Billionaire Steven Cohen disclosed a 2.5 million share position in Gaylord Entertainment (GET) on Friday. Steve Cohen bought 2.1 million shares on behalf of SAC Capital and 350 thousand shares on behalf of Sigma Management. Neither of these funds had positions in GET at the end of March. Gaylord Entertainment returned around 20% since the end of the first quarter.
Billionaires Ken Fisher and John Paulson’s funds are the two largest holders of Gaylord Entertainment among the nearly 400 funds we are tracking. Ken Fisher had $66 million, or 4.4% of outstanding shares, and John Paulson had $42 million, or 2.8% of outstanding shares, invested in the company (see John Paulson’s new stock picks).
This is a reorganization play. Last week Gaylord announced the sale of its Gaylord Hotels brand and the rights to manage its four hotels to Marriott Intl (MAR) for a total of $210 million. Gaylord will subsequently reorganize as a REIT. The company expects to save about $15 million at the corporate level. Net property level savings are estimated to be between $19 million and $24 million. Gaylord will retain Iconic Grand Ole Opry and its Nashville based attractions and operate them under the REIT structure. The company will also distribute a special dividend totaling about $2 per share.
We think Gaylord is an attractive investment right now. The company’s 2013 funds from operations (FFO) will be around $225 million. Currently Host Hotels & Resorts (HST) trade around 14 times its 2012 FFO. LaSalle Hotel Properties (LHO) trades at 13 times its 2012 FFO, Diamond Rock Hospitality’s (DRH) P/FFO ratio is around 12.5. Sunstone Hotel Investors (SHO), another John Paulson and Steve Cohen holding, trades at 10 times its 2012 FFO. Using a conservative P/FFO ratio of 10 gives Gaylord a market value of $2.25 billion or nearly $46 per share. Gaylord’s total debt to 2012 EBITDA ratio of 4.5 is on the lower side compared to its peers whereas its interest coverage ratio of 6 is on the higher side.
The stock will have an upside potential of 25% after accounting for the special dividend. However, this is a highly cyclical stock which lost more than 90% its value between June 2007 and March 2008. Steve Cohen disclosed a 5% stake in the company but he isn’t required to disclose how he hedged these bets. Investors concerned about a slowdown in US economy should consider hedging their risks by shorting other lodging REITs.