cfa challenge 2015 rhp

1 - CFA Institute Research Challenge: The University of Tennessee at Chattanooga February 26, 2015

CFA Institute Research Challenge

Hosted by

The CFA Society of Nashville & The CFA Society of East Tennessee

The University of Tennessee at Chattanooga

CFA Institute


The University of Tennessee at Chattanooga

CFA Student Research

This report is published for educational purposes only by the students competing in the CFA Institute Research Challenge.

Financial Sector

Real Estate Investment Trust

Ryman Hospitality Properties, Inc.

NYSE Ticker: RHP

Current Price: $56.86 (as of 02/25/2015)

Recommendation: BUY

Price Target: $58.66

Highlights

About

Ryman Hospitality Properties, Inc. (RHP) is a Real Estate Investment Trust (REIT) that specializes in group oriented, destination hotel assets.

RHP entered an agreement with Marriott International to manage the day-to-day opera-tions of their properties.

The overall goal of RHP’s conversion to a REIT was to increase stockholder value by cutting corporate taxes, being able to establish a regular high yielding dividend, and being able to have access to Marriot and Marriot’s ability to improve operations.

RHP has paid a quarterly dividend of $0.55 and is expected to raise it to $0.60 in 2015. Market Profile Overview As of February 25, 2015, RHP stock was trading at $56.86 which is approximately 3.17% away from the derived target value. The number of RHP shares outstanding at the end of 2014 is 51 million, with an average trading volume of 425,672. The company has a market cap of $2.91 billion.

Operational Summary

RHP owns a portfolio that consists of four major hotels and resorts which historically represent approximately 90% of their revenue. They also own the General Jackson Showboat, the Inn at Opryland, Gaylord Spring Golf Links, the Wild Horse Saloon, Ryman Auditorium, and Grand Ole Opry, as well as its accompanying radio station.

We estimate revenue will continue to grow steadily into the foreseeable future at a rate of 7.82% based upon analysis.

We see a strong stability of operations as RHP continues to obtain the advantages of Marriott’s management.

Metrics such as Occupancy, RevPar, and ADR have steadily increased every since RHP has transferred operations to Marriott.

Investment highlights

We recommend a buy strategy on RHP stock. With upside potential of approximately 3.17% and a dividend yield of approximately 4.0%, we expect a total return to be at least 7.17%

RHP offers an excellent alternative to income generating assets for a portfolio.

As an asset class, REITs have outperformed the market return the past several years. RHP has either kept pace or outperformed the REIT index over the same time.

Figure 1. Market Profile

RHP Market Profile

Prices (02/25/2015) $56.86

Shares Outstanding 51,000,000

Avg Volume 425,672

Market Cap 2,910,000,000

FFO/share 4.89

EV/EBITDA 13.91

AFFO/share 4.87

Dividend Yield 3.80%

Target Price $58.66

Source: Team Estimates; Company Reports

Figure 2: RHP vs. Bloomberg REIT Index

Source: Bloomberg


Business Description

Ryman Hospitality Properties, Inc. (NYSE: RHP) is a real estate investment trust based in Nashville, Tennessee that specializes in group oriented, destination hotel assets in urban and resort markets in or near Nashville, Tennessee; Orlando, Florida; Washington, D.C.; and Dallas, Texas. These assets include a network of four upscale resorts totaling 7,795 rooms that are managed by Marriott International under the Gaylord Hotels brand. Other assets include Gaylord Springs Golf Links, the Wildhorse Saloon, the General Jackson Showboat and The Inn at Opryland, a 303 room overflow hotel adjacent to Gaylord Opry-land.

In addition to hotel assets, Ryman Hospitality Properties also has various media and enter-tainment assets including the Ryman Auditorium; the Grand Ole Opry, which hosts a weekly country music stage concert that has presented the biggest stars of that genre; and 650 AM WSM, the Opry’s radio home.

REIT Conversion

The company completed their conversion on October 1, 2012 and was formally recognized as a REIT at the beginning of the 2013 fiscal year. By converting to a REIT, Ryman Hospi-tality Properties wanted to increase their profitability by reducing operational costs while trying to promote their transient percentage of occupancy. Additional costs would be avoid-ed as a REIT does not pay income tax. This leads to an increase in shareholder value as 90% of taxable income is mandated by the IRS to be paid out in the form of a dividend. Following RHP’s conversion to a REIT, estimated property level cost savings would range from $19-$24 million a year and Corporate overhead cost savings would be $14-$16 million a year.

Marriott Partnership

An advantage gained through the partnership is Marriott’s expertise, which will be comple-mented by the benefit of gaining access to a world-class lodging operator with its 40 million-member Marriott Rewards guest loyalty program. Prior to the REIT conversion, RHP chose Marriott to manage the day-to-day operations of their assets. By choosing Marriott to man-age their assets, RHP hoped to reduce operating costs while increasing the more profitable transient portion of business. The Gaylord brand and properties will benefit from Marriott’s economies of scale, including reservations and procurement, sales, revenue management, and distribution systems.

RHP sold the Gaylord Hotels brand and rights to manage the properties on October 1, 2012. The contract between RHP and Marriott has a term of 35 years with three automatic 10-year renewal terms, assuming management meets certain performance thresholds. The agreement requires RHP to pay a base management fee of 2.0% of gross revenues form the applicable properties each fiscal year. In addition, there is an incentive management fee based on a yearly stated percentage of the pooled available cash flow from the Gaylord Hotels.

Company Profile

RHP has acquired a truly unique portfolio comprised of group-orientated hotel assets which provide visitors with an “all under one roof” environment. RHP currently owns four out of the nine largest group hotels in the United States with over 400,000 square feet of meeting space.

Gaylord Opryland

Located just outside of Nashville, Tennessee, the Gaylord Opryland offers guests all of the excitement and energy of Nashville without ever having to leave the property. This property features 2,882 hotel rooms, 640,000 square feet of meeting space, 9 acres of indoor gardens, 17 acclaimed restaurants that offer everything from sushi to house-made pasta, and access to other Nashville attractions such as the Grand Ole Opry and some of Nashville's finest shop-ping.

Gaylord Opryland has historically been their highest revenue generating property. On aver-age, since 2012, the percentage of hotel revenue contributed by the Gaylord Opryland has been approximately 30.4%.

Gaylord Texan

Located just outside of Dallas in Grapevine, Texas, the Gaylord Texan is a luxurious hotel overlooking Lake Grapevine that offers guests authentic Texan style and hospitality. This property features 1,511 hotel rooms, 400,000 square feet of meeting space with a profession-al event planning team, 4.5 acres of indoor gardens, 8 acclaimed restaurants, a high-energy nightclub, and direct access to Grapevine Mills Mall.

Gaylord Texan has historically been their second highest revenue generating property. On average, since 2012, the percentage of hotel revenue contributed by the Gaylord Texan has been approximately 25.4%.

Source: Company Reports

Figure 3: Rooms by Location

Figure 4: Hotel Assets

Source: Company Data


Gaylord National Located just outside of Washington, D.C. in National Harbor, Maryland, the Gaylord Nation-al is a luxurious hotel that anchors the 300 acre National Harbor waterfront entertainment district. This property features 1,996 hotel rooms, 470,000 square feet of meeting space, which has been noted as Washington, D.C.’s premier convention center, an indoor pool with a 20,000 square foot spa and fitness center and a 19 story glass atrium featuring sweeping views of the Potomac River and Washington, D.C.

In 2014, the Company purchases a 190-room hotel currently being operated as the Aloft Ho-tel at National Harbor. The company expects to rebrand the hotel and allow Marriott to oper-ate the property in conjunction to Gaylord National. Additionally, the company purchased a vacant one-half ace parcel of land located near Gaylord National for future development or other use.

Gaylord National has historically been their third largest revenue generating property. On average, since 2012, the percentage of hotel revenue contributed by the Gaylord National has been approximately 20.1%.

