HEDGEYE EDGE
The full service hotel REIT universe has largely been un-investable over the last few years but with one clear exception. That, of course, was RHP. Favorable customer and geographic segmentation, a unique product niche, and operational and managerial know-how have afforded RHP to be that industry exception. We don’t see RHP losing its exceptional status anytime soon, but owing to a softening industry backdrop, and the potential for RHP’s long cycle of positive revisions coming to an end, we’re stepping down our conviction level on the name. RHP moves from Best Idea Long List to the Long Bias List.
Despite the demoted status, RHP is still the only hotel REIT on the positive side of our ledger. The company operates a durable business that should continue to outperform over a longer time horizon. However, over the next few months and quarters, the company faces significant comps to its highly successful performance over the LTM. Thus, the stock could fall victim to its own success and limit significant upside.
One quarter’s performance doesn’t make a trend but for once, we were less enthused by a RHP print – softer RevPAR growth, weaker out of room spend, and even some margin disappointments. Bright spots, including the robust performance of the Entertainment segment and strong forward bookings, were overshadowed. Overall, RHP’s Q2 vs consensus and Hedgeye looked more like its peer group, and that’s no compliment. Again, one quarterly miss is not enough to sway our long term views, but the internals of the miss were a little surprising vs our modeling which has us taking a more cautious approach into 2H.
For now, at least, it looks like the quarterly beat and raise tradition could be taking a breather. Looking ahead to 2H’23, well documented but tough comparisons, a challenging backdrop for the FS REIT space, and incremental pressure on the US Leisure customer (Q4 = RHP’s biggest leisure quarter), are more than enough reasons for the demotion.
It might not be long before RHP finds its way back on our Best Ideas list, but we’ll take some time to reassess, sensitize the model, consider the upside with the infusion of San Antonio in the mix, and come back to this name. It’s been a two year journey with RHP on our Best Ideas list, and in that tenure, even before dividends, RHP’s stock has trounced the FS REIT and broader REIT sector competition by ~35%, and even the S&P 500 by over ~10%. We’ll book the win on RHP.
HEDGEYE GLL POSITION MONITOR
For the most up to date position monitor including Best Idea Longs, Shorts, and ticker biases, please see below. As noted above, RHP moves from its long tenured Best Idea Long status, down to the Long Bias bucket.
