Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) of Ryman Hospitality Properties, Inc. and its operating partnership, RHP Hotel Properties, LP (collectively RHP) at 'BB-'.

The Rating Outlook has been revised to Positive from Stable.

Fitch has also affirmed RHP's senior secured at 'BB+'/'RR1' and RHP's senior unsecured at 'BB-'/'RR4'.

The Positive Outlook reflects Fitch's expectations that REIT leverage will remain below 4.5x, which Fitch believes is consistent with a 'BB' rating given both the REIT and lodging attributes of Ryman. It also reflects the improvement in Ryman's operating and financial profile over the last couple of years. Since 2018 when Fitch initiated RHP's rating at 'BB-', the company has expanded to include six large group hotels, transitioned to a greater unsecured basis, added revenues of over $700 million, and improved margins. This speaks to the overall viability of the business model of catering to large group travel with longer booking windows.

As compared to its lodging peers, the revenue visibility provided by group business is a key differentiator that Fitch believes to somewhat ease cash flow volatility. It however does not absolve the lodging cyclicality and general demand concentration risk of a single subsector, group and convention.

Key Rating Drivers

Improved Financial Structure: RHP has demonstrated consistent access to capital markets most recently with its $1,000 million unsecured notes offering in March 2024. The notes were priced at 6.5% which resulted in interest cost savings and supports the investor appetite for RHP's offerings. Since 2020, RHP has accessed the unsecured market 4x, highlighting the underlying balance sheet changes and through the cycle access at competitive rates on an unsecured basis.

The unsecured issuance was also consistent with the company working to unencumber its portfolio. The transition to a greater unsecured financial structure is in line with its hotel REIT peers and demonstrates RHP's strengthened capital access. The current unencumbered pool consists of all properties with the exception of the Gaylord Opryland and Texan both of which have equity pledges Fitch views as full encumbrances. As these two properties represent the largest share of operating EBITDA for Ryman, further action to unencumber would significantly increase the unencumbered asset pool.

Enhanced Leverage Profile: Fitch projects natural deleveraging resulting from EBITDA growth through the forecast period. For the year ended 2023 Ryman's REIT leverage was 4.2x, at the lower end of the company's policy of 4x to 4.5x. Fitch considers both the REIT and lodging aspects when determining the appropriate sensitivities to rate Ryman through the cycle given where the business model has evolved into today.

Strength in Group Business: RHP has continued to capture group demand at attractive rates without compromising occupancy, evidenced by the yoy ADR growth of 3.7% for 2023. This momentum continues into 2024 as the projected revenue on the books for future periods exceeds pre-pandemic metrics, with roughly 51% of same-store occupancy on the books entering into 2024. This is further evidenced by same-store RevPAR guidance inclusive of renovation disruptions at a midpoint of 4.5% for full year 2024.

RHP has successfully rotated customers within brand offerings to support group retention, which offers a recurring revenue stream. Over the last two years, roughly 69% of new group room nights production was made up of retention group business. Ryman works exclusively with Marriott in managing their hotels which can be viewed as a lack of diversification. However, in the case of RHP it reinforces consistent customer service across properties and drives that repeat group business. This aligns with the overall strategy to focus on the large group customer loyalty.

Well-Positioned Quality Portfolio: RHP owns a high-quality, concentrated portfolio of six specialized hotels competitively positioned within the large group destination resort market. The company's smallest large group hotel has 1,002 rooms, and five of its six largest hotels rank within the 6 largest non-gaming U.S. hotels as measured by exhibit and meeting space square footage. The low existing and incoming supply of large group hotels sets RHP well to capture growing group demand.

Ryman has announced various renovation projects to be completed over the next couple of years which will further enhance their niche property offerings. The company's liquidity position enables reinvestment to maintain strong property quality that can command higher ADRs. Fitch forecasts elevated capex spend over the next few years to account for various renovation spend which Fitch expects will generate stronger rates and occupancies beginning in 2027.

Volatile Industry with Buffers: Fitch views RHP's forward booking window positively as it provides visibility to future cash flows. The average booking window of 2.7 years is a differentiator as compared to its hotel REIT peers. This can act as a buffer during a downturn particularly with cancellation and attrition fees. Although this does help mitigate risk it does not absolve it as the hotel industry is highly cyclical.

