Ryman Hospitality’s Strategic Move: Balancing Growth and Dilution in the Sun Belt

Ryman Hospitality Properties (NYSE: RHP) is making a bold play in the luxury hospitality space with its $865 million acquisition of the JW Marriott Phoenix Desert Ridge Resort. The transaction, funded through a mix of equity, debt, and cash, represents a calculated risk to capitalize on the Sun Belt’s rebounding demand for large-scale convention and leisure travel. But for investors, the key question remains: does the growth opportunity outweigh the dilution risks?

The answer, based on Ryman’s financing structure and strategic rationale, is a resounding yes. Here’s why this acquisition is a win-win for shareholders—and why RHP’s stock presents a compelling buy now.

The Equity Raise: A Deliberate Trade-off Between Growth and Dilution

Ryman’s decision to raise $252 million in equity (with a potential $37.4 million over-allotment) for the acquisition is a masterclass in capital allocation. The offering, priced at $96.20 per share, secures nearly 29% of the total purchase price upfront, reducing reliance on debt and preserving financial flexibility.

But equity dilution is inevitable. At current shares outstanding of ~61.5 million, the base offering alone represents a 4.2% dilution. However, this is a small price to pay for acquiring a 12.7x EBITDA multiple asset that will likely deliver accretive returns by 2026.

Why the Debt Side Isn’t a Threat—and Why the Resort’s Scale Matters

The remaining $614 million of the acquisition is being funded through a mix of cash reserves, unsecured debt, and potential property-level loans. While this increases leverage, Ryman’s conservative balance sheet—currently with $250 million in liquidity and a 3.2x net debt/EBITDA ratio—provides a buffer.

Crucially, the resort’s 243,000 sq. ft. of meeting space and prime Phoenix location make it a cash-generating machine. Phoenix is a Sun Belt market with 5.2% annual GDP growth outpacing the national average, and the resort’s renovations (set to conclude in Q3 2025) will position it as a top-tier destination for corporate events and weddings.

Analysts at Truist Securities note that the property’s lack of nearby competitive supply and its ties to Marriott’s global luxury pipeline will drive sustained demand. This scalability justifies the premium paid—and the leverage required.

The Undervalued Stock: A Rare Chance to Buy Growth at a Discount

Ryman’s stock has underperformed peers like Marriott (MAR) and Hyatt (H) over the past year, trading at a 7.2x 2025E P/FFO multiple, well below its five-year average of 9.5x. This discount ignores the accretive nature of the acquisition, which analysts estimate will add $0.15-$0.20 per share to AFFO by 2026.

Investors are overreacting to near-term EBITDA headwinds from renovations and macroeconomic uncertainty. But with Phoenix’s leisure demand rebounding (driven by tech conferences, weddings, and tourism) and Ryman’s disciplined capital strategy, this is a buying opportunity.

Risks? Yes—but the Upside Outweighs Them

Critics will point to group demand risks in a slowing economy or delays in renovations. But Phoenix’s status as a “low-cost, high-growth” destination for conventions—especially compared to overpriced markets like San Francisco or New York—buffers against demand shocks. Additionally, Ryman’s track record of executing acquisitions (e.g., the JW Marriott San Antonio in 2023) suggests it knows how to integrate properties profitably.

Conclusion: RHP is a Buy for Sun Belt Exposure and REIT Growth

Ryman’s $865 million bet on the Phoenix resort is a strategic home run. The equity raise dilutes shareholders slightly but avoids over-leveraging the balance sheet, while the debt mix is manageable given the asset’s cash flow potential.

With shares trading at a 23% discount to their 2024 peak and Ryman’s dividend yield at a 4.65%—well above the REIT average—this is a rare chance to buy growth at a discount.

Action Items for Investors:
1. Buy RHP at current levels for exposure to Sun Belt hospitality recovery.
2. Watch for AFFO accretion by 2026 as renovations conclude.
3. Monitor Phoenix occupancy rates (currently 72% vs. 68% in 2022), a leading indicator of success.

In a market starved for tangible growth stories, Ryman’s Desert Ridge acquisition is a no-brainer. The question isn’t whether to invest—it’s why you’re waiting.