The pandemic has had a significant effect on real estate investment trusts (REITs). However, the biggest impact has been on REITs that own properties tied to travel and entertainment. With few people feeling safe enough to go on vacation or engage in recreational activities outside the home, these properties suffered.
However, thanks to the rollout of vaccines, that's beginning to change. More people now have the confidence to travel and enjoy outside entertainment. And after being stuck home for more than a year, there's a lot of pent-up demand.
That should benefit REITs that own travel and entertainment-focused properties. Two that stand out as great summer buys and reopening plays are EPR Properties (NYSE: EPR) and Host Hotels & Resorts (NASDAQ: HST).
A potentially blockbuster summer
EPR Properties is a specialty REIT focused on experiential real estate. A little less than half of its rent comes from movie theaters. In addition, it owns eat-and-play locations, ski resorts, attractions, experiential lodging, gaming locations, cultural centers, and fitness and wellness properties.
While these properties suffered as people stayed home during the pandemic, they should benefit from pent-up demand this summer as people have the confidence to enjoy these experiences again.
Movie theaters are starting to reopen ahead of the summer blockbuster season. EPR reported that 71% of its theaters were open in April. Despite the limited capacity, April's box office receipts surged 66% that month to $189 million.
That number should rise further as more theaters open -- 98% of EPR's theater tenants had reopened by late May -- and major movie releases accelerate in the second half of the year. That should enable theater tenants to catch up on their rent.
Meanwhile, many of its tenants have grown stronger despite the pandemic. Top tenant AMC Theaters (NYSE: AMC) found itself caught up in the meme stock craze. That enabled the struggling theater operator to raise cash, putting it in a stronger position to pay rent.
ERP Properties has maintained a solid financial profile during the pandemic, giving it the flexibility to go shopping for more experiential real estate. With rent collections rising, EPR Properties should reinstate its dividend later this year, which could provide another boost to its stock price.
Well-positioned for the travel rebound
Host Hotel & Resorts is the largest lodging REIT in the country. Like most hotel REITs, it experienced significant headwinds from the pandemic as occupancy and RevPAR plunged. However, its operating results have been steadily improving as people feel more confident to travel. That has enabled the company to reopen nearly all its hotels (81 of 82 were open by mid-May). Further, 30 of them operated at or above break-even during the first quarter.
Those numbers should continue improving this summer as more people travel. One factor driving that view is the company's well-positioned hotel portfolio, which focuses on luxury and upper-upscale hotels in prime locations near restaurants, amenities, and other attractions that will benefit from pent-up demand for leisure travel.
In addition, the company has gone on the offensive by acquiring additional hotels. It purchased the Hyatt Regency Austin for $161 million in Q1 2021 and recently bought the Four Seasons Resort Orlando at Walt Disney World Resort for $610 million. Both hotels should benefit from post-pandemic travel trends, and Austin is one of the hottest markets for relocation and business.
Meanwhile, Disney is benefitting from pent-up demand and will start an 18-month celebration of its 50th anniversary this October. With lots of liquidity remaining even after those deals, the REIT can take advantage of opportunities to acquire additional well-located hotels to further benefit from the recovery in travel.
Well-positioned for the recovery
Demand for travel and entertainment will heat up this summer as people take advantage of a waning pandemic in the U.S., which should benefit REITs focused on these properties, including EPR Properties and Host Hotels & Resorts. That makes them great buys ahead of the summer recovery in demand.