Hospitality real estate investment trusts (REITs) have been on fire lately. According to Nareit, the lodging and resorts subsector of real estate gained nearly 18% through the first two months of 2021, and many hospitality REIT stocks have done even better in response to the strong vaccine rollout and various reopening news.
However, this could just be the starting point. GDP growth is expected to be about 5.5% in 2021, and we're already seeing signs that people are eager to get out and about. In fact, the TSA recently reported the number of travelers through airports is now at the highest level since the pandemic began. So, although hospitality REITs have been one of the best-performing areas of the real estate sector in recent months, this could be just the beginning.
With that in mind, here are two hospitality REITs in particular that could be great choices for long-term investors looking to take advantage of the economic recovery.
This hotel REIT is in a class by itself
Ryman Hospitality Properties' (NYSE: RHP) business was devastated when the pandemic hit. Its five large-scale Gaylord hotels focus on group business (conventions, conferences, etc.), and the pandemic made these types of events nonexistent.
In fact, unlike most hotel REITs, Ryman didn't even feel it was worth keeping its properties open and suspended operations for most of the second quarter of 2020. In addition, the company owns a few concert venues and dining/entertainment locations, all of which have also been suffering.
Despite the fact group events are still not really happening, Ryman's stock price has more than doubled over the past six months and has nearly regained its pre-pandemic high. How could this be?
Well, the short version is, we're seeing just how much pent-up demand there is for massive gatherings. As Ryman's CEO Colin Reed said in a press release, "Our meeting planner research and advanced bookings indicates there is strong desire to resume travel and in-person meetings once vaccines are widely distributed to the public."
Through the end of 2020, Ryman had rebooked a staggering 1.34 million cancelled room nights, and the company reports reservations are quite strong for the second half of 2021 and beyond. And in a survey of meeting planners Ryman conducted, more than 75% said that if a vaccine were widely distributed, their organization would be comfortable resuming in-person meetings before the fourth quarter of 2021.
Still trading at a discount
Although it has rallied recently, EPR Properties (NYSE: EPR) still trades for about 30% less than where it started 2020, one of the biggest discounts to pre-pandemic share prices in the hospitality REIT subsector.
To be sure, there's a very good reason for that. Nearly half of EPR's revenue (before the pandemic) comes from its movie theater properties, and to say this industry is struggling would be a massive understatement. Top tenant AMC Entertainment (NYSE: AMC) is certainly doing better than it was a few months ago as people start to return to movie theaters, but some big question marks remain about the long-term viability of in-theater movies.
However, recent news is encouraging. California movie theaters are getting set to reopen, and EPR itself is profitable even without most of its movie theater income. The company ended 2020 with more than $1 billion in cash on hand, giving it flexibility to invest or reposition its properties however it sees fit, and aside from theaters, most of EPR's properties are open and performing quite well. EPR was one of the hardest-hit REITs by the COVID-19 pandemic, but could still be an excellent long-term buy for patient investors.
The Millionacres bottom line
REITs that specialize in hospitality properties have seen strong performance lately, especially those that depend directly on consumers and heavily impacted tenants. But if recent signs are any indication, there is tremendous pent-up demand for travel and experiences, and we could see a great several years ahead for these hospitality REITs and their investors.