Royal Caribbean Gets Exposure to Ultraluxury Market

We increased our fair value estimate to $135 from $132 in response to the incremental growth we expect will stem from the addition of Silversea’s capacity. We have made four major changes to our model as a result of the consolidation. First, we raised yield growth modestly in the second half of 2018 and first half of 2019 to account for the higher per diems a blended rate will drive (by our estimate this should increase 2018 by $3 and 2019 by $7 on a yield per diem basis). Second, we correspondingly raised costs modestly, as we perceive Silversea’s cost structure as less favorable than Royal Caribbean’s, acting as a drag on 2019 EBITDA margin (to below 31%, from an estimated 31.8% in 2018). Third, we adjusted depreciation upward for the additional depreciation that will flow through the profit and loss statement. And finally, we added both $1 billion in debt as well as the incremental $500 million (not callable until 2020) in leverage from Silversea that Royal will have further debt service to address.

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