheap now
The stock traded to the mid-$40s following its conversion, but since then, the stock has been hit by a few different winds:
- The rotation out of dividend stocks, especially REITs, because of the potential end of quantitative easing
- Ryman's lowered earnings/AFFO projections
- Some selling by hedge funds
Here's why these issues don't concern me much.
So what if momentum traders want out of dividend stocks because the spreads are less attractive to them? The end of quantitative easing implies an improving economy -- let's hope the Fed knows what it's doing -- and a better economy means more business for Ryman. In a strong economy, business and convention travel come back fast. So the stock is less attractive to traders, but more so to investors? That's what I like.
Second, Ryman lowered its earnings projection for the year and won't be able to realize as quickly the synergies from its deal with Marriott (NASDAQ: MAR ) . That's not great, but it's mitigated now almost completely by the price you're paying. Even at the low end of management's 2013 guidance, the stock is trading at less than 9 times adjusted FFO. At the high end, it's a shade over 8 times. That's extraordinarily cheap for such premier assets.
Finally, some hedge funds have been selling, but that hardly concerns me at all. They're often short term and have different motivations for selling. Their moves may hurt in the short term, but that doesn't destroy the underlying value at Ryman.
So I'm adding $1,000 to Ryman now and waiting a bit to see if this horribly ugly chart flattens out a bit. I'd certainly be interested in adding more if the price is right.
Foolish bottom line
At less than nine times AFFO, Ryman still looks like a great special situation. So I'll be adding $1,000 of Ryman Hospitality in my Special Situations portfolio.