Deidre Woollard: It is two o'clock on the East Coast that means it's Millionacres. That means I get to talk about my favorite thing, real estate, and I get to do it with one of my favorite people, Matt Frankel. How are you Matt?
Matt Frankel: Good. Hopefully, I'm still one of your favorites. I got rushed out of my house this morning so I don't have my headset, you have to deal with me through my laptop microphone.
Deidre Woollard: [laughs] I will be too much of a stickler. Today we're going to talk about Vail Mountain Resorts, which I think is the perfect time of the year to talk about ski season. They also just had earnings. I believe they hit their highest stock price ever last week or the week before.
Matt Frankel: They did, they've roughly doubled since the pandemic rose.
Deidre Woollard: Amazing. Before we do that, I'm going to share my screen if I can find out where I'm sharing my screen to, just a second. Because I want to share just a couple of things. Can you see my screen?
Matt Frankel: Yeah.
Deidre Woollard: All right. I want to share a couple of things from this month, National Association of Realtors, commercial real estate report just quickly. Just do some interesting scene setting here. It's a free report and this year for REITs, you're a REITs guy. This is some great stuff here. The bounce back on retail I expected, but the fact that self-storage is that high is really interesting to me.
Matt Frankel: Well, you're sitting here on the interview yesterday when I talked to Agenus International's CFO, they make the prefab buildings for self-storage industry. No wonder he said that, this is doing so well after I look at this chart. It's sectors that you would normally think of as boring. It seem to be leading the charge like you said self-storage. I mean, there are a few properties that are more boring to look at that than a self-storage building.
Deidre Woollard: Right.
Matt Frankel: Apartments are considered slow and steady rental properties. Any retails not so much. The top two are properties most people think of as boring investments. Absolutely. Retail has bounced back. Industrials is not a surprise. Infrastructure is probably not a surprise as well, but interesting to see how this has shaken out. You still see lodging and resorts way down there towards the bottom right next to office. You see that the last quadrant there is definitely the ones that are still coming out of the pandemic a bit. Offices is so weird, but I want to go on to talk a little bit about office. First of all, I want to show this, which is this is building data from NARs via CoStar and you see the trends. What's being built? Multifamily? Office is starting to fall. Industrial is just crazy and retail is also down as well.
Matt Frankel: Industrial is e-commerce.
Deidre Woollard: Yes, exactly.
Matt Frankel: At this point, I think we should call industrial real estate e-commerce real estate.
Deidre Woollard: Yeah.
Matt Frankel: Because that's really what it's correlated to.
Deidre Woollard: Well, I think that's an interesting thing because I've been talking to different people about that. Because there's industrial, which is the larger umbrella term, but then you've got manufacturing, you've got logistics, and it's really logistics that's moving. I feel like when we talk about industrial, we are talking about e-commerce, logistics, mobile commerce, all of that rather than just what we used to think up as industrial.
Matt Frankel: I mean, you got to figure out every time they build a new property for Amazon, it's adding five million square feet of a total. I don't know if you've seen one of those buildings, they're the size of seven football fields. [laughs]
Deidre Woollard: They're huge. My mother lives near Port St. Lucie, Florida and they're going leaps and bounds there, if Amazon is going to build I think it's a 100 new industrial facilities. They're trying to get them done before the holidays. Part of that is just the supply-chain thing is just messing everyone up. You've got, I don't know the latest total of how many ships there are up the Port of Long Beach, but it was over 50 for a while. Nobody can find a shipping container and so their shipping containers are suddenly very valuable because they're all sitting on ships and they can't be unloaded, so they can't be reused. Part of the ways that companies are trying to solve this industrial problem is that they want to have more places to have stuff near them just so that they don't have to be waiting on something to arrive from another country and sit there in a port for months.
Matt Frankel: If you look at the other three categories on the chart, I can make a solid case that all of them had a lot of overbuilding going on before the pandemic.
Deidre Woollard: Good point. Yeah.
Matt Frankel: That's not the case in industrial. I mean, look at where the industrial bars were in like 2019, 2020, they were lower than office and multi-family in terms of how much percentage you are adding to this total square footage. Office was definitely being a little bit overgo, which is why you were starting to see office headwinds before the pandemic. Everyone likes to remind me how Empire State was one of our worst performing stocks before COVID hit, and there was a reason for that is because the office market, especially in cities was facing these oversupply headwinds a little bit before the pandemic, same with multifamily. Avalon Bay and Equity Residential, their occupancy rates were not phenomenal before the pandemic. But industrial supply never overtook demand. Which is really what you're seeing play out now and now with the supply chain issues like you mentioned. Now, you're seeing it trying to sprint to go a little exponential toward the end there.
Deidre Woollard: You and I've talked before about some of the forecasts from JLL and CBRE and some of the other biggies that are forecasting, we need a billion square feet by 2025. There's almost no fear that you can overbuild in industrial right now because the demand is so big.
Matt Frankel: With some of them, not industrial. Industrial's generally a material light type of property. They're essentially prefab buildings in most cases. Whereas the supplies you need to go in multifamily are in short supply right now, in office and the labor you need to go those types of properties are in short supply. I'm purposely excluding retail from the discussion because that is a big demand. Multifamily, I'm not so sure if it's much of a demand issue because there are a lot of markets that are growing in there is demand. The several REITs, there's huge demand for a multifamily housing where I am, but there's a labor shortage right now. There is a material shortage. I'm pretty sure that lumber prices have come down to earth, I haven't been to a Home Depot recently. But I'm pretty sure they're not what they were. [laughs]
Deidre Woollard: They have come down to earth, but still steel is really expensive. That's been one of the headwinds for industrial is that steel prices are actually pretty high right now.