Gaylord Palms Located just outside of Orlando in Kissimmee, Florida, the Gaylord Palms spans over 63 acres and celebrates Florida’s history, culture, and natural beauty while being only minutes away from the main gates of Epcot, Disney, and Disney’s Hollywood Studios. This property features 1,511 hotel rooms, 400,000 square feet of meeting space, and 4.5 acres of indoor gardens.

Gaylord Palms is under a $630.2M 75-year operating lease agreement which was entered into in 1999. This agreement accounts for the 65.3 acres of land where Gaylord Palms is located.

Since 2012, Gaylord Palms has contributed approximately 19.3% of hotel revenue. This is their lowest revenue generating property. This lower revenue generation in comparison to the other properties could be an effect of operating in Orlando, Florida where Walt Disney Re-sorts operates as a direct competitor affecting the transient portion of business.

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Bargain Power ofSuppliers

New EntryThreats

Threat ofSubstitution

Industry Rivalry

Bargain Power ofCustomers

Source: Team’s Estimates

Figure 7: Porter’s Five Forces

1 = Least Favorable to RHP

4 = Most Favorable to RHP

Industry Overview & Competitive Positioning

RHP operates within the Real Estate Investment Trust industry in the Financial Sector. Spe-cifically, the company competes in the group-oriented, destination resorts segment of the industry. Companies in this industry typically own income-producing real estate. The health of the economy drives demand for REITs as investment vehicles. Value depends on the profitability of the properties in the portfolio, which subsequently highly depends on real estate occupancy rates, supply, and competition from other available venues.

RHP operates in a segment of the hotel and resort industry that has extremely high barriers of entry. In addition, they have a relatively small number of hotels. This allows RHP to concentrate on maintaining and improving the properties without the distraction of being oversized. Their “all under one roof” atmosphere is strategically targeted at accommodating large group and corporate events and conferences. Of the ten largest group hotels designed to accommodate meeting and conferences with ample amount of rooms and square footage, RHP owns four.

Porter’s Five Forces Using the Porter’s Five Forces Model, we analyzed the factors involved and determined that Ryman has a strong competitive advantage in the industry. One of RHP’s greatest strengths is their current position in the large group resort hospitality. It takes a lot of capital and real estate to develop a hotel of the size needed for large groups. The design of RHP properties is such that it is unnecessary to leave because all amenities are provided on site. This minimiz-es the potential of competition RHP faces and increases revenue potential for itself. Howev-er, a consequence of their advantages is that it also difficult for RHP to expand upon their specialty of large group hotels.

Competition Analysis: RHP vs. Large and Mid-Cap Integrated Companies RHP operates in an intensely competitive industry consisting of large integrated companies with diversified operations such as The Walt Disney Company (DIS) and Host Hotels & Resorts (HST). In addition to large companies, RHP also competes with mid-cap companies such as Sunstone Hotel Investors (SHO) and Strategic Hotels & Resorts (BEE).

Figure 6: Opry and Attractions Assets


Figure 5: Historical Revenue Percentages


Opryland31%

Texan25%

National20%

Palms19%

Other5%


Investment Summary

Analysis and Valuation are Indicative of a BUY The analysis of the company, in addition to the valuation methods used, confirms to the stability of the company’s operations and the efficient market pricing of RHP stock. With a target price of $58.66 throughout 2015, we believe that RHP stock has upside potential of 3.17% plus a 4% dividend yield. We believe the contract entered with Marriott offers advantages that are indicative of future stability of their operations and a low volatility of the stock. RHP is able to maintain and increase profitability and levels of operations due as Marriott improves occupancy levels, RevPar, and ADR. We believe additional increases in the transient portion will also re-sult in increased profitability because of its higher profit margin. Since group rates are offered discounts for rooms, an increase in the transient business will lead to an increase in ADR which, in turn, will lead to a higher RevPar. In addition, the acquisition of the new property at the Gay-lord National location will increase the NAV of RHP, which we used to estimate the intrinsic value of the company.

REITs are generally not thought of as a “growth” stock, but REITs do offer income generating ability to a portfolio. They do so by paying out at least 90% of taxable income to shareholders in the form of a dividend. As we estimated the dividend yield in 2015 to be approximately 4%, the total potential return on RHP would be 7.17%.

The Walt Disney Company (DIS)

Walt Disney is an entertainment company that conducts operations in media networks, studio entertainment, theme parks and resorts, consumer products, and interactive media. While not classified as a REIT, The Walt Disney Company’s flagship theme park and resort destination is located in Orlando, Florida, a mere five minute drive from the Gaylord Palms Resort. DIS has operations that are much more diverse and widespread, forming DIS into a formidable competi-tor of RHP.

Host Hotels & Resorts (HST) Host Hotels and Resorts is a REIT which owns or holds controlling interests in upscale and luxury full-service hotel lodging properties in Washington, D.C, Nashville, Tennessee and vari-ous other national and international locations. Host Hotels & Resorts is a strong and relevant competitor to RHP’s operations as it has a significantly greater cash position, scope of opera-tions, and a net income almost three times the size relative to RHP.

Sunstone Hotel Investors (SHO) is a REIT that owns pr imar ily upper scale and upscale hotels in the United States. Like RHP, Sunstone Hotel Investors has a management agreement with Marriott, which manages approximately 49% of their hotel rooms. In addition, 17% of Sunstone Hotel Investors EBITDA is contributed to their resort and suburban hotels.

Strategic Hotels & Resorts (BEE) is a REIT that owns pr imar ily upper scale and luxury resort properties in the United States. A breakdown of Strategic Hotels & Resorts total room nights sold consists of 60% transient customers and 40% group customers. Over recent years, BEE has been very active in building a pipeline of potential acquisitions in urban and resort markets and their long-term goal is to shift concentration from a large part of their portfolio concentrated in California markets to other regions by adding properties on the east coast in-cluding Washington, D.C. and Nashville, Tennessee. These additions cause BEE to be a poten-tial competitor of RHP.

Comparable Companies: Las Vegas Market

While RHP doesn't currently own any assets in Las Vegas, we see hotels in this market as com-parable to RHP because of the “all under one roof” environment Las Vegas provides to its visi-tors. Major comparable hotels in this market include The Venetian Resort & Casino, Mandalay Bay, and MGM Grand.

The Venetian Resort & Casino is a five-star luxury hotel and casino located directly on the Las Vegas strip and is the world’s largest hotel consisting of 4,049 suites; 4,059 hotel rooms; a 120,000 square foot casino; 11 various bars and lounges; 20 critically acclaimed restaurants; 3 separate pool areas; and over 2.25 million square feet of show floor and meeting space.

Mandalay Bay is a 43-story luxury hotel and casino on the Las Vegas Strip consisting of 3,309 rooms; a 135,000 square foot casino; a 1,000,000 square foot convention center; a 12,000 seat arena; an 11 acre pool area with three heated pools; a wave pool and a lazy river; 24 restaurants; and 11 bars and lounges.

MGM Grand is the second largest hotel in the world by number of rooms and largest hotel resort complex in the United States. It includes a 6.6 acre pool area with five outdoor pools; rivers and waterfalls; a 380,000 square foot convention center; and a 171,500 square foot casi-no, which is the largest casino in Las Vegas. It also includes numerous shops, night clubs, and restaurants.

