The gradual return to normalcy in the United States could be great news for hundreds of publicly traded companies, but few industries stand to benefit nearly as much as hospitality. Real estate investment trusts, or REITs, that own hospitality properties were largely devastated as the COVID-19 pandemic swept across the United States last year, and many still haven't fully recovered. However, pent-up demand for travel and experiences could make some hospitality REITs big winners in the second half of 2021 and beyond.
With that in mind, here are three hospitality REITs in particular that could be interesting to watch as travel demand fills hotel rooms and attractions this fall.
Not all travel has returned yet
While leisure travel has picked up tremendously, that isn't true for business and group travel. As a result, convention and conference-focused Ryman Hospitality Properties (NYSE: RHP) hasn't seen its occupancy rates rebound quite as much as some of its peers. However, we're starting to see early signs of change.
For one thing, Ryman (which owns five massive hotels under the Gaylord brand) started to see some group events come back in June, and cash flow turned positive for the first time in more than a year. For the second half of 2021, group bookings are at 72% of where they were at the same point in 2019. And in 2022, group meetings represent 89% of the reservations on the books, a greater percentage than in pre-pandemic times.
In a nutshell, Ryman's business isn't quite where it was yet. But it looks like it could get even bigger than it was before COVID-19.
This REIT is still trading for a big discount -- but it doesn't deserve to
EPR Properties (NYSE: EPR) trades for roughly 30% less than its share price at the start of 2020, but I'm not sure such a steep discount is warranted.
Sure, few REITs were as heavily impacted by the pandemic as EPR was. The company owns a collection of experiential properties such as water parks, ski resorts, golf attractions, and of course, movie theaters. In fact, movie theaters make up nearly half of EPR's contractual rent, and AMC Entertainment (NYSE: AMC) is the REIT's single largest tenant. As you might imagine, EPR did not collect all of its rent in 2020 -- not even close.
However, the tides have turned. EPR collected 85% of its contractual rent in the second quarter, and virtually all of the company's properties are open for business. Thanks to the recent "meme stock" action, AMC is in solid financial shape after raising about $2 billion in fresh capital. Cash flow stabilized to the point where EPR was able to reinstitute its monthly dividend earlier than expected. And with more than $1.5 billion in liquidity, EPR has the financial flexibility to pursue attractive opportunities as they arise.
Travelers are ready to splurge
In its second-quarter earnings report, Bank of America said that consumer spending was 22% greater than pre-pandemic levels in the U.S. However, travel spending continued to lag.
This certainly makes sense, as capacity restrictions, social distancing, and other pandemic limitations were largely in place for much of the second quarter. However, this data tells us one thing: Consumers are flush with cash and ready to spend it. And as travel normalizes, more of this spending should gravitate toward vacations and experiences away from home.
For this reason, investors might want to take a closer look at Host Hotels & Resorts (NYSE: HST), a REIT that owns a portfolio of mainly high-end resorts with more than 47,000 rooms in all. To name a couple of examples, the Fairmont Kea Lani in Maui and the Four Seasons Resort Orlando, Florida, are in Host's portfolio. With consumers apparently ready to splurge, now could be a great time to invest.
The Millionacres bottom line
To be sure, hospitality REITs are one of the more volatile types of real estate investment trusts, even in normal times. However, these are three well-run companies with excellent assets that should deliver strong returns for patient long-term investors.