Matt Frankel: It's a west labor-intensive for real estate so that helps.
Deidre Woollard: Yeah, definitely. You just mentioned the Sunbelt. This chart it just cracked me up. I never thought I would see a map that says top office markets of the third quarter of any year that I would see Boise, Omaha, Provo, Daytona Beach. This is just hilarious to me, but it reflects what the impact of migration, remote work, people seeking more affordable housing has really done to the country and the ways that it's remaking it because people are moving to places. They're working remotely or they're starting companies, and there's not actually enough office space in some of the places that we never really thought we need a lot of office space.
Matt Frankel: One thing to point out just from looking at that chart, a lot of it doesn't surprise me and I'll tell you why. You remember about six, seven months ago, all of these companies started leaving California?
Deidre Woollard: Oh, yeah.
Matt Frankel: Where did they go? Texas and Florida.
Deidre Woollard: Boise, oddly enough.
Matt Frankel: Boise, but a lot of them went to Texas. I want to say a bunch of big tech companies relocated to the Texas markets.
Deidre Woollard: Yeah, also through the Packard. Yeah, there's a lot of movement.
Matt Frankel: Right, there's at least one that went to Miami. I'm not sure the name right at the top of my head but I know at least one went to the Miami area. But the point is a lot of companies are leaving these higher-cost areas. California is an expensive place to have a business. Same with New York and New Jersey and those areas for that matter. Where they are going? They're going to places like Florida where their employees don't have base state income tax, it's a big draw for an employee, and the same in Texas, there's no state income tax on the individual level. It just more business friendly markets, easier to attract employees, and a lot of educated people to join the workforce. I'm not terribly surprised to see those. Myrtle Beach, South Carolina really stands out to be as a head scratcher there. Because I've been to Myrtle Beach many times. It's about two hours from my house. I'm not sure I've seen an office buildings. [laughs]
Deidre Woollard: That may be why they need one. [laughs]
Matt Frankel: I'm sure there are there, I just didn't notice, I go there for the beach. That's the head scratch we need. Tennessee, I know it's a big growth markets as well. A lot of population flowing in to Tennessee right now.
Deidre Woollard: One of the things I find fascinating is that the California movement has been different than it used to be. It used to be, you'd get like Portland, Oregon used to be where people would go up. Now that people are moving to Phoenix. Phoenix has had an incredible year. They're moving to some extent to Nevada, but they're also moving to Texas. They're moving south and then a lot of the Florida activity is coming from the Northeast in particularly from New York. You've got these from either coast people they are converging on the south in a way that they didn't used to in the same way.
Matt Frankel: Companies, they not only want lower taxes, that was a big California thing. I know that Elon Musk said that he wanted somewhere that had comparable weather to California, which was a big factor in Texas. You're also seeing people want to spread out. People are valuing their space more than ever before. That's a big thing in Florida. Florida has a lot of room to spread out especially when you're coming from Manhattan. You're seeing that is a draw there, its nice weather, lower taxes, more room to spread out. People can be homeowners, whereas in New York, that's not always possible. There are nice markets to attract employees, and there are nice markets to run your company in a more economical way. Like I said, I'm not surprised by those. There are a couple on that map that have me scratching my head, but those aren't them.
Deidre Woollard: That's a good point. I wanted to share this next. This was a survey from NAR. The thing that I found interesting about this is when I look at the numbers between 2020, the Q3 of 2020, and Q2 of 2021. This is a survey of commercial real estate agents and what they're seeing. It shows me that there is a bigger return to normal, I think than is being reported. I think that we're all spending so much time on what has changed. We're not necessarily spending as much time on what may not change. Some of the things that I found interesting on this were the number of respondents that saw headquarters was satellite offices dropped a little bit, working from home and staggered schedule dropped quite a bit. What I'm wondering is if some of what we've talked about, about remote work and everything like that, is some of it being over hyped? I think the media does this. The media reports the most interesting stories, but doesn't necessarily report what the data tends to show. I'm interested in what you think about this.
Matt Frankel: If only someone had been saying we weren't all going to be working remotely.
Deidre Woollard: Some wise friend of mine.
Matt Frankel: [laughs] You're not seeing it from a zero. Look at the working from home or the staggered office work schedules, that went down 83 percent. We're seeing it in the third quarter and now it's 70 percent. What you're seeing is these trends aren't as to the extent that it was reported. It was being reported that everyone's going to work from home forever and ever. Now in 2021, you're really seeing, especially when you look at those two time periods. One had vaccines and one didn't, that's the big thing.
Deidre Woollard: Yes.
Matt Frankel: The vaccines weren't even in the third quarter of 2020. Now you're seeing companies try to return to the office. It's being delayed pretty much every big company that announced their return to the office, even the aggressive ones like the banks have delayed their return to the office. But you're seeing people want to go to work. You're seeing people have a clear end game is a difference now as it was in 2020. Now people say, okay, eventually I want to be able to go to the office. Not going to happen right now, but eventually, I want to. It was a lot more uncertain, I think is really the word. It was a lot more uncertain in 2020, and now it's, we're going to be able to get back to normal life at some point. It is the way I feel like people think about it now.