Figure 11: RHP Total Return v S&P 500

Source: Bloomberg

Figure 10: RHP vs. Competitor’s Dividend

per Share

Ticker 2012 2013 2014 2015F

RHP $6.84 $ 2.00 $2.20 $2.40

DIS $0.75 $0.86 $1.15 $1.25

BEE $0.00 $0.00 $0.00 $0.00

SHO $0.00 $0.10 $0.51 $0.31

Source: Bloomberg; Team Estimates

Source: Bloomberg

Figure 8: Market Capitalization

RHP 2.90B

DIS 177.54B

HST 16.51B

BEE 3.60B

SHO 3.61B


Figure 9: Largest Group Hotels

Facility Market Rooms

The Venetian Re-sort & Casino

Las Vegas 4,049

Mandalay Bay Las Vegas 4,332

Gaylord Opryland

Nashville 2,882

MGM Grand Las Vegas 5,044

Gaylord National D.C. 1,996

Marriott World Center

Orlando 2,000

Rosen Shingle Creek

Orlando 1,500

Gaylord Texan Dallas 1,511

Gaylord Palms Orlando 1,406

Hilton Anatole Dallas 1,608


We derived a value of $58.66 as the target price for RHP stock and upside potential of 7.17% for the year 2015. This value was computed by taking an equally weighted average of the net asset value per share, expected FFO/share multiple, AFFO/share multiple, and EV/EBITDA multiple that would corre-spond to the expected stock price. All values were computed using year end estimates to represent the value of the RHP throughout the calendar year.

Net Asset Value (NAV)

NAV is a suitable method as it represents the market value of the company’s operations. This value was divided by the expected number of shares outstand-ing at the ending of the year to generate a target price of $57.38.

This value was computed by deriving the overall capitalization rate of RHP by dividing forecasted net operating income by the expected enterprise value. Each individual property’s net operating income was then adjusted for the capitalization rate. Following, the addition of estimated net operating income from other activities and other assets (excluding restricted cash) less the value of estimated total liabilities was divided by the number of shares outstanding at the beginning of 2015.

FFO/share

The FFO model is a suitable method for forecasting the share price of RHP as this model represents the cash the company generates from operations and a REIT is mandated to pay out 90% of earnings as a dividend to shareholders. The derived target price using the FFO/share base multiple is $57.92 with an upside potential of 5.84%.

AFFO/share

The AFFO method is a suitable method for forecasting share price because it represents all cash flows available to shareholders after capital expenditures are met to maintain profitable levels of capital. This value is also important as RHP’s policy is to payout the larger of 50% of AFFO or 100% of the REIT requirements as dividends. The derived target price using AFFO/share base multiple is $58.46 with an upside potential of 4.93%.

Valuation

Figure 12: Target Price Range

Valuation High Target Low

Net Asset Value - $57.38 -

FFO/share $61.30 $59.92 $44.21

AFFO/share $61.34 $58.46 $44.21

EV/EBITDA $62.62 $59.60 $46.78

Dividend Dis-

count

$54.39 $45.88 $43.20

Target Price: $61.75 $58.66 $46.07

Upside Potential: 3.17%

Source: Team Estimates

Figure 13: Price Multiples

Price Multiples High Base Low

FFO/Share 11.7x 11.1x 8.5x

AFFO/Share 12.7x 12.1x 9.2x

EV/EBITDA 4.2x 3.9x 3.0x


Stability of Operations and Low Volatility

RHP has the benefit of managing a portfolio of a small number of highly prof-itable properties. Their low cost of borrowing allows the company to maintain their properties and offers the ability of low financing property improvements. There is risk associated with the high debt structure of RHP. However, we believe this is not a imperative concern as the company has an interest cover-age ratio above 2.0 and has returned over 70% per dollar of long term debt since the conversion . This stability of operations complements the volatility of the stock. Since the conversion, RHP stock has seen a decrease in volatili-ty.

Future Performance

RHP has a stable outlook for future performance. Entering the management agreement with Marriott gave RHP access to the many strengths Marriott has. With Marriott’s expertise in hotel management and access to the loyalty pro-gram, we believe that occupancy rates in the transient portion of business will increase at the Gaylord hotels. Since entering the agreement in late 2012, Gay-lord hotels have seen an increase of 7.82% in net operating income. We be-lieve that this increasing profit will continue into the foreseeable future as the company continues to grow their transient mix and benefit from the econo-mies of scale from Marriott.

Attractive Dividend

A REIT is mandated by law to pay out at least 90% of taxable earnings in the form of dividends to shareholders. This provides shareholders a steady stream of income. We forecast RHP to have a dividend yield between 3.5% and 4.0% for the foreseeable future. This translates into an annual dividend payment approximately between $2.00 and $2.50 per share. RHP’s dividend payout, as stated by the board of directors, will be the greater of either 50% of AFFO or 100% of the REIT mandate. The decline in dividend yield represents the ap-preciation of the RHP stock as the profitability of their properties increase.

Figure 14: Range of Estimates


$40 $45 $50 $55 $60 $65

FFO/Share

AFFO/Share

EV/EBITDA

Dividend Discount

Dotted line: Current Price of $56.86

Solid Line: Target Price of $58.66


Figure 16: Value Estimates

2015 estimates (in millions USD)

Net Asset Value $2,927.65

FFO $266.22

AFFO $246.50

EBITDA $280.96

EV $4,230.30

Shares Outstanding 51,020

Source: Team Estimates; Company Reports

EV/EBITDA

The EV/EBITDA is a suitable method as it represents the estimated earnings that the company can generate for the given enterprise value of the company. The derived target price using the EV/EBITDA base multiple is $59.60 with an upside potential of 5.07%.

Dividend Discount Model

We believe this model is insufficient in valuing REITs, therefore we did not take its results into consideration of RHP’s intrinsic value. According to this theory, RHP would maximize its sustainable growth rate by reinvesting its earnings back into operations. Since REITs only retain 10% of net income and ROE is a function of net income and equity, the model assumes the sustainable growth rate is 1% (g=[1-.9][.1]=1%). This does not mean RHP must grow at 1%. There are other means of growing, such as taking on debt.

End of the Year Estimate Assumptions

*All valuation and calculations are presented in the appendix

Net Operating Income & Cash Flow from Operating Activities:

The growth rate used to derive our estimates of net operating income was 7.82%. This repre-sents the geometric average of the quarter over quarter rate at which RHP’s hotel revenue from their hospitality segment has grown since being recognized as a REIT in 2013. We believe this rate fairly represents growth as the sustainable growth rate is 4.0% with RHP having a 10% retention rate and approximately 40% ROE. This value in addition to the inflation target of 2.0% would give a growth rate 6.0%. The additional percentage points of growth come from the benefits of using Marriott to manage their properties. This increase comes from the effi-ciencies of their management and increase in revenue due to the promotion of their transient portion of business. This growth rate was the primary rate used in forecasts.

Income from Other Operations:

We estimated the growth to continue throughout 2014, which is 39.84%. This represents the geometric average of the rate the income from other operations has grown, quarter over quar-ter, since being recognized as a REIT in 2013. After 2014 we estimated the income would grow at the vale of 7.82%. We believe this increase will be due to an increase of transient at-traction at the Gaylord Opryland hotel as a result of Marriott’s management, which lead to higher revenue of the other operations that are located in the Nashville, Tennessee area.

Total Liabilities and Total Debt:

We estimated total liabilities to grow at an average rate of 2.51%. This represents the average rate at which liabilities have grown, quarter over quarter, since being recognized as a REIT in 2013. Total debt was estimated by using the geometric average of the proportion of total liabil-ities that represent outstanding debt. This value corresponds to 72.76%. We believe that these estimates fairly forecast expected borrowing and liabilities respectively. This estimate is sup-ported by the increase in borrowing that will follow the acquisition of property at the Gaylord National location.

Other Assets (excluding restricted cash):

We estimated other assets (excluding liabilities) by using the geometric mean of the proportion of other assets (excluding restricted cash) to total liabilities. This derived an average of 19.82% which was applied to our average liabilities estimate for 2015.

Price Multiples:

The price multiples were generated by dividing the generated values by the stock prices at the end of the from 2012-2014. The peak of the stock price during the respected year was used to derive the upper boundary (high) multiple. In contrast, the lowest stock price for the respected year was used to derived the lower boundary (low) multiple. To generate the base multiple, we used the 30-day moving average of the stock price throughout the year to smooth out any un-derlying price volatility that may distort the price. Forecasted future multiples were generated through the teams best estimates through multiple trend observations and expectations. Upside potential for each was derived by finding the rate of return from the base multiple value and the high multiple value.