Hotels re-price their inventory daily, resulting in the shortest lease terms and least stable cash flows within commercial real estate. Economic cycles and exogenous events (i.e. acts of terrorism) have historically caused or exacerbated industry downturns. RHP's exposure to primarily group and convention makes it highly dependent on one sub-sector's demand. Overall industry cyclicality and demand concentration exposes Ryman to duration risk as compared to REITs with long-term leases.

Parent Subsidiary Linkage: Fitch rates the IDRs of the parent REIT and subsidiary operating partnership on a consolidated basis, using the weak parent/strong subsidiary approach under its 'Parent and Subsidiary Linkage Criteria.' Open access and control factors are strong, based on the entities operating as a single enterprise with strong legal and operational ties.

Derivation Summary

Ryman's most closely rated peer is Host Hotels and Resorts (BBB/Stable), another lodging REIT. As compared to HST, RHP operates a more concentrated portfolio in terms of geography, price/amenity, brand and property manager. However, RHP's focus on the group and convention segment with longer booking windows that provide cash flow visibility is a credit positive. In addition, attrition fees and rebooking windows help to buffer cash flow cyclicality in an overall volatile industry.

HST's brand offerings are diversified across Hyatt, Hilton, Marriott, Four Seasons and Accor as compared to Ryman working solely with Marriott. The single property manager means less diversified offerings, however it has been advantageous in driving recurring business. RHP's asset concentration within the large group hotel is also well positioned from an existing and future supply standpoint given the capital intensity.

HST is larger in scale, primarily in gateway markets, and 99% unencumbered providing comfort over ability to raise large amounts of secured debt quickly if needed. Ryman's recent issuances have meaningfully unencumbered assets, progressing towards the balance sheets of investment grade REIT peers which Fitch views positively. Over the past four year, Ryman has issued four unsecured bonds as well as refinance their existing facility secured by two equity pledges. This has demonstrated consistent access to the market through common equity, private placement unsecured bonds and bank debt, secured debt, and joint ventures

Key Assumptions

Base interest rates applicable to the company's outstanding variable rate debt obligations reflects current SOFR forward curve;

Low to mid-single digit RevPAR growth through forecast period;

Annual capex spend of $400M through forecast period;

Mid- to high single-digit dividend growth through forecast period.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch's expectation for REIT leverage to remain below 4.5x;

Unencumber remaining assets including equity pledges on subsidiaries;

Sustained improvement in EBITDA margins.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Fitch's expectation for REIT leverage to sustain above 5.0x;

Entertainment spinoff that results in elevated leverage;

Prolonged capital investment with minimal return and thus elevated leverage.

Liquidity and Debt Structure

Liquidity Well-Positioned: As of Dec. 31, 2023, RHP had $591.8 million in unrestricted cash and an aggregate amount of $745.5 million available on its company and OEG revolving credit facilities. Ryman's ability to demonstrate consistent access to capital markets at sustainable rates from a multitude of sources supports its solid balance sheet position.

Most recently in March 2024, RHP issued $1 billion senior unsecured notes priced at 6.5% due in 2032. Proceeds were used to paydown the $800 million Gaylord Rockies term loan as well as a net paydown of $200 million on the term loan B. These actions push out the next maturity until 2026 when the Block 21 CMBS loan comes due. It also increased the weighted average years to 5.5 years as compared to 4.3 years and decreased annual cash interest expense.

Fitch views the replacement of secured debt with unsecured debt positively as it improves the company's unsecured asset pool. This pool includes all hotels with the exception of Gaylord Opryland and Gaylord Texan, the two largest hotels by EBITDA. Fitch will consider future unencumbering of equity pledges to have a meaningful impact on the company's unsecured credit profile.

Issuer Profile

RHP is a lodging and hospitality REIT specializing in upscale convention center resorts and country music entertainment experiences. It owns five of the top six largest non-gaming convention center hotels in the United States based on total indoor meeting space under the Gaylord Hotels brand and managed by Marriott International.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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