Deidre Woollard: Yeah, that's true, and I think that's a nice segue into talking about Vail Resorts because they're hoping this remote work thing lasts a little longer just so that people keep skiing. I think one of the things that is interesting when you look at this is a map of where they have all of their resorts. One of the things that they talk about a lot in their earnings and their investor presentations is how they've got that nice Northeast cluster and how so many people can reach all of those resorts within driving distance, which I think has been pretty good for them as we reset and they're looking forward this year to having what seems to be an almost normal year. Last year, not quite a normal year. This year, it seems like they're still expecting maybe some of the ancillary businesses will be a little bit slower. But mostly in the US, they feel like they're getting pretty close to having a normalcy season.
Matt Frankel: Those drivable properties were really the key.
Deidre Woollard: Yes.
Matt Frankel: It's happening now more than it was, but it's still not ideal. Planes are being canceled a lot, there's been a labor shortage in the airlines. I'm on the East Coast, it's tough for me to go to Colorado, even if I wanted to. Not to mention, I don't really have a reason to right now because there's no office things happening over here. You're seeing a big difference in companies that have drivable assets versus companies that are just trying to pours like long distance towards your deep ends. I feel like this is a, Ryman's hospitality is another company we talk about with this a lot. Their business got it very hard in 2020 because they generally rely on people traveling long distances to get to those five properties. People fly a long way to go to Gaylord Rockies, for example. They have a property next to Vail Mountain, Gaylord Rockies. They rely on people flying long distances. Companies like Vail, they have the fly to properties, but they also have a lot of too and driving distance like those's Northeast properties which is really their saving grace right now. The people in New York City who just need some air can't just get their car and go to. Same in California, there's California properties. Some of their international properties haven't been doing so great. The business hasn't really rebounded to where it was before the pandemic. But it's a lot closer than you would think, and those drivable properties are a big reason.
Deidre Woollard: Absolutely. The ones that had struggled a little bit, Australia. Their season is the opposite of ours. Australia has been very strict in certain areas with lockdowns. That's impacted them. The other place that really saw a lot of impact that they've talked a lot about is their Whistler resort. Part of that is a lot of that Whistler traffic comes from Japan and China and some of that just isn't coming right now. Not necessarily a long-term concern, the other concern I think about the Whistler Blackcomb property that they talked about out is conferences. Which, speaking of Ryman, that was their business too, is that they had to pivot from conference to leisure travel. The properties that Vail has that are really good day trips, things like that are doing much better than once they're looking at conference activity and things like that, at least for right now.
Matt Frankel: We're going to get into the discussion about how the economics of the assets that they use on one of these next slides. They really use that as a way to get local business in there. Disney World had the strategy down for a long time getting the local business in there because you don't make any more money from admission, but you get a lot more money when they go to restaurants and things like that. The annual passes and the logo passes, especially have really done a nice little pivot on their part. I'm pretty bullish on the return to the office discharge or return to conferences. That might take a little bit longer. I'm not as bullish on that as I once was, I'm still pretty bullish on the office return. Maybe it's because the conference I was going to go into in November just got moved virtual. Supposedly, CES in January is still in-person, and if that happens, I might change my tune on conferences. [laughs] But for the time being, I'm not that optimistic.
Deidre Woollard: Well, let's dive into talking about the passes thing because this is really interesting to me in understanding Vail's fundamentals. It's an industry-wide shift from this idea of like when I was growing up, you go to the ski slope, you get that little paper tickety thing that they'd clip on your parka and off you'd go for the day. Now, for Vail especially, they're doing this massive shift toward passes. It makes sense because it's reliable revenue, obviously, brand loyalty, awesomeness, but it's also more day skied and more of that ancillary revenue. Food and beverage, ski rentals, ski school, things like that. It seems to me like what they've talked about too is that they're really trying to push the lift to passes, and one of the ways they're doing that is by changing up the flexibility of the pass. I think when passes first rolled out, there was one pass and you pay one sum and it got you access to everything and there you go. Now, they've been fine tuning and filtering that so you can get passes depending on your area or depending on weekdays versus weekends or certain things like that that make it more attractive for people.
Matt Frankel: Their Epic Day Pass is one that's really interesting. That one, you get to choose between one and seven days, and it gives you access to all of their resorts. If you want seven days of skiing during the season at assorted Vail Resorts, that's a way to get it. It's not just the season one passes now. The economics to the passes, even if it sounds like they're getting less revenue, my wife and I, we're Disney annual pass holders. The cost of my pass is roughly seven days of admission, that's what I pay for the entire year. If I go 20 days, it might sound like I'm getting 30 days for free, but that's 30 days that I'm going but I otherwise wouldn't, that I'm spending money at the restaurants, buying my kids the new stuffed animal that they want. The same thing applies here. They're not getting any extra admission but there's more people renting skis, taking lessons, spending money at the restaurants, using our hotels. One really genius thing about their annual fest, it gives the holders 20 percent off lodging in rentals. It encourages them to spend money every time they go. It's a strategy that's really starting to work out. As you can see in the chart in front of you, that revenue mix. I want to say in 2021, so far, it's even more than 47 percent pass revenue.
Deidre Woollard: Yeah, it's really interesting. You're right, it really does come down to all of those other things that you do when you're there. It also comes down to this idea that there is that stickiness, there is that brand loyalty that if you're a pass holder and you tell your friends you're pass holder, let's go ski here, it's sticky. People look forward to getting the passes every year. I think that's an important part of it too. This chart shows a more about that past revenue. You can see how they've slowly done it over time. You've got that little bit of that dotted area right there because they have to refund some, they had to give discounts on some of the Epic Day Passes because of the pandemic. But they keep launching different types of passes and they're just seeing that strong number. I mean, it's great to see that kind of revenue as they keep going.