Depreciation Expense:

The depreciation expense was estimated using the team’s best estimate given the past quarter over quarter, and year over year, depreciation trend. Given the stable environment of operating as a REIT, we believe the depreciation expense will remain relatively stable for the foreseeable future.

Figure 15: Stock and Price Target

Source: Bloomberg


Overview

RHP generates 93% of Revenue through their hospitality operating segment. Since being recog-

nized as a REIT in 2013 and entering an agreement with Marriott to manage properties, opera-

tions and profitability has seen an upward trend. We expect this trend to continue as they re-

ceive the advantages of using Marriott as their TRS. 2012 values were adversely affected from

the REIT conversion costs incurred. These costs continue to adversely affect the financial state-

ments until the full amount is terminated. In addition, when RHP converted to a REIT, they

decided to terminate the development process for hotel resorts located in Aurora, Colorado and

Mesa, Arizona. This in turn incurred an abnormal cost in 2012 that adversely affected the finan-

cial performance of RHP.

Ratios 2012 2013 2014F 2015F 2016F

Profitability

EBITDA Margin 18.70% 26.57% 25.29% 25.32% 25.32%

Net Operating Margin 5.45% 14.36% 14.39% 15.15% 15.87%

Net Profit Margin -2.70% 12.40% 13.93% 14.69% 15.40%

RevPar 123.81 120.89 128.67 138.72 149.57

FFO 104.05 230.01 246.908 266.22 287.04

ROA -1.05% 4.88% 5.34% 5.92% 6.47%

ROE -3.12% 15.63% 24.44% 28.27% 31.37%

Leverage

Debt/Equity 1.97 2.20 3.45 3.98 3.99

Long Term Debt/Equity 54.7% 60.4% 72.0% 72.8% 72.9%

Long Term Debt/EBITDA 55.8% 45.5% 57.9% 55.0% 52.3%

Return on Long Term Debt 29.0% 75.2% 62.2% 70.9% 79.9%

Interest Coverage 0.92 2.25 2.25 2.11 2.01

Activity

ADR 170.48 170.89 176.23 185.7 189.7

Avg Occupancy 72.60% 70.70% 73.70% 75.40% 79.60%

Shareholder Ratios

Dividend Payout 90% 90% 90% 90%

Dividend Yield 19.32% 4.79% 4.19% 3.78% 3.54%

Cost Structure

WACC 12.12% 9.64% 7.16% 6.50% 6.53%

Du Pont Analysis

ROE -3.12% 15.63% 24.44% 28.27% 31.37%


Equity Multiplier 2.97 3.20 4.58 4.78 4.85

Total Asset Turnover 38.96% 39.37% 38.32% 40.26% 41.97%

Financial Analysis

Figure 17: RevPar per Hotel


Capital Expenditures:

Capital expenditures were estimated using previous capital expenditure data and growing future expenditure by 7.82% in order to sustain future level of operations.

Capital Lease:

This value represents the capital lease obligation due during 2015 as given by RHP in their annual 10-K.

Shares Outstanding and Market Cap:

Shares outstanding and market cap represent respectively the estimated number of shares out-standing based off of quarter over quarter trends and the stock price at the end of 2014.


Hotel and Resort Operations

RHP’s profitability is a primary function of their Average Daily Rate (ADR) times their Aver-

age Occupancy. Increases and decreases in Revenue per Available Room (RevPar) shows how

profitable the company has operated. RHP’s revenue is distributed between transient and group

rates. These distributions usually give a revenue mix of roughly 20%-30% transient and 70%-

80% group. Even though group percentages are the primary driver of revenue, RHP has a great-

er profit margin from the transient mix. This is primarily due to a group discount rate.

RHP saw a 3.35% decrease in revenue from 2012 to 2013, which was led by a 2.69% decrease

in occupancy. This decrease in occupancy was partially compensated by the increase in the

transient mix of business. However, during that time the company did see an increase in profit

margins due to the lower management costs associated with the synergies of Marriott. Compar-

ing the quarter over quarter growth from 2013-2014, hotel revenue increased at a rate of 7.82%

The increased profitability was driven by an increase in ADR, an increase in Avg Occ, and an

increase in the transient mix of business. We anticipate a steady growth in RevPar, Avg Occ,

and ADR in the forecasted years. This is primarily due to decreasing expenses related to the

REIT conversion cost and benefits received as RHP uses Marriott to manage hotel and resort

operations. In addition to the efficiencies that Marriott offers, RHP hotel and resorts are now

eligible to Marriott Rewards loyalty members which will increase profits as the company sees

an increase in overall occupancy and transient business. RHP generally has bookings for meet-

ings and conferences three years in advance. This stable flow of business will be beneficial

since a majority of their revenue mix is contributed by their group business. In the event of a

recession, cancellation fees help RHP hedge against lost profit. However, a combination of a

healthier economy and excellent management from Marriott will drive the key hotel and resort

ratios and indicators to higher than forecasted levels.

Steady Increase in Profitability

As mentioned above, we forecast that the REIT conversion and use of Marriott will lead to the

increase in profitability of RHP during the forecasted years. We expect revenue to grow and a

steady rate of 7.82%. As operating costs level off due the economies of scale and efficiencies

from Marriot, we forecast increasing margins throughout the income statement. In addition

from increasing margins, we expect RHP to earn a greater return on both assets and equity in

the foreseeable future. Adjusted Funds from Operations (AFFO), which is a key driver into the

value of RHP stock to the shareholders, will also see a steady increase in the foreseeable future.

Overall, increasing hotel and resort revenue complemented by lower future operating costs will

lead to an increase in profitability for RHP in the forecasted years. Illustrated by the Du Pont

Analysis, the increase in ROE was complemented by an increase in gross profit margin and an

increase in total asset turnover. This demonstrates how the company has been, and will continue

to benefit as they operate as a REIT. With the use of Marriott, they have seen a more efficient

use of their assets which, in turn, has helped support their increase in profitability.

Ability to Support Operating from their Ability to Finance with a Low Cost of Debt

When Ryman converted to a REIT in 2012, they terminated expansion developments in Colora-

do and Arizona as Ryman’s management no longer wanted to bear the costs of construction.

This allowed future borrowing to be targeted at the maintenance and improvements of the cur-

rent properties. When they converted to a REIT, they also obtained a new credit facility. This

allowed RHP to increase their borrowing abilities from $925M to $1B which is more than sub-

stantial to support operations. This new credit facility allowed RHP to borrow at a lower rate

which amounts to the London Interbank Offer Rate (LIBOR) plus a premium of 1.85%. This

lead the company to achieve a lower cost of debt which in turned allowed them to finance more

operations with debt. With more operations financed with the low cost of debt, RHP has seen a

steady decrease in their Weighted Average Cost of Capital (WACC). This gives the company a

lower hurdle rate and allows them to achieve more profitability, which in turn, will be compen-

sated to the investor. This increase in borrowing has supported their ability to maintain opera-

tions and profitability. The Du Pont analysis shows a steady increase in the equity multiplier.

This was complemented by an increase in their gross profit margin and total asset turnover.

Their Baa+ credit rating causes a slightly higher cost of borrowing. However, RHP does show

the ability to maintain interest payments on their debt as their coverage ratio remains above 2.0.

RHP has shown, and we estimate, an increase in their profitability per dollar of debt used.

