RYMAN HOSPITALITY PROPERTIES, INC.
Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) of
The Rating Outlook is Stable.
Fitch has affirmed the IDR of
Fitch has assigned an expected rating to RHP's new revolver and Term Loan B of 'BB+'(EXP) /'RR1' and affirmed the prior senior secured credit facility at 'BB+'/'RR1', noting an updated collateral package upon refinance. Additionally, Fitch has affirmed RHP's senior unsecured debt at 'BB-'/'RR4' and Aurora's senior secured debt at 'BB+'/'RR1'.
Key Rating Drivers
Solid Balance Sheet Management: Fitch forecasts RHP will maintain net leverage metrics appropriate for the 'BB-' rating despite macroeconomic headwinds in 2H23 into 2024 thanks to solid forward-booking trends and favorable contracted group bookings. Fitch expects net leverage to be 4.2x by YE23, which is in line with the company's policy of 4x-4.5x. RHP has meaningful headroom to manage a more material economic downturn as demonstrated by its performance during the Global Financial Crisis when it experienced only mid-teen declines in EBITDA and slight margin erosion.
As compared to peers, RHP has greater visibility into future cash flows and protection from cancellation and attrition fees, which Fitch views favorably. The solid liquidity position is supported by the company's commitment to improve its financial profile by working to unencumber its asset pool. In the most recent refinancing activity the facility was only encumbered by the equity pledges in two assets.
Strong Rebound Post-Pandemic: RHP's operations have outperformed Fitch's prior expectations, which should continue into 1H23 as group travel demand continues to gain momentum. Fitch anticipates rate growth to retract in FY24 in response to a pullback in discretionary travel due to recessionary and inflationary concerns. However, Fitch expects occupancy to continue to improve through the forecast period as group travel demand begins to return as evidenced by recent and forward booking trends. RHP went into 2023 with approximately 50 points of occupancy on the books, in line with pre-pandemic trends and suggests substantial improvement to normalized occupancy levels while maintaining rate.
High-Quality, Differentiated Portfolio: RHP owns a high-quality, concentrated portfolio of five specialized hotels with strong competitive positions in the large group destination resort market. The company's smallest hotel has 1,500 rooms, and each of its five properties ranks within the 10 largest
Volatile Cash Flows: Hotel industry cyclicality is a key credit concern. 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. The average large group bookings window is over two years, which provides RHP with better revenue visibility than most hotel REITs.
Longer lead times can cause group demand to lag that of the overall industry, which can buffer cash flows during downturns and delay them during recoveries.
Strategic Growth Opportunities: Fitch believes RHP's M&A strategy, including the Block 21 acquisition and Atarios partnership, is well suited to its existing portfolio with synergy potential. Block 21 expands RHP's portfolio presence to
Initiatives undertaken through both transactions should largely take effect in 2023 and beyond, supplementing post-pandemic recovery growth. Fitch expects any future spin-off of the entertainment segment to be managed within the context of RHP's stated financial policies, as the loss of EBITDA could be offset by debt paydown with received proceeds.
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.
For Aurora, Fitch applies the strong parent/weak subsidiary approach, and its ratings are equalized with the parent's. Fitch views legal incentives as medium given the existence of certain completion guarantees and RHP's 10% principal guarantee. Fitch views strategic and operational incentives as high given the asset's high quality, potential for growth, and common branding and management.
Derivation Summary
RHP is more concentrated by assets, geography and chainscale (i.e. hotel quality) than its peer
RHP has demonstrated access to common equity, private placement unsecured bonds and bank debt, secured debt, and joint ventures. However, Fitch believes the company's access to many of these capital avenues is relatively weaker than more established REIT issuers that own portfolios with more stable, longer lease duration property types in core urban markets generally favored by institutional equity investors and lenders.
Key Assumptions
Occupancy increases of 2% in 2024, 4% in 2025 and 2% in 2026 (occupancy 68% in 2023, 70% in 2024, in 71% in 2025 and 73% in 2026);
ADR declines of -11% in 2024, -3% in 2025 and -1% in 2026;
EBITDA margins of 30%-31% through the forecast period;
Annual capex of 8% through the forecast period;
Fitch assumes normalized dividends beginning in 2023 with annual dividend/share growth of 2% thereafter.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch's expectation and public commitment for net leverage to remain below 4.0x;
Greater portfolio diversification by market, asset, brand and manager;
Sustained improvement in EBITDA margins.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch's expectation for net leverage to sustain above 5.0x;
Entertainment spinoff resulting in lower EBITDA and thus elevated leverage;
Prolonged retraction of corporate travel demand in impending recessionary environment;
Slower than expected return from Block 21.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Ample Liquidity: As of
The new
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 10 largest non-gaming convention center hotels in the
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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