Matt Frankel: You can see under fiscal year 2020 where they launched the Epic Day Pass that I was mentioning.
Deidre Woollard: Yes.
Matt Frankel: I mean, for their revenue to barely be down in 2020, obviously, they had to refund on monthly pass, but revenue really wasn't down that much, and those day passes got a lot to do with it. If you look under fiscal year 2021 where they launched their Epic Mountain Rewards, that's the program where the pass holders get 20 percent off on those adjacent things. That's really boosted revenue. It makes the pass itself more valuable. Our favorite Disney passes is we get discounts on certain things in the park. We get free parking, for example. It makes the pass itself more valuable and it encourages people to spend more money every time they go there. It's really a two-for-one in terms of revenue growth. I'd be very surprised that the pass revenue was significantly higher in 2022, assuming the world achieves a more level of normalcy than it is right now.
Deidre Woollard: On the other thing that you've mentioned too with your Disney passes is it becomes a family thing, it becomes a tradition that your kids expect that you're going to have the pass, that you're going to go to Disney. The same thing happens with skiing. Ski families tend to be ski families. They tend to go year-after-year, the kids expect it. Once it got you into this system, it's so sticky. It's very hard to tell your kids, "No. We're not going to go skiing this year." What?
Matt Frankel: I'm not a big skier but I can tell you that very few businesses have the kind of pricing power that Disney does. I imagine it's similar economics because like you said, you renew them every year. If you go skiing every year, five or six days out of the year, your kids are going to want to do that every year. It's a very sticky type of revenue, it gives them a lot of pricing power. They could raise the prices of those passes faster than inflation, which is a pretty nice recipe for growth every time.
Deidre Woollard: That's like this chart which is from their investor presentation earlier this year and talking about that value over time is you get the renewal rate because they're more likely to renew as time goes on, they're more likely to keep spending money. All of that really adds up to lifetime customer value which is really important to Vail is that they're trying to get new skiers, of course, and introduce more people to skiing and snowboarding, but a lot of their revenue and a lot of their success comes down to getting the most value out of not having to get a new customer but keeping that same customer year-over-year.
Matt Frankel: I'm actually surprised, the renewal rates there are more. I think this is a conservative estimate. They're expecting 50 percent renewal in year two. I think it would be a lot more than that. Like you said, people expect to do the same things every year. Unless the prices go up significantly, I really don't see renewals being that low. I think that's a very conservative estimate of what their value is going to worth.
Deidre Woollard: That makes sense. I'm going to stop sharing for a second. Let's go over some of the earnings because they had a strong quarter.
Matt Frankel: Hold on, where did that thing go? I lost my whole screen right there. There we go. The earnings look pretty good year-over-year. Just to put things in perspective, it's not back to where it was pre-pandemic yet. A lot of real estate businesses we talked about are back to their pre-pandemic revenue, essentially, especially ones that rely on rentals income. That's not really the case here, just to throw some numbers. In fiscal year 2019, which was the last full fiscal year before the pandemic, net income was just over $300 billion. In fiscal 2021, it was $128 billion. That income's down significantly. EBITDA is down about 20 percent from pre-pandemic levels. It's just expected to get back a little bit over pre-pandemic levels in 2022. The things that I was most encouraged about far from their earnings is how much they're investing in their properties, one, because that's one of the big things they pumped the brakes on when COVID really started. It just shows it's confidence, number one, they're able to spend that money, which I don't know why they wouldn't be. They're a very cash-rich business by the way. Vail has $1.2 billion in cash on the balance sheet right now and another 600 million or so of borrowing capacity. I'm not surprised they're comfortable spending that much, but that is the most capital spending they're doing in a single year to date. The idea is to add value to their properties that make those passes valuable. At the end of the day, it's all about the passes, trying to improve the customer experience. I know a big thing we're focusing on are the REITs. I guess that I'm not a big skier of what Matt Argersinger says, that the REITs are the biggest consumer pain point as ski resorts in a lot of places. They are trying to really work that out and have the best in the industry. The term best in the industry really has described Vail's properties for the most part. They're really doubling down on creating the best customer experience and maintaining the best customer experience. That should translate into revenue. But out of their earnings, like I said, they're not quite back to pre-pandemic levels, but the fact that they are willing to spend that much money on their properties and really improve their operations right now when a lot of their competitors are not doing that was probably the most encouraging part for me.
Deidre Woollard: I'd agree with that. The capital plans for 2022, it's 350 million to 325, which is around 150 million above, which is pretty amazing. They're expanding in Beaver Creek, they're putting new REITs in Breckenridge, they're doing some upgrades at Okemo, basically throwing 19 newer replacement REITs at 14 resorts. Matt Argersinger's pain point there is definitely going to be shifting at some of these resorts.
Matt Frankel: My whole point when I brought Merrill onto our attention on the Millionacres team was that this is a business that's naturally conducive to social distancing. Matt quickly stopped me and said, "Except at the lifts where all the crowds buildup." It could also be applied on social distancing quite too that to have better and more efficient lifts, get more people in the door even if social distancing is the last thing of the year or two.
Deidre Woollard: True. Another thing, the earnings, the dividend is back, right?
Matt Frankel: Yeah. About half, right?
Deidre Woollard: Yes. Cash dividend of 88 cents a share starting in October. That's 50 percent of pre-pandemic levels.