Figure 20: EBIT v Change in Debt

Source: Team Estimates; Company Report

Figure 18: EBT v ADR

Source: Company Reports; Team Estimates

Figure 19: EBT v Occupancy Percentage

Source: Company Reports; Team Estimates


Figure 21:Risk Matrix

Impact

High N.D.1 O.R.2

Medium G.S.3 I.R.6

Low S.R.4 E.C.5

Low Medium High

Risk


Figure 22: Risk Matrix Legend

N.D.1 Natural Disaster

O.R.2 Operational Risk

G.S.3. Government Spending

S.R.4 Systemic Risk

E.C.5 Economic Conditions

I.R.6 Interest Rate Risk

Natural Disaster (Low Risk - High Impact)

The threat of a natural disaster would have severe adverse effects on RHP’s profitability. Due to the fact that the company’s portfolio has a few number of operating segments, an occurrence that would inhibit operations at any location would have severe negative impacts. This was demonstrated in 2012 with the occurrence of the Nashville flood. As Gaylord Opryland accounts for approximately 52% of hotel and resort revenue, their bottom line was adversely affected even though they had in-surance that aided the losses.

Operational Risk (Low Risk - High Impact)

Ryman is in a managerial contract with Marriott for them to oversee the day-to-day operations of their hotel and resort operating segments and the General Jackson Showboat. Any occurrence within Marriott that would inhibit them from fulfilling their responsibilities effectively would adversely affect RHP’s profitability. These activities include, but are not limited to change and confusion in management; unionized protests; and potential conflicts of interest. This risk is minimized in the management agreement through the 10% base management fee of hotel revenue and the incentive fee.

Government Spending (Low Risk - Medium Impact)

RHP’s hotels and resorts have an occupancy mix varying from 70/30 to 80/20 for group and transi-ent business respectively. A main driver of group rates are both corporations and government organ-izations that use Ryman’s facilities for conferences and events. We believe that government spend-ing would be a fair representation of organizational spending in general. A contraction in their group portion would have an adverse effect on RHP’s profitability; however, it does not eliminate the prof-it that they obtain from their transient portion of business.

Systemic Risk (Low Risk - Low Impact)

Systemic risk from the market poses a negligible effect to the performance of RHP’s stock. Volatility in the price of RHP stock has not been a pressing factor and a below average market beta represents that. In addition, the activity of the market shadows the general economic activity within the economy. The risk of a changing economic environment is discussed below. However, the risk of a appreciation in stock price would have an impact on the company since a large portion of their debt are convertible notes.

Economic Conditions (Medium Risk - Low Impact)

RHP has their own operating cycles with their peak quarters of operations occurring during the sum-mer and winter holiday months. Even though every business is exposed to the general business cy-cle, RHP operates with a relative lag to the overall economy. This is due to the fact that a majority of their group segment of business is booked approximately three years in advance. In the case of an economic downturn, there are cancellation fees in place which helps hedge against this risk. With the recent boom and recovery of the U.S. economy, we can conclude that RHP operations will re-main sustainable and unaffected for the foreseeable future.

Interest Rates (High Risk - Medium Impact)

RHP finances almost all operations through their ability to borrow debt with their one billion dollar

credit facility. They borrow at a rate of a 1.85% premium to the LIBOR rate. An increase in interest

rates would increase the cost the RHP would be posed with to finance their operations. As the Euro-

zone enters a round of quantitative easing in order to stimulate growth in Europe, we foresee inter-

est rates remaining relatively low for the next few years. This allows RHP to continue to finance

operations with their low cost of debt effectively.

Industry Overview & Competitive Positioning


Disclosures:

Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.

The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that

might bias the content or publication of this report.

Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as an officer or director:

The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject

company.

Market making:

The author(s) does not act as a market maker in the subject company’s securities.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the

author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or

completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This

information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This

report should not be considered to be a recommendation by any individual affiliated with CFA Society of East Tennessee, CFA

