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.