Matt Frankel: Just like the spending, it conveys confidence really. You saw the stock prop after earnings a little bit, just hit a record high. A lot of that is because of the confidence the company is conveying. It's not necessarily because of the results in this past quarter, which were okay. The confidence in bringing the dividend back when a lot of people didn't think they were going to do. the spending, caught a lot of people by surprise. The dividend is not what it was, but they're saying, "Okay, we feel confident spending this money and giving money back to shareholders and we are going to be an income stock in the future." It's a confidence boost.
Deidre Woollard: Well, they also announced that they're exiting the temporary waiver period under the Vail Holdings Credit Agreement. That's also another sign that they're feeling more confident too, right?
Matt Frankel: Yeah. I think that was one of the conditions of the waiver agreement, is that they couldn't pay a dividend. We saw something similar with EPR, which is actually one of their land points. [laughs] Remember EPR owns a lot of their properties and they just started paying dividend again because they waive their credit debt, their credit modification agreement or whatever it's called. It's a big step in the right direction. Even though the business isn't back where it was, they're saying it's going to get there sooner rather than later.
Deidre Woollard: They issued guidance, which is also a sign that they're feeling more confident about what may happen, that there's less of an uncertainty. The guidance is net income between 278 and 349 million for fiscal 2022. They believe that the resort reported EBITDA for fiscal 2022 will be between 785 million and 835 million.
Matt Frankel: That's actually a big bump from pre-pandemic levels.
Deidre Woollard: Nice. I feel like they're still saying that the recovery at Whistler is going to be slower. That's something that they are looking at. But overall, they feel pretty strong. They're still reporting or forecasting a first-quarter net loss in 2022 of between 156 and 136 million.
Matt Frankel: I don't pay that much attention to their bottom line numbers. They have a lot of real estate operations, so it dilute net income a little bit. They operate in three business segments, and one of them is real estate development. That one has a lot of depreciation and things like that attached to it.
Deidre Woollard: They are not a REIT.
Matt Frankel: They're not a REITs, so they don't report FFO. But it does still have the same effect of distorting net income when you own that much real estate like they do.
Deidre Woollard: Let's talk about some of the things that make us excited about Vail. I think for me one of the things that they talked about that I find really interesting is the past economics and all of that data. I feel like they're getting smarter and smarter about every single customer. The past allows them to really hone in on who spends what, where they do it, how they do it, how to get them to spend more. I think that's one of the things that they're being so smart about, is you're taking this experience that's not traditionally data heavy and then you've layered data on it, you get so much smarter. Part of what they're doing with using that data is they're learning what they can centralize and what they can integrate so that they reduce their cost overtime. I think that's really interesting and a smart move as well.
Matt Frankel: Another key point you have to remember, it's not just about increasing revenue, that's definitely part of it, getting people to spend more at restaurants and things like that. With passes its recurring revenue and predictability. As you just mentioned with the data, it's not just about ASP price that are renewals and things like that, it's being able to predict how much restaurant revenue you're going to get by lowering your ASP price or something to that effect. If I give a 20 percent discount on restaurant revenue, how much is that going to translate into predictable recurring income? Recurring income is very valuable, especially if you're a real estate type of company. I would take a billion dollars of predictable revenue over 1.2 that could go like this [laughs] year-after-year. It creates recurring revenue, which is the whole investment thesis behind the software-as-a-service business that everyone loves so much. It's recurring revenue subscription model and it really transforms the dynamics of their economics.
Deidre Woollard: Absolutely. Talking about those capital expenditures, more lifts means more capacity they are really able to use, because they can see that revenue, they can see that it's going to come. There is that predictability of renewal. You can spend that money and think, well, I'm going to increase capacity in these areas because we've seen more traffic there and things like that. All of that leads to smarter deployment of capital. Then the other thing that's really fascinating to me is the way that they talked about relationship with other countries, specifically with China and Japan, and that connection with Whistler and also their existing partnerships with two resorts in Japan. It's clear that they're happy with their US business, but they're also looking to continue to expand beyond what they've already got going on in Australia and in Canada.
Matt Frankel: Speaking of international, this is related with that. Starting in November, you're going to see European tourists being able to really come back to the US in large numbers. They released a lot of those restrictions and that's a lot of bales business than has been lost due to the pandemic. It's not just that people can't fly across the country, it's that a lot of their business is European in nature, and you're going to see that really starting to come back in the winter months, which I think was another reason you saw the stock get a big boost. It's because international travel's come back. I know that's great for Florida tourism too, being a DC guy, but it's really good for the skiing industry. I don't know the exact numbers, but I know it's the European clientele especially is a big part of Vail Mountain's typical customer base.
Deidre Woollard: Absolutely. Let's talk about some of the challenges. I think one of the biggest ones is, one of the challenges that's affecting hospitality as a whole. That's wages, being able to hire people. The other issues that you have together with that, me I'm a housing nerd, housing in ski areas has been a concern for so long. It's so hard to find places, especially Vail, Aspen, places like that. There's just not enough housing. I think it was in Aspen that they were trying to do tiny houses for people but for the season. It's a huge issue and it's something that Vail has talked about a bit.
Matt Frankel: Yes. It's a big problem that needs to be solved. I don't know the correct answer to it. I would like to see them start to build some employee housing, I'd be surprised if they don't have some already, but that's usually an answer in high-cost areas. I used to live in Key West, Florida where it's very expensive to live. A lot of the hotels they found workers by offering them workforce housing. They would convert an older wing of their hotel into essentially dorms and house people for free. I don't know what the answer is, but it's definitely a problem and it's getting worse. In the past year or so, it has gotten a lot worse. I don't know if you know off the top of your head how much fuel prices have increased in Colorado. But it's been one of the better performing markets in the year. It's not only a problem, but it's becoming worse over time.