Institute or the CFA Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge


Appendix Table of Contents

Appendix 1: Income Statement

Appendix 2: Balance Sheet

Appendix 3: Statement of Cash Flow

Appendix 4: Financial Statements Forecast and Ratios

Appendix 5: Referenced Growth Rates—Primary

Appendix 6: Growth Rates—Additional

Appendix 7: WACC

Appendix 8: Valuation—Net Asset Value

Appendix 9: Valuation—Multiples


Appendix 1: Income Statement

(in millions of USD) 2012FY 2013FY 2014Q1 2014Q2 2014Q3

Mortgage Related Income 12.307 12.46 3.031 3.038 3.001

Revenue 986.594 954.6 246.451 257.913 245.015

Other Operating Expenses 521.019 417.84 93.922 93.236 97.739

Depreciation Expense 130.69 116.53 28 28.223 28.23

Operating Income 53.80 137.10 32.797 47.486 29.083

Interest Expense 58.582 60.9 15.67 15.472 17.135

Net Non-Operating Losses (Gains) -34.7 -10.5 -3.031 3.459 -2.706

Pretax Income 29.913 86.7 35.828 44.027 31.789

Income Tax Expense -2.034 -92.7 -0.484 0.576 -0.463

Income Before XO Items -26.635 118.5 20.642 27.979 15.117

Extraordinary Loss Pre-Tax 0.009 0.1 -0.011 -0.012 -0.013

Net Income -26.644 118.4 20.653 27.991 15.13

Total Cash Preferred Dividends 0 0 0 0 0

Other Adjustments 0 4.9 0 4.952 0

Net Inc Avail to Common Shareholders -26.644 113.5 20.653 23.039 15.13

Abnormal Losses (Gains) 82.822 29.3 11.2 4.696 3.077

Tax Effect on Abnormal Items -28.9877 -10.3 -3.92 -1.6436 -1.077

Normalized Income 27.1993 132.7 27.922 26.0794 17.1171

Basic EPS -0.56 2.22 0.41 0.45 0.3

Diluted EPS -0.56 1.81 0.32 0.38 0.25


Revenue 986.594 954.6 246.451 257.913 245.015

Mortgage Related Income 1.25% 1.26% 0.31% 0.31% 0.30%

Revenue 100.00% 100.00% 100.00% 100.00% 100.00%

Other Operating Expenses 52.81% 43.77% 38.11% 36.15% 39.89%

Depreciation Expense 13.25% 12.21% 11.36% 10.94% 11.52%

Operating Income 5.45% 14.36% 13.31% 18.41% 11.87%

Interest Expense 5.94% 6.38% 6.36% 6.00% 6.99%

Net Non-Operating Losses (Gains) -3.52% -1.10% -1.23% 1.34% -1.10%

Pretax Income 3.03% 9.08% 14.54% 17.07% 12.97%

Income Tax Expense -0.21% -9.71% -0.20% 0.22% -0.19%

Income Before XO Items -2.70% 12.41% 8.38% 10.85% 6.17%

Extraordinary Loss Pre-Tax 0.00% 0.01% 0.00% 0.00% -0.01%

Net Income -2.70% 12.40% 8.38% 10.85% 6.18%

Total Cash Preferred Dividends 0.00% 0.00% 0.00% 0.00% 0.00%

Other Adjustments 0.00% 0.51% 0.00% 1.92% 0.00%

Net Inc Avail to Common Shareholders -2.70% 11.89% 8.38% 8.93% 6.18%

Abnormal Losses (Gains) 8.39% 3.07% 4.54% 1.82% 1.26%

Tax Effect on Abnormal Items -2.94% -1.08% -1.59% -0.64% -0.44%

Normalized Income 2.76% 13.90% 11.33% 10.11% 6.99%


Appendix 2: Balance Sheet

(in millions USD) 2012FY 2013FY 2014Q1 2014Q2 2014Q3

Real Estate Held for Sale 0 0 0 0 0

Gross Real Estate Property 3129.791 3144.97 3162.164 3177.353 3176.202

Accumulated Depreciation 980.792 1076.973 1104.237 1129.391 1147.68

Net Real Estate Property 2148.999 2067.997 2057.927 2047.962 2028.522

Notes Receivable 0 0 0 0 0

Cash & Near Cash Items 97.17 61.579 55.417 77.843 279.533

Accounts Receivable 55.343 51.782 67.155 55.917 59.419

Other Investments 149.4 148.35 147.928 150.959 146.614

Other Assets 11.347 19.306 17.89 0

Total Assets 2532.451 2424.629 2406.461 2424.549 2608.635

Accounts Payable 215.538 157.339 147.17 136.906 157.941

ST Liabilities & Deposits 25.78 27.808 83.955 28.293

Unsecured or ST Borrowings 0 0 0.604 0.609 0.511

Secured or LT Borrowings 1031.863 1154.42 1154.046 1280.122 1508.679

Other Long-Term Liabilities 431.452 329.395 327.692 327.742 325.821

Total Preferred Equity 0 0 0 0 0

Minority Interest 0 0 0 0 0

Share Capital & APIC 1251.501 1229.35 1228.42 1079.782 1085.256

Retained Earnings & Other Equity -397.903 -471.655 -479.279 -484.567 -497.866

Total Liabilities 1678.853 1666.934 1657.32 1829.334 2021.245

Total Equity 853.598 757.695 749.141 595.215 587.39

Total Liabilities & Equity 2532.451 2424.629 2406.461 2424.549 2608.635

Shares Outstanding 52.596 50.528 50.783 50.841 51.02

Number of Treasury Shares 0.456 0.472 0.477 0.477 0.477

Amount of Treasury Shares 7.234 7.766 8.002 8.002 8.002

(in millions USD) 2012FY 2013FY 2014Q1 2014Q2 2014Q3

Real Estate Held for Sale 0.00% 0.00% 0.00% 0.00% 0.00%

Net Real Estate Property 84.86% 85.29% 85.52% 84.47% 77.76%

Notes Receivable 0.00% 0.00% 0.00% 0.00% 0.00%

Cash & Near Cash Items 3.84% 2.54% 2.30% 3.21% 10.72%

Accounts Receivable 2.19% 2.14% 2.79% 2.31% 2.28%

Other Investments 5.90% 6.12% 6.15% 6.23% 5.62%

Other Assets 0.45% 0.80% 0.74% 0.00% 0.00%

Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

Accounts Payable 8.51% 6.49% 6.12% 5.65% 6.05%

ST Liabilities & Deposits 0.00% 1.06% 1.16% 3.46% 1.08%

Unsecured or ST Borrowings 0.00% 0.00% 0.03% 0.03% 0.02%

Secured or LT Borrowings 40.75% 47.61% 47.96% 52.80% 57.83%

Other Long-Term Liabilities 17.04% 13.59% 13.62% 13.52% 12.49%

Total Preferred Equity 0.00% 0.00% 0.00% 0.00% 0.00%

Minority Interest 0.00% 0.00% 0.00% 0.00% 0.00%

Share Capital & APIC 49.42% 50.70% 51.05% 44.54% 41.60%

Retained Earnings & Other Equity -15.71% -19.45% -19.92% -19.99% -19.09%

Total Equity 33.71% 31.25% 31.13% 24.55% 22.52%

Total Liabilities 66.29% 68.75% 68.87% 75.45% 77.48%

Total Liabilities & Equity 100.00% 100.00% 100.00% 100.00% 100.00%


Appendix 3: Statement of Cash Flow


Net income (loss) -26.644 118.352 20.653 27.991 15.13

Depreciation & Amortization 130.691 116.528 28.003 28.232 28.033

Other Non-Cash Adjustments 31.816 -38.902 9.425 7.728 0.588

Changes in Non-Cash Capital 40.607 -58.279 -28.25 -2.073 21.754

Cash From Operating Activities 176.47 137.699 29.831 61.878 65.505

Disposal of Fixed Assets 0 0 0 0 0

Property Additions -95.233 -36.959 -17.484 -18.289 -14.955

Change in Investments 0 0 0 0 0

Change in Notes 0 0 0 0 0

Other Investing Activities 210.289 -11.782 9.509 -9.111 7.613

Cash from Investing Activities 115.056 -48.741 -7.975 -27.4 -7.342

Dividends Paid -62.007 -76.424 -25.459 -27.93 -27.963

Change in Short-Term Borrowings 0 0 0 0 0

Change in Unsecured Debt 0 350 0 190.5 226

Change in Secured Debt -55 -286.902 0 0 -126.542

Increase in Capital Stocks 64.794 5.23 1.088 1.233 3.798

Decrease in Capital Stocks -185.4 -100.028 0 -50.775 -57.556

Other Financing Activities -1.131 -16.425 -3.647 -125.08 125.79

Cash from Financing Activities -238.744 -124.549 -28.018 -12.052 143.527

Net Changes in Cash 52.78 -35.59 -6.162 22.426 201.69


Appendix 4: Financial Statements Forecast and Ratios

Income Statement

(in millions of USD) 2014F 2015F 2016F

Revenue 1029.250 1109.737 1196.518

Operating Expense 450.515 485.745 523.731

Depreciation Expense 112.120 115.00 115.00

EBITDA 260.262 280.96 30

EBIT 148.142 168.157 189.828

EBT 93.801 109.566 126.655

Net Income 127.980 146.418 166.389

Balance Sheet


Other Assets 410.667 453.532 464.93

Total Assets 2685.591 2756.209 2850.683

Long Term Debt 1507.601 1664.964 1706.807

Total Liabilities 2098.861 2179.457 2263.148

Total Equity 586.730 576.752 587.535

Cash Flow


CF from Operating 70.6275 76.1506 82.1055

CF from Investing -7.9161 -8.5352 -9.2026

CF from Financing 154.75081 166.8523249 179.9001767

Ratio 2012 2013 2014 est 2015 est 2016 est

Revenue 986.59 954.60 1029.25 1109.74 1196.52

EBITDA 184.49 253.63 260.26 280.96 302.93

EBIT 53.80 137.10 148.14 168.16 189.83

EBT 29.913 86.7 93.801 109.566 126.655

Net Income -26.64 118.40 143.40 163.04 184.31

Basic EPS -0.56 2.22 2.44 2.50 2.67

Annual Dividend 6.84 2 2.2 2.25 2.4

Dividend Yield 19.32% 4.79% 4.19% 3.78% 3.54%

Dividend Payout 90% 90% 90% 90%

Long Term Debt/Equity 54.7% 60.4% 72.0% 72.8% 72.9%

Long Term Debt/EBITDA 55.8% 45.5% 57.9% 55.0% 52.3%

Return on Long Term Debt 29.0% 75.2% 62.2% 70.9% 79.9%

Interest Coverage 0.92 2.25 2.25 2.11 2.01

EBITDA Margin 18.7% 26.6% 25.3% 25.3% 25.3%

Operating Profit Margin 5.5% 14.4% 14.4% 15.2% 15.9%


Total Assets 2532.45 2424.63 2685.59 2756.21 2850.68

Total Liabilities 1678.85 1666.93 2098.86 2179.46 2263.15

Total Equity 853.598 757.695 586.73 576.752 587.535

Debt/Equity 1.97 2.20 3.44 3.97 3.99

RevPar 123.81 120.89 128.656215 138.717131 149.5648107

ADR 170.48 170.89 176.23 187.4555825 199.4197475

Avg Occupancy 72.60% 70.70% 75.00% 80.00% 86.00%

FFO 104.047 230.011 246.908 266.219 287.0373258

ROA -1.05% 4.88% 5.34% 5.92% 6.47%

ROE -3.12% 15.63% 24.44% 28.27% 31.37%

Equity Multiplier (EM) 2.97 3.20 4.58 4.78 4.85

*All forecasts represent the team’s best estimates. Rates used for derivation are referenced in Appendix: Growth Rates

*Any ratios were calculated by the team with data coming from Bloomberg and Company Reports


