The COVID-19 pandemic hasn't been kind to many real estate investment trusts (REITs), especially those whose properties rely on the ability and willingness of people to travel or go out. However, in the post-pandemic world, there could be huge gains in store for investors who buy some of these REITs at a discount.
With that in mind, here are three REITs that could conceivably double or more, and rather quickly, once life in the United States returns to normal.
Don't bet against New York City
There is significant concern that the work-from-home trend will last beyond the pandemic and that it will cause a plunge in demand for urban offices. New York office REIT Empire State Realty Trust (NYSE: ESRT) has lost more than half of its value this year, and this fear is a big reason why.
It's not the only problem Empire State faces. For one thing, New York office real estate had started to weaken before the COVID-19 pandemic. And unlike most of its peers, Empire State is rather dependent on tourism, as the observatory atop the Empire State Building accounts for a significant portion of its revenue. With Broadway shuttered until at least May 2021 and coronavirus restrictions limiting capacity at the city's restaurants and other destinations, this will likely remain depressed.
Long term, the future should be bright for Empire State. There is a ton of pent-up tourism demand, Empire State has a rock-solid balance sheet, and to put it mildly, I don't buy the idea that businesses aren't going to want offices in New York City in a post-pandemic world.
Group events aren't going away
It's not hard to see why Ryman Hospitality Properties (NYSE: RHP) plunged as the coronavirus outbreak spread. The hospitality REIT owns a portfolio of five large-scale hotels (all under the Gaylord brand) that focus on conferences, conventions, and other large gatherings. In addition, Ryman owns several entertainment venues, including its namesake Ryman Auditorium and the Grand Ole Opry in Nashville. Simply put, group events just aren't a thing right now, and likely won't be until well into 2021.
Beyond that point, however, things could get interesting for Ryman. The company has already successfully rebooked nearly 800,000 cancelled room nights and is seeing strong demand for group events going forward. And while Ryman's reopened properties aren't hosting any groups, the company has done a good job of temporarily pivoting to leisure travel, which could end up creating an entirely new set of recurring business once the pandemic is over.
Malls will transform but will survive
Mall REITs were struggling long before the pandemic started, as e-commerce headwinds led to a wave of retail bankruptcies. And the pandemic added fuel to the fire as many already-struggling retailers were forced to shut their doors.
Now, I wouldn't invest in most mall REITs, given the current environment. But Simon Property Group (NYSE: SPG) isn't most mall REITs.
First off, Simon is the largest mall operator in the U.S, and its properties are simply on another level. Instead of simply creating shopping malls, Simon creates destinations with many non-retail elements that keep traffic high. Think entertainment venues, popular restaurants, hotels, and even apartments and offices. With $8.5 billion in liquidity, Simon is in the best position among peers (by far) to adapt its properties to the new retail environment. What's more, Simon may actually get a long-term tailwind from some of the retail bankruptcies, as the company has been part of a group that has acquired J. Crew and Forever 21 already and is set to buy J.C. Penney as well.
Only buy these if you can take on the risk
As a final thought, it's important to keep in mind that no stock that is capable of doubling in a year or two is without risk, and these three REITs are certainly not exceptions. While I wouldn't put any of them in the ultra-high-risk category, it's important to understand that a lot needs to go right before these REITs can deliver strong returns. Empire State Realty Trust needs urban office demand to be resilient and for New York City tourism to come back strong. Ryman needs demand for group events to be close to pre-pandemic levels. And Simon needs to continue to execute on its vision of creating mixed-use space, and while it can withstand more retail bankruptcies, widespread bankruptcies among its larger tenants could certainly be harmful.
In full disclosure, I own all three in my portfolio (Empire State is actually one of my largest stock positions of any kind) and think that if these things happen, shareholders will be handsomely rewarded. But it's important to remember that they remain pretty big "ifs" for the time being.