Deidre Woollard: Well, that part of that too is the resort markets disproportionately had price increases last year, both in rentals and in home sales because remote work, everybody was like, hey, I want to go there. But why not? That was a concern. It's starting to slow down, but it's still a concern. One of the other things that is an ongoing concern is that Vail has announced that there are vaccination requirements and they are going to acquire mass indoors around food and beverage and things like that at the resorts. It shouldn't be a huge drag because most of the time people are outdoors, they're skiing and snowboarding and enjoying the mountains, so you've got that. But there's still is going to be that masking indoors, could drag down some of the food and beverage and that's one thing that may be a short-term concern.
Matt Frankel: Yeah, They said that COVID is going to be having an effect on the business for the foreseeable future. What that means, we don't know. I don't want to get into the weeds on vaccination requirements and things like that. But I really don't see it being that much of an issue prevails business. I mentioned European travels, they have to show vaccine cards to get on the airplane to come, so I really don't think it will be that much of an issue for international tourists who want to go to Vail's properties. It's going to cost them some business, but whether it's really going to affect their business, I'm not sure. The masks might hurt the restaurants. I think that's the top concern. I don't think the vaccines are the top concern when it comes to your business-wise. Masks might have something to do with it. I know I find it less convenient to go into a restaurant, especially with my little kids [laughs]. Not necessarily for me, I don't mind putting mask on, my three-year-old does. I can see that being an issue especially with families. They might say, okay, we'll eat in our room. It's going to be an effect, and it really remains to be seen how long. I've heard 500 different predictions on when the pandemic is going to end, and taper down and things like that, and they've all been wrong. Some have come from me, some have come from other people, we've all been wrong. I don't want to pretend to have a crystal ball to tell you what the effects are going to be long-term. But it's definitely going to have some effect and keep the business at somewhat below a normal level. This key season. I think I can defeat it if we say.
Deidre Woollard: I would agree with that. The other challenge that is still a wildcard is that Caldor fire in the Lake Tahoe area, it has started to affect some of the resorts. They still haven't put that thing out there. It's far too soon to know exactly how much that's going to really impact things, but that's one more challenge that they're dealing with.
Matt Frankel: Yeah. Are those the big resort out there, the ones that fire is impacting?
Deidre Woollard: It's around Tahoe, I think it is one of the bigger resorts. I'm not entirely certain.
Matt Frankel: One statistic that I wanted to mention before I forget, Vail owns roughly two percent of North America's ski resorts. They get 17 percent of North America ski visitors, that's how populate their properties are. I don't know those particularly properties how much of their businesses comes from there. I know their business is top heavy meaning a few resorts are wildly popular and account for a lot their business. The fires out there, it's a concern. It's something to keep an eye on. I don't think it's going to have a devastating impact on this ski season, but it's definitely something to keep a look out on.
Deidre Woollard: Absolutely. You mentioned that the top that they do, they acquire top resorts. The question I think now too, that's really exciting to think about is, where are they going to go next? Because one of the things that as you track the ski industry, I think I feel like I say this about every industry, but the individual resorts, there is a landlord aging factor even in resorts. I mean, biggest example might be Robert Redford selling off so much of Sundance and things like that. There is that natural transition that's going to happen. I think that Vail may be in a position; solid balance sheet, ability to acquire great credit, that they may look to add some more things and one of things I think they understand is that they need to flesh out their western side a little bit because they're really strong in the Northeast, but I think there's some opportunities for them on the west.
Matt Frankel: I would say drivability is the key. They want to target like, when driving distance of Seattle, for example. You mentioned, the west. That could be something that someone that lives there can easily drive through. Drivability is a really big factor and they have the destination resorts. I don't really see them adding to their Colorado portfolio that much right now. I don't see that being the big focus. I think the focus is going to be these regional resorts. Like you said, they can send to build out the Western portfolio a little bit. What do you think about international expansion? Do you think they are going to focus on that or do you think that the pandemic just scared them away from that for the time being?
Deidre Woollard: I don't think so because they sounded so bullish about Japan and about China. I think they feel that the next big wave of skiers is going to come from China and Japan. I think I wouldn't be surprised to see them actually try that. I mean, I know the Australia acquisitions haven't quite worked out for them yet, but I feel like that's so much more of a pandemic problem than an operational problem.
Matt Frankel: For sure. Who wants to get on a plane and have to wear masks for a day-and-a-half or however long it gets to Australia from here to [laughs] there. I can see them maybe doing something in Europe at some point. People ski in Europe that's for a lot of bills.That's where the American clients now come from, they fly in Europe. I can see them eventually working out there. I think that could be an interesting growth area for them. I think the regional resorts are really where they're going to try to find the most growth.
Deidre Woollard: I think that's true. Let's talk about the leadership shift because that's a big thing for Vail. They've had the same CEO since 2006, Rob Katz he joined the board in 1996. Their new CEO is Kirsten Lynch who is their former CMO. She joined the company in 2011. She was formerly at PepsiCo and Kraft Foods. She is on the board at Stitch Fix. She is a long-time skier. I think she grew up outside of Chicago, she's now based in Boulder. The company is making that transition, I believe at the start of November, it's a big shift. He has been there a long time but he is definitely putting in someone who's also been there a long time so it shouldn't be a huge transition.
Matt Frankel: He's actually been there longer, he joined the company in '91.
Deidre Woollard: Really? Wow.
Matt Frankel: He's leaving some big shoes to fill.
Deidre Woollard: Yeah.