Appendix 5: Referenced Growth Rates—Primary

(in millions USD) 12Q1 12Q2 12Q3 12Q4 12FY

PALMS $515.32 $443.53 $353.22 $434.55 $1,746.62

TEXAN $482.74 $444.08 $466.53 $609.00 $2,002.35

NATIONAL $534.13 $670.38 $600.06 $619.22 $2,423.79

OPRYLAND $706.69 $741.79 $634.52 $803.93 $2,886.93

RUNNING TOTAL $2,238.88 $4,538.66 $6,592.99 $9,059.69 $9,059.69

(in millions USD) 13Q1 13Q2 13Q3 13Q4 13FY

PALMS $464.42 $423.89 $331.01 $448.53 $1,667.85

TEXAN $446.81 $439.34 $425.85 $555.47 $1,867.47

NATIONAL $473.65 $677.26 $538.24 $635.93 $2,325.08

OPRYLAND $686.08 $657.07 $666.78 $801.25 $2,811.18

RUNNING TOTAL $2,070.96 $4,268.52 $6,230.40 $8,671.58 $8,671.58

(in millions USD) 14Q1 14Q2 14Q3 14Q4F 14F

PALMS $523.22 $404.87 $380.13 $483.61 $1,791.83

TEXAN $512.12 $435.87 $448.38 $598.91 $1,995.28

NATIONAL $534.59 $738.29 $563.65 $685.66 $2,522.19

OPRYLAND $725.10 $717.10 $767.95 $863.91 $3,074.06

RUNNING TOTAL $2,295.03 $4,591.16 $6,751.27 $2,632.08 $9,383.35

(revenue contribution) 12Q1 12Q2 12Q3 12Q4 12FY

PALMS 23.02% 19.29% 17.19% 17.62% 19.28%

TEXAN 21.56% 19.31% 22.71% 5.49% 22.10%

NATIONAL 23.86% 29.15% 29.21% 5.91% 26.75%

OPRYLAND 31.56% 32.25% 30.89% 8.15% 31.87%

(revenue contribution) 13Q1 13Q2 13Q3 13Q4 13FY

PALMS 22.43% 19.29% 16.87% 18.37% 19.23%

TEXAN 21.58% 19.99% 21.71% 22.75% 21.54%

NATIONAL 22.87% 30.82% 27.43% 26.05% 26.81%

OPRYLAND 33.13% 29.90% 33.99% 32.82% 32.42%

(revenue contribution) 14Q1 14Q2 14Q3 14Q4F 14F

PALMS 22.80% 17.63% 17.60% 18.37% 19.10%

TEXAN 22.31% 18.98% 20.76% 22.75% 21.26%

NATIONAL 23.29% 32.15% 26.09% 26.05% 26.88%

OPRYLAND 31.59% 31.23% 35.55% 32.82% 32.76%

(total revenue contribution) Percent

PALMS 19.30%

TEXAN 20.10%

NATIONAL 25.40%

OPRYLAND 30.40%

(QoQ Growth) 13Q1→14Q1 13Q2→14Q2 13Q3→14Q3

PALMS 12.66% -4.49% 14.84%

TEXAN 14.62% -0.79% 5.29%

NATIONAL 12.87% 9.01% 4.72%

OPRYLAND 5.69% 9.14% 15.17%

(Growth Weighted for Contribution) 13Q1→14Q1 13Q2→14Q2 13Q3→14Q3

PALMS 2.44% -0.86% 2.86%

TEXAN 3.19% -0.17% 1.15%

NATIONAL 3.45% 2.41% 1.26%

OPRYLAND 1.83% 2.94% 4.88%

Sum of Weighted Growth 10.91% 4.32% 10.15%

GeoAverage of Contributed Growth 7.820%

(Forecasted Hotel Revenue -millions USD) 2012 2013 2014F 2015F 2016F

PALMS $1,746.62 $1,667.85 $1,798.28 $1,938.90 $2,090.52

TEXAN $2,002.35 $1,867.47 $2,013.51 $2,170.96 $2,340.73

NATIONAL $2,423.79 $2,325.08 $2,506.90 $2,702.94 $2,914.31

OPRYLAND $2,886.93 $2,811.18 $3,031.01 $3,268.04 $3,523.60

Total $9,059.69 $8,671.58 $9,349.70 $10,080.84 $10,869.17

The 7.82% Growth Rate was used for:

Deriving income statement values (before adjust-

ments based off of team’s best estimates)

Deriving cash flow statement values

Deriving profitability of hotels and other operating

segments used in valuation models


Appendix 6: Growth Rates—Additional

(Balance Sheet Estimates) 13Q1 13Q2 13Q3 13Q4 13FY 14Q1 14Q2 14Q3

Other NOI 1246 7723 6451 4105 19525 1977 9572 9356

Cash & Equivalents (Un-restricted) 44848 44400 52090 20169 20169 55417 13901 279533

Notes Receivables 148925 151978 145206 148350 148350 147928 150959 146614

Trade Receivable 60745 74450 52746 51782 51782 67115 55917 59419

Deferred Financing Cost 9660 22254 20527 19306 19306 17890 24498 23073

Prepaids 55879 55343 67439 55446 55446 49484 53469 57241

(in thousands USD) 13Q1 13Q2 13Q3 13Q4/FY 14Q1 14Q2 14Q3 14Q4F/FY 15F 16F

Total Other Assets 320057 348425 338008 295053 295053 298744 565880 565880 453532 464930

Total Liabilities 1622806 1676877 1698797 1666934 1666934 1657320 1829334 2021245 2288322 2345831

Debt (from WACC) 1081632 1153376 1279461 1153462 1153236 1289461 1580168 1476676.6 1671797.1 1713811.86

Debt/TL 66.65% 68.78% 75.32% 69.20% 69.18% 77.80% 86.38%

(Balance Sheet Estimates) 13Q1 13Q2 13Q3 13Q4 13FY 14Q1 14Q2 14Q3 14Q4F 14F 15F 16F

Other NOI 1246 7723 6451 4105 19525 1977 9572 9356 5740.43 27303.76 29438.914 31741.04

(Estimated Growth Rates) Percent

Other NOI Growth

Rest of 2014 39.84%

Forecast 7.82%

(OA/TL) Avg Percent 19.82%

TL Growth 2.51%

Avg D/TL 73.06%

These Growth Rates was used for:

Deriving balance sheet values (before adjustments from team’s best estimates)

Deriving values used in net asset value

Deriving values for WACC computation


Appendix 7: WACC

2011 FY

TD 1070444 50.59%

TE 1045355 49.41%

2Y adj Beta 1.768

S&P R 15.000%

RF Rate 1.870%

Cost of Equity 12.393%

% of Debt Rate

Senior Note 151180 14% 6.75%

Convertible 319264 30% 3.75%

Credit Facility 600000 56% 3.03%

Cost of Debt 0.502% WACC 12.895%

2012 FY

TD 1030219 54.69% TE 853598 45.31%

2Y adj Beta 1.523

S&P R 15.000% RF Rate 1.750%


% of Debt Rate Senior Note 152180 15% 6.75%

Convertible 333039 32% 3.75%


Cost of Debt 0.916%

WACC 10.852%

2013 Q1 Q2 Q3 Q4

TD 1081631 56.50% 1153376 59.35% 1279461 68.25% 1153462 60.35%

TE 832636 43.50% 790008 40.65% 595215 31.75% 757695 39.65%

2Y adj Beta 1.582 1.552 1.494 0.906

S&P R 15.000% 15.000% 15.000% 15.000%

RF Rate 1.837% 1.831% 2.477% 2.650%

Cost of Equity 9.857% 9.053% 6.727% 5.487%

Amount % of Debt Rate Amount % of Debt Rate Amount % of Debt Rate Amount % of Debt Rate

Senior Note 0 0% 0 0% 0 0% 0 0% Senior Note 0 0% 350000 32% 5.00% 350000 32% 5.00% 350000 32% 5.00%

Term Loan B 0 0% 0 0% 400000 37% 3.69% 0 0% Convertible 336631 31% 3.75% 340376 31% 3.75% 229461 21% 3.75% 293962 27% 3.75%

Credit Facility 745000 69% 2.84% 463000 43% 2.48% 300000 28% 2.54% 509500 47% 2.38%

