When the pandemic emerged in 2020, real estate investment trust (REIT) Ryman Hospitality Trust (NYSE: RHP) was hit pretty hard. That makes sense given that its business is heavily tied to travel. However, now that effective vaccines have allowed the U.S. to start to reopen for business, Ryman's stock has taken off. The problem is that investors may be getting ahead of themselves. Here's why you shouldn't get too excited about Ryman Hospitality Trust today.
The big run
So far in 2021, Ryman Hospitality Trust's stock is up around 19%, slightly better than the 17% or so gain on the S&P 500 Index. And the REIT's gain actually trails behind the nearly 25% advance for the average REIT, using Vanguard Real Estate Index ETF as a proxy. That's not much to write home about. But if you push out to the trailing year, things look a lot different. Over that span, Ryman's stock has increased in value by a huge 156%! The S&P 500 and the average REIT are "only" up 38% and 36%, respectively, over the same span.
At this point, despite operating in one of the worst-hit niches of the REIT sector, Ryman's stock is just 7% or so below where it started out in 2020. Basically, it has made an almost complete recovery and has done so in a very short period of time. Investors, however, need to tread with caution here because that stock recovery hasn't coincided with a similarly strong business recovery.
What it does and has done
Ryman gets tossed in with hospitality REITs, which makes sense, but it isn't a clean fit. The company is focused around convention centers, not hotels like most of its peers. It also owns the Grand Ole Opry, an amusement park, and some media assets. This is not a simple hotel operation -- it's way more complex, and investors need to make sure they understand how different Ryman is from a hotel operator before they buy it.
Notably, its convention operations are highly reliant on business travel. While the media is making a lot of noise about the return of vacation travel, which should help the Grand Ole Opry operation, business travel is still lagging behind. It may do so for a very long time, given the cost savings and convenience of online communication tools like video conferencing. Prior to the pandemic, face-to-face meetings were a physical affair, now that seems to be much less important.
And the numbers show just how slow the rebound has been at Ryman. In a recent investor presentation, the REIT was happy to highlight that new bookings have finally increased above rebookings from cancelations during pandemic-hit 2020. That sounds great and is a net positive given that it suggests travel is indeed picking up again. However, occupancy in its hospitality division was just 16% in the first quarter of 2021, down from 57% in the same quarter of 2020 and 72% in 2019.
Unless there's a massive influx of new bookings, Ryman's business remains well below pre-coronavirus levels. In fact, a little bit further down in the investor presentation, the company notes that it is still burning cash. The REIT doesn't expect to turn cash-flow positive until the third quarter. While that will represent an important inflection point for the REIT, it's hard to suggest that business is back to normal. In fact, given the weak first half, 2021 is still going to be a very bad year overall when you actually look at the REIT's financial statements. And yet investors have priced in an almost full recovery when you look at the stock price.
Yes, Wall Street is forward-looking, but there's still room for problems here. For example, vaccination rates in the United States have stalled. And, at the same time, a new variant is quickly spreading. Both of these issues could lead to a slower-than-hoped recovery at Ryman. At this point, after such a big price move, most investors should probably tread with caution.
Better, not cured
Ryman's business is definitely starting to improve, which is nice to see. However, investors are acting as if business at this unique hospitality REIT is back to normal. That's just not the case yet and probably won't be until at least 2022, assuming there are no setbacks along the way. All in, it looks like Wall Street has gotten ahead of itself here and priced in more good news than has actually shown up on the business front just yet.