Matt Frankel: If you look at their performance stats in his tenure since he became CEO in February 2006, 1270 percent total return. [laughs] That's about 90 percent annualized returns for shareholders in his 15-year tenure. That's pretty big shoes to fill.
Deidre Woollard: Yeah.
Matt Frankel: Parts of my investment is he's heavily invested. He owns almost two percent of the company. It's not a REITs, so you see a lot of insiders owning a little more of the company. With a REITs, that's not as practical that he owns almost two percent of the company and has delivered. He's made himself a very rich man and his shareholders over the years. I like the hire, I love when they hire from within, especially someone who the CEO has worked with and create room for the position I guess, you'd say. I like that but he's leaving some big shoes to fill.
Deidre Woollard: He's not leaving the board or anything. He's sticking around I'm assuming at least for a while.
Matt Frankel: If she produces 12 extra returns in the next 15 years, I think everyone will like her just as much.
Deidre Woollard: [laughs] Well, of course, we all love the winner. One last thing I want to talk about with Vail is they just announced this at the same time right after earnings, as they announced that they've got a deal with Toyota which I think is, branded deals are branded deals, whatever. But I think it's interesting because actually part of the partnership is that they've got the Toyota Race Center at Beaver Creek. They're putting in terrain park features at Park City, Mountain Snow, they're putting in bike park features at Crested Butte and Northstar. They're bringing in courtesy vehicles. It's a little bit of branding play but it also seems to be a pretty heavy one. The whole mountain operations team is getting those Toyota four-wheel-drive vehicles, so it's a pretty big partnership.
Matt Frankel: Yeah. Anything that adds value to their property is definitely good and if it's a branding play then, so be it. It reminds me of the GM Disney partnership. I keep mentioning Disney but it's got a lot of parallels to Vail.
Deidre Woollard: Absolutely, yeah.
Matt Frankel: They partnered with GM to develop the test track ride at Disney World, and that's the test track by GM. It's been a big hit for both companies. It gives GM ways to show off their good products. When we get off the ride now there's one of their new Corvettes sitting there for example. It's a win-win situation for both. It leverages the expertise of play over there. I think they're doing courtesy vehicles things like that for Vail as well. It leverages their expertise and enhances the customer experience, and it exposes more people to Toyota's products and things like that could be a win-win. I don't think it's going to be a massive needle-mover, there's just an incremental value added to their properties.
Deidre Woollard: Yeah, I would agree with that. I've got a question from Brandon who says, "I live close to Whistler and I know Whistler is a popular Summer destination for hiking, band biking, lake activities. Is Vail able to monetize summers in its resort without selling ski passes?" I know that they do have things going on during the summer, but they don't put passes or anything like that. It doesn't seem like they see it as a huge part of their business.
Matt Frankel: I know our last writer's conference was at Vail Mountain during the off-season.
Deidre Woollard: Was it? How was that like?
Matt Frankel: It was nice. There was no snow, but there were things to do. There was still a lot going on in town, and it was a craft beer festival going on while we were there. They find ways to monetize. I don't know if in top of my head had any of Vail's properties have year-round snow. I know there are very few in the US that do, but I know that there were no shortage of people there I can tell you that much, and we were there at the off-season. They do monetize its resorts during the summer like food and beverage is a big one. In a two-day conference, we ate at three different restaurants at Vail Mountain, [laughs] so they do monetize in those ways.
Deidre Woollard: Some resorts I know will put in little rides and things like that make it more fun to go up there for the kids and things like that. From what I've seen in terms of their revenue, it's not something that they focus on as much. Most of the revenue comes from ski season.
Matt Frankel: I know that the mountain pass or whatever, they're rewards that I've mentioned, that 20 percent discount. A lot of places it's good during the Summer season, so they entice people with 20 percent off their hotel room and 20 percent off food if you're a pass holder. The pass holder still go there to get a nice discount on a good meal and things like that, even if it's not ski season.
Deidre Woollard: That's an interesting point too is that may end up being something that becomes more important as time goes on for the value of those passes. I think that could be something that does become interesting if you know that you can go there during the summer and you can get that discount, maybe you go there versus going somewhere else. That's one of the reasons I just love this, is that idea of that customer sticking his customer loyalty. They feel like they want to go there, they go there in the winter all the time, it's like, oh, we should go in the summer and see what it's like and all of that feeds on itself.
Matt Frankel: One thing I can say about Vail is it has 37 resorts. There are 290 retail and rental locations, so retail stores, things like that. There are 215 dining venues throughout its 37 resorts. That gives it a lot of room to monetize without skiing. When they bring in little conference groups like ours was and things like that, and it gives you a nice revenue stream that doesn't depend on your core business. Because not everyone skis, I don't ski, but I like to eat. [laughs]
Deidre Woollard: Let's go through some of the questions. Lisa mentions that she's going to a conference in Houston next week. Definitely, still seeing conferences. Here in DC this week there was the National Association of Business Economists. They had just had their conference, they are doing a hybrid, which I think so many conferences are doing right now.
Matt Frankel: Yeah. I was disappointed that NARI went totally virtual for their November conference. I get it. The one the week before that, I normally go to this Money20/20 and they're still having their conference in the same venue a week before, so I don't know why NARI decided to pull the plug on it. But it was disappointing. I haven't been to one of those in four years.
Deidre Woollard: I believe the National Association of Realtors is doing theirs live in San Diego, I believe that is at the start of November usually. It's interesting because it's just such a company-specific decision and so much of the decision-making is speculative and so depending on how comfortable someone in charge feels about it, that is how it goes. It seems a little less fact-based and a little more intuitive than I would say than earlier in the pandemic.