Cost of Debt 1.106% 1.590% 1.592% 1.652%

WACC 10.963% 10.642% 8.319% 7.139% 9.12%

2014 Q1 Q2 Q3 Q4F

TD 1153236 60.62% 1289461 68.42% 1508168 71.97% 1476677 71.56%

TE 749141 39.38% 595215 31.58% 587390 28.03% 586730 28.44%

2Y adj Beta 0.906 0.82 0.928 0.913

S&P R 15.000% 15.000% 15.000% 15.000%

RF Rate 2.989% 2.753% 2.565% 2.386%

Cost of Equity 5.462% 4.041% 3.954% 3.953%

Amount % of Debt Rate Amount % of Debt Rate Amount % of Debt Rate Amount % of Debt Rate

Senior Note 0 0% 0 0% 0 0% 0 0 Senior Note 350000 30% 5.00% 360000 28% 5.00% 350000 23% 5.00% 398571 27% 5.00%

Term Loan B 400000 31% 3.58% 399000 26% 3.55% 423032 29% 3.58%

Convertible 297236 26% 3.75% 229461 18% 3.75% 232168 15% 3.75% 283290 19% 3.75%

Credit Facility 506000 44% 2.43% 300000 23% 2.40% 527000 35% 2.39% 486095 33% 2.43%

Cost of Debt 0.647% 0.388% 0.606% 0.577%

WACC 6.109% 4.429% 4.559% 4.530% 4.86%

2015F

TD 1671797 74.35%

TE 576752 25.65%

2Y adj Beta 0.913

S&P R 15%

RF Rate 2.20%


Senior Note Senior Note 387973 27% 5.00%

Term Loan B 4422890 29% 3.68%

Convertible 257357 19% 3.75%


Cost of Debt 2.94% WACC 6.50%

2016F

1713812 74.48% TD

587353 25.52% TE

0.913 2Y adj Beta

15% S&P R

3.00% RF Rate

3.56% Cost of Equity

Senior Note

397724 27% 5.00% Senior Note

453405 29% 3.77% Term Loan B 263825 19% 3.75% Convertible

598858 33% 2.55% Credit Facility

2.97% Cost of Debt 6.53% WACC

Calculations and Assumptions:

Long Term Debt excludes capital lease

Cost of Equity from CAPM

Debt and Equity data from Company Reports

Risk-Free and LIBOR rate at beginning of period

Market Return constant as 15.0%

Estimates derived from growth and ratios (see Appendix: Growth—Additional) and the team’s best estimates

Forecast debt mixture remain constant at average valuated average mix


Appendix 8: Valuation—Net Asset Value

(2012FY in thousands USD) Opryland Palms Texan National Total (12FY )

NOI $83,412.00 $45,196.00 $62,314.00 $63,535.00 $254.46 Capitalized NOI of Properties $2,242,010.77

Enterprise Value $2,239.77 (add) other income 669,113.73

Cap Rate 11.36% 11.36% 11.36% 11.36% 11.36% (add) other assets 377,242.00

Market Value of Properties 734205.7 397822.38 548497.74 559245.18 2239.77 (less) liabilities 1,678,853.00

Market Value of Properties $2,242,010.77 NAV $1,609,513.50

Shares Outstanding 48,428.00 Shares Outstanding 48,428

NAV/share $33.24

(2013FY in thousands USD) Opryland Palms Texan National Total (13FY )




Market Value of Property 1372145.18 650793.06 360625.97 809242.08 (less) liabilities 1,666,934.00



NAV/share $40.82

(2014F in thousands USD) Opryland Palms Texan National Total (14F)




Market Value of Properties $1,555,161.43 $737,595.61 $408,726.14 $917,178.51 (less) liabilities 2,072,042.18



NAV/share $47.79

(2015F in thousands USD) Opryland Palms Texan National Total (15F)




Market Value of Properties $1,821,886.56 $864,100.34 $478,826.60 $1,074,483.43 (less) liabilities 2,288,321.92

Total Market Value $4,239,296.93 NAV $2,965,900.95


NAV/share $58.13

We believe that the net asset value of RHP represents an approximate intrinsic value of the company. The book value of the properties were replaced by the

current market value according to the revenue generating ability of the company’s assets. As the future profitability of RHP increase, we expect this value to

increase in value as well.

Net Asset Value Calculations and Assumption:

Net operating profit for each property are from Company Reports and are year end values

Forecasts for net operating income for each property were derived using the growth rate of 7.82% (see Appendix: Growth Rates—Primary)

Enterprise value was calculated by adding total long term debt to market capitalization

Market cap represents the market cap of RHP at the beginning of each year

Forecasts of shares outstanding in 2015 was generated by the team’s best estimate of shares outstanding at the beginning of the year; forecast for 2015 long

term debt are based of the team’s best estimate (see Appendix: WACC)

The capitalization rate was generated by dividing the net operating income of RHP by the enterprise value of the company. The net operating income was

divided by the market capitalization rate to generate the market value of the properties.

The values forecasted for other income, other assets, and liabilities represent the team’s best estimates (see Appendix: Growth Rates—Additional)


Appendix 9: Valuation—Multiples

FFO Model FFO Growth (REIT): 7.58%

Year FFO Share Outstanding FFO per Share Stock Price High Target Stock Price Stock Low High Base Low

2012 104,047.00 48428 2.15 $38.46 $35.40 $21.85 17.9 16.5 10.2

2013 230,011.00 52596 4.37 $46.35 $41.73 $33.04 10.6 9.5 7.6

2014F 246,908.00 50528 4.89 $54.88 $52.50 $40.21 11.2 10.7 8.2

2015F 266,219.00 51020 5.22 $61.30 $57.92 $44.21 11.7 11.1 8.5

AFFO Model AFFO Growth (REIT): 0.24%

Year Cap ex Capital Lease AFFO AFFO per Share Target Stock Price Stock Low High Base Low

2012 95.2 1644 102,307.80 2.11 $35.40 $21.85 18.2 16.8 10.4

2013 37 958 229,016.00 4.35 $41.73 $33.04 10.7 9.6 7.6

2014F 39.89 623 246,245.11 4.87 $52.50 $40.21 11.3 10.8 8.3

2015F 42.97 364 246501.03 4.83 $58.46 $44.21 12.7 12.1 9.2

EBITDA Model EBITDA Growth (REIT): 5.28% Year EBITDA EV EV/EBITDA Stock Price High Target Stock Price Stock Low High Base Low

2012 184.49 2239.77 12.14 $38.46 $35.40 $21.85 3.2 2.9 1.8

2013 253.63 3176.26 12.523 $46.35 $41.73 $33.04 3.7 3.3 2.6

2014F 260.26 3618.66 13.904 $54.88 $52.50 $40.21 3.9 3.8 2.9

2015F 280.96 4239.3 15.089 $62.62 $59.60 $44.51 4.2 4 3

Multiples Calculations and Assumptions:

The high multiple was derived using the stock price’s peak during that year and dividing by the respected values: FFO/share; AFFO/share; and EV/

EBITDA

The low multiple was derived using the stock price’s bottom point during that year and dividing by the respected values: FFO/share; AFFO/share; and

EV/EBITDA

The base multiple was derived using the 30-day moving average of the stock’s price during the year and dividing by the respected values: FFO/share;

AFFO/share; and EV/EBITDA

Forecasts for the 2015 multiples were derived by using the team’s best estimates

FFO represents the cash flow from operations with depreciation expense added (see Appendix: Income Statement and Appendix: Cash Flow Statement)

AFFO represents FFO minus capital expenditures; capital expenditure were found from the Company Reports and the team’s best estimates

EV/EBITDA represents the earning capabilities per size of enterprise value (see Appendix: Forecasts and Ratios and Appendix: Net Asset Value)

cfa challenge 2015 rhp

Documents

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number of rhp shares

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operational summary

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