Premier gaming assets and lots of room to grow
MGM Growth Properties is a REIT that owns gaming properties -- specifically those operated by MGM resorts. The company owns 15 properties, including Las Vegas resorts such as Mandalay Bay, Mirage, and MGM Grand, as well as several high-value regional properties, such as the MGM National Harbor in Washington, D.C., and the Borgata in Atlantic City. Most MGM regional properties are the market leaders in their regions.
You may notice that MGM Growth Properties has held up significantly better than the other two stocks on the list. There are a couple of reasons for this. Most notably, the company gets most of its rent from one tenant -- MGM resorts -- which is in good financial shape and continues to pay rent. MGM's properties are mostly open, and demand has been looking stronger than expected in most cases. In fact, the company recently increased its dividend (the other two suspended theirs), and the current 7.6% yield is well-covered by the current funds from operations.
What's more, MGM Growth Properties has lots of room to expand. The company already has two right of first offer (ROFO) properties if MGM decides to sell them, and with the trend towards legalized gambling, there could be a long-tailed stream of opportunities to grow the portfolio even more. MGM Growth Properties has mentioned pursuing more acquisitions from a pool of more than 50 target properties owned by non-MGM owners as well as pursuing non-gaming opportunities.
Group events will come back as strong as ever
Ryman Hospitality Properties is a hotel REIT, but there is much more to this company. For starters, the core of Ryman's business is its five massive Gaylord hotels, all of which are among the top 10 largest non-casino convention hotels (including the top four). The other side of Ryman's business is its entertainment assets -- the company owns the Grand Ole Opry and Ryman Auditorium entertainment venues as well as the new and growing Ole Red restaurant/music venue chain developed in partnership with country music star Blake Shelton.
Obviously, group-focused hotels have been a tough business during the pandemic. Conventions, conferences, and other group events are simply not happening. When the pandemic worsened, Ryman's business was hit so hard that the company decided to shut down its hotels completely. And there's no telling when any concerts will happen again in the company's iconic venues.
Having said that, there are some reasons patient investors should keep Ryman on their watch list. For one thing, four of the five Gaylord hotels are now open and the company has done an excellent job of pivoting to leisure travelers for the time being. As an example, the Gaylord Palms is close to the Walt Disney World resort and has a pool complex and other assets that should be able to attract tourists.
However, the most important part of Ryman's business is its group events business, and while 2020 is going to be a mainly lost year, the company has successfully rebooked more than 450,000 cancelled room nights and has millions of future room nights on the books. One of the most appealing characteristics of Ryman's business is many large events use the hotels year after year -- in fact, Ryman actually has more net room nights booked for 2021 and 2022 than it did at the same point last year. So if you think the group events business is in serious long-term trouble, guess again.
A play on people wanting to get out and about
EPR Properties mainly owns "experiential" properties. Movie theaters are the company's largest property type, but there are also large holdings in ski resorts, waterparks, and golf attractions. And many EPR tenants are among the top operators in their respective industries -- AMC Entertainment (NYSE: AMC), TopGolf, and Vail Resorts (NYSE: MTN) are just a few examples.
You might think this would be a terrible type of real estate to own in 2020, and you'd be right. Virtually all of EPR's portfolio was shut down as the pandemic worsened, and while many properties have opened, movie theaters largely remain closed. During the shutdowns, EPR only collected about 15% of its contractual rent, and it's unlikely to shoot back up to 100% anytime in the immediate future.
However, the important thing to know is that EPR is well capitalized and has a relatively low cash burn rate, especially since it has temporarily suspended its dividend. In fact, at the company's shutdown-level 15% rent collection rate, EPR would have enough money to cover its cash needs for 65 months (that's more than five years). So even if it takes well into 2021 for its business to normalize, EPR investors shouldn't worry about the company's ability to survive.
What's more, the roughly 85% of rent it didn't collect during the shutdowns isn't exactly lost money -- much of it is deferred rent, meaning that EPR will get paid eventually.
The bottom line is that EPR's business certainly isn't thriving in 2020. But from a long-term perspective, I'm not sure that a 60% haircut in the stock price is justified.
Don't expect a smooth ride
As a final thought, it's important to emphasize that I'm not calling the bottom in these stocks, nor am I predicting a steady upward climb. If the COVID-19 pandemic continues to worsen and widespread economic shutdowns once again become needed, I'd fully expect all three of these to take a hit. And even if the case numbers start to stabilize, we're likely to see a roller coaster ride in "reopening stocks" like these three until the pandemic is truly behind us.
So don't buy these stocks because you think they're going to perform well this month, or even this year. But if you're a long-term investor with the patience and risk tolerance to ride out the ups and downs, these three REITs could be excellent values at their current depressed levels.