Matt Frankel: Yeah, I'd say that's fair. A lot of it depends on who's putting on the conference. NARI is based in New York I know and a lot of that represented are based in New York and there aren't really a lot of big meetings happening in New York yet. A lot of offices are still closed there in contrast to other places around the country so that might have played into the decision somewhat. I know CES is a more California-based play, so the attitude just seems to be a little bit different when it comes to who's putting on the show.
Deidre Woollard: I was in New York City this weekend. New York is back-ish in terms of tourism, in terms of people on the street. Times Square seems to be relatively busy. It's coming back.
Matt Frankel: Not in terms of going to the office.
Deidre Woollard: Not in terms of going to the office. I think we're still around under a third of people are back in the office in New York City.
Matt Frankel: I'm in an office right now, that's not a thing in New York.
Deidre Woollard: Not a thing in New York, not quite a thing in San Francisco, but most other places, much more of a thing. I want to read this comment from Dwight Schrute who says, although there are big businesses leaving California, the number of startups here is two times that of Texas and Florida. Part of that may be California's attraction for new immigrants to the U.S. I wish more companies would leaves so our housing prices [laughs] can come down, but I think the whole leave California movement is overblown. Yeah, housing prices. The housing prices in California are just out of control. I mean, we've got a median price that's just really unsustainable. You started to see rents go down in San Francisco during the pandemic, that did not last that long. But he does make a good point. I recently interviewed the CEO of Urban Catalyst. It's an opportunity zone fund that they are building in San Jose, and they're still seeing so much startup activity and so there is still that idea that if you want to build a tech company, you want to build a startup, you have to go to Silicon Valley, you have to go to Sand Hill Road, you have to do that. That's where the money is. There is still that. It's shifting. I think it's more easy to get money remotely. You don't necessarily have to be there anymore, but it's a work in progress, I think.
Matt Frankel: Well, that gives me a good question to ask when I interview Howard Hughes' CEO tomorrow because their biggest market is Texas.
Deidre Woollard: Yes.
Matt Frankel: I would see how its the same because they've a lot of office properties. Occidental Petroleum is one of their big tenants. They have a lot of office buildings in the Woodlands, that's their community. I'll ask him and see what the company migration friends are when it comes to Texas.
Deidre Woollard: That's in Houston, right?
Matt Frankel: Yeah, they are in Houston.
Deidre Woollard: Houston is an interesting one for me because you would think that oil and all of that is a shifting economy but I'm also hearing about lots of companies moving to Houston too, so I'm not completely convinced it's a one-industry town.
Matt Frankel: I'll have to ask because they're in some markets that are lower-cost base weather like I would call them like Houston, like Las Vegas is their second biggest work, the Summerlin neighborhood near Las Vegas, and there's a seaport in New York so they can come in a lot of those trends that you've seen people go from one place to another.
Deidre Woollard: Well, that actually makes me want to ask you something which is about that Cosmopolitan deal with Blackstone. You mentioned Las Vegas. One of the things that you and I have seen is Las Vegas tourism has been back. Everybody seems to be just fine with going to Vegas. Conferences, you mentioned CES. Maybe we'll [laughs] get that one back, but there's been some activity on the Vegas Strip lately in terms of buying and selling.
Matt Frankel: The owner of the Cosmopolitan is Blackstone. They bought it as a distressed property a while ago while it was still being developed and they've been announcing we're trying to sell it. It was one of the few independent casinos on the Strip. Pretty much everything on the Strip is operated by one of three companies; MGM Resorts, Caesars Entertainment or Las Vegas Sands, which is Venetian, Palazzo, and then there is Wynn Resorts, a few are further down the Strip. But Cosmopolitan is right in the middle of a bunch of MGM and Caesars properties. So it didn't make sense for Caesars or MGM to acquire the building. That's a very asset-heavy purchase. It's one of those valuable properties, if not the most valuable on the Strip. Blackstone wanted over five billion dollars for it, that wasn't going to happen. Quite frankly, it's not worth that right now. They ended up selling the building they announced afterwards. They're selling the building for four billion dollars to an investment group partially composed of Blackstone itself, [laughs] and they're selling their business operations to MGM, which makes sense because MGM's two most valuable properties in Las Vegas right now are the Bellagio where the big fountains are and things like that and the ARIA. Right in the middle of those two is the Cosmopolitan. Now, they have the three in a row, and it gives them dominance over that little area of the Strip. It definitely makes sense of the strategic acquisition. Cosmopolitan is specifically designed for the younger crowd. I feel like the old guy when I go to the Cosmopolitan. That's not the case in a lot of other places in Vegas, where I still feel very young, at a lot of places. But in the Cosmopolitan, I feel like the old guy because it's a millennial-oriented hotel. Very much so. I'd say the 25-30 crowd is really a sweet spot for that place right now. It brings that demographic into the MGM ecosystem where that's an area they were severely lagging. Their property, they're nice, I mentioned Bellagio and the ARIA are built for the 40 and older crowd. They are very nice, but they are built for the older crowd. Which is probably why I feel so comfortable in those places. But this brings a whole new demographic, and if that happens, if it brings that new demographic into MGM's ecosystem, then it could be a price well paid.
Deidre Woollard: Well, of course, because you've got loyalty programs and everything else that's been along from that, which brings us back to as we wrap up, just talking about Vegas, isn't that just similar from talking about ski resorts because it's the same economics of getting people to return, monetizing them through the other things that they spend money on and building that brand loyalty, which is really what it's all about.