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Is Ryman Hospitality Properties the Best Hotel REIT?


Jul 23, 2020 by Jason Hall

The coronavirus pandemic has brought the travel and hospitality industry to a standstill. Whether it's leisure or business travel, hotel stays are now a bare fraction of prior levels and look likely to be depressed for some time to come. Between the health implications of the ongoing coronavirus pandemic and the economic effects of the accompanying recession, now is a brutal time to be in the hotel business.

But that doesn't mean investors should completely avoid hotel REITs -- real estate investment trusts that mainly own and operate hotels. To the contrary, there are some excellent investment opportunities out there. One of the best is Ryman Hospitality Properties (NYSE:RHP), which gets my vote as the best hotel REIT to buy right now.

Riding out the downturn

Ryman Hospitality is a textbook example of how bad investors thought it could get. In late March as states began issuing "stay at home" orders and requiring retailers, travel, and hospitality companies to close, the company's stock nosedived. At the bottom, shares hit $14, down from more than $90 in February, as investors started expecting the worst-case scenario of hotels being closed for potentially the rest of the year to get ahead of the COVID-19 pandemic.

Fast-forward to today, and the picture looks a lot better. Ryman management acted quickly to tap capital resources, withdrawing the max from its revolving credit facility to ensure it had enough cash to keep things going.

As a result, it has more than enough cash to cover its expenses for an extended period of time, with $662 million in cash, versus about $330 million in operating and interest expenses over the past year (much of which was non-cash).

Coming back online

Ryman's properties are opening back up. So far, business is still understandably slow. According to a late-June update, four of its Gaylord hotels had reopened, with the Gaylord Texan (which reopened first) reporting about 20% occupancy in the first two weeks and 40% weekend occupancy.

According to management, if occupancy levels can get back to about 35%, that would get the business back to breakeven. So not only does the company have a large margin of safety in the cash on its balance sheet, but it has a very low threshold to get back to breakeven and stop burning through that cash.

Why Ryman is the best hotel REIT to buy

Between a strong balance sheet to ride things out and a recovering business, the most important thing that underpins Ryman Hospitality Properties as my choice for the top hotel REIT is the quality of its assets and their viability post-COVID-19.

There are other hotel chains with the balance-sheet strength to ride out a protracted downturn, but few own the collection of assets that Ryman does, which should prove immensely valuable when we beat the pandemic. While I think the potential implications for business travel being permanently changed post-COVID, there is some risk that companies will reduce how much in-person travel they decide is necessary. That's a real threat for chains that cater to business travelers.

But that's not what Ryman does. The company does most of its business from a combination of leisure travelers and conventions, particularly large group bookings. And in a post-COVID world, the ability to host large business groups could be even more important if more companies embrace remote work and reduced business travel. Companies and industries will likely plan even more conferences where colleagues and peers can engage and interact. And that's what Ryman Hospitality does best, with its Gaylord properties widely considered some of the most valuable resort and convention properties outside Las Vegas.

A strong, premium brand in convention travel at an incredible bargain

Why many stocks have already recovered much of their value, investors still expect lots of pain for many commercial real estate companies, including hotel operators like Ryman Hospitality. As a result, shares are still more than 63% below 2020 highs. Sure, things could get worse before we turn the corner; COVID-19 cases are rocketing higher, and the death toll has also gone up in recent weeks. This could halt the early recovery in its tracks.

But with a significant cash cushion, the company is ready for that. Investors who prove willing to ride things out over the next year should prove justly rewarded once COVID-19 is in the rear-view mirror and people -- and most importantly businesses -- resume traveling en masse.

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Jason Hall owns shares of Ryman Hospitality Properties. The Motley Fool owns shares of and recommends Ryman Hospitality Properties. The Motley Fool has a disclosure policy.

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