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The Millionacres Hour: Hospitality REITs with Matt Argersinger

In this conversation from March 31, 2021 on The Motley Fool Live, Matt Argersinger shares the latest on hospitality REITs and the impact of vaccines on the hotel and travel industry.

Transcript

Deidre Woollard: We are here for the Millionacres Hour, every Tuesday at 2:00 PM Eastern Time, we get to talk real estate, my favorite subject. I'm here with Matt Argersinger, our Lead Analyst at Real Estate Winners and Mogul. Today, we're going to talk about Hotel REITs, which is interesting I think right now. I hate to be optimistic at this point, but I'm feeling a little optimistic. How about you, Matt?

Matt Argersinger: I am feeling pretty optimistic too, Deidre. I think we've all been surprised in a good way about how fast the vaccines have rolled out. Early on in the year, it was just, this look botched and slower than everyone was thinking, and now, I think, up to two million potential vaccines a day, it's really accelerating, and so I think that gives a lot of people including us, the optimism that by the second half of 2021, let's hope that everyone's traveling again, staying in hotels, going to concerts, going to conventions, and that's where things have looked like they're heading. That's exciting.

Deidre Woollard: It's true. I don't think that I talked to a person who doesn't have a laundry list of either the places they want to go or the things they want to do or the people they want to see. When you talk about pent-up demand, I feel there's just so much pent-up demand.

Matt Argersinger: Big time. You see some of the projections that have come out recently about the economic output for the United States. I think earlier in the year, we were tracking at a 3-4 percent GDP rate of growth, and now, all the essence have come out that we're going to be close to six or seven percent. A lot of that's due to the stimulus that's coming out too. But I think it's also because people realized the vaccines are out. Presumably, life's going to get back to normal and as you said, there's just so much pent-up demand to do all the things we were doing before the pandemic that we haven't been able to do, and that's exciting. In terms of shopping, traveling, we'll get into it. Yeah, I think there's a lot of pent-up demand. I agree. So good news for everyone, good news for the economy.

Deidre Woollard: Let's start by talking a little bit about REITs because 2020, not the best year for REITs but it seems like this year so far, things are really coming in pretty strong.

Matt Argersinger: Yeah. Let me share my screen and this is always my moment of terror when I try to share my screen and [laughs] it doesn't really work. There we go. Anyway, let's go into it. By the way, there's names at the bottom there, Deidre Woollard, follow us on Twitter. I can guarantee you, Deidre is a much more entertaining follow than I am. I tweet very rarely, and when I do it's usually about comic books or something silly. But yeah, let's talk about year-to-date, Deidre. It's interesting. As of yesterday's market close, now, I know the market's up quite a bit today, so while these numbers are, obviously, changing. But if you look at yesterday's market's close, the S&P 500 which is up about two percent, the Nasdaq-100. We know what's happened there over the last several weeks. We've seen a lot of volatility, a lot of those high-flying growth stocks have been hit pretty hard, so that overall index has come down quite a bit. But then you look at real estate, well, the Vanguard Real Estate ETF, it's the B&Q. I should put the ticker up there, but it's broad measure of the real estate market, lots of REITs in that. It's up 3.2 percent, so outperforming to the other major indices. If you excuse the shameless plug here, Deidre, I love pointing out that our real estate winners recommendations, on average, are up 6.6 percent year-to-date. That's pretty exciting. It's also services really outperforming since inception last September, but off to a really nice start. This is what we were hoping when we saw a lot of those really good valuations coming in in 2021, and certainly, the returns have followed through.

Deidre Woollard: Absolutely. Let's take a look at some of the bad news first because our next slide is a little bit of bad news.

Matt Argersinger: Yeah. Let's talk about some of the bad news. I think we'll show probably one property type within real estate that was hit the hardest by far for obvious reasons. I think you've pulled some excellent data here from STR, Deidre. If you look at the three big metrics for hotel and real estate in particular, occupancy. Occupancy was at 44 percent in 2020. I think that's actually down 33 percentage points. We went from, if I'm reading it correctly, 77 percent occupancy in 2019 to 44 percent occupancy in 2020. That is a huge drop. If you think about the average hotel, it depends a lot on what kind of hotel it is, but the average hotel can't even break even on a cash flow basis until they're at 70 percent, maybe 75 percent occupied. You can see the vast majority of hotels were money-losers in 2020.

Deidre Woollard: Right. That number even brings in the first normal three months of the year. From March of the year, it was even lower. I saw occupancy rates below 30 percent for a lot of the year for some hotels.

Matt Argersinger: Right. Certainly, early on in March/April of last year, gosh, I mean, the hotels are essentially vacant. [laughs] Maybe they had 10 rooms out of 100 booked. It was really tough. Then we look at average daily rate which is your room revenue divided by the rooms that were actually booked, and that was $103. That seems pretty low. It was. It's down 21 percent during the year. Again, really tough. Generally, most hotels, on an average basis, are probably in 130, 140, your luxury hotels are in the 200 range for average daily rates, that all came down, obviously, in 2020. Then your revenue per available room. Now, this takes the daily rate, the ADR times your occupancy. This is even a bigger tale, which is what revenue do they make across the board based on my occupancy. It's not just by average daily rate per room that was actually booked. What was my revenue per available room? Wow, $45. Really tough number there. Cut down by almost 50 percent. Really tough for a lot of hotels to make money in 2020, and of course, we saw the results in the stock market. You look your average hospitality REITs was down 20-30 percent. In the early part of the pandemic, so March/April last year, I saw hotel REITs down 70 or 80 percent in a lot of cases. You could have done some nice bottom fishing there if you were a scrappy investor, despite a big rebound in the latter half of the year, still down probably 30 or 40 percent from their highs in a lot of cases. So tough year.

Deidre Woollard: Just that last stat I thought was amazing for the first time in history, one billion unsold room nights.

Matt Argersinger: Oh, my gosh.

Deidre Woollard: It's been so devastating and there's been a lot of talk about how many hotels are going to survive. It's looking better than it did in the heart of the pandemic because in the heart of the pandemic, people were saying maybe half of hotels will go under. It doesn't look like that's going to be the case but it certainly has been a tough period of time.

Matt Argersinger: Yeah. That number is striking. A billion unsold room nights. Hotels, essentially, had a billion opportunities for people to stay in the hotel [laughs] last year and they were not booked. Well, let's shift to the positive which is good. Here we are, 2021, we certainly have seen signs of recovery. January occupancy in RevPAR were up from December. That's nice sequential half of the year. I've seen this all the placement in a conference calls that I'm reading about how your hotel REIT is seeing such a big pick up in what they are in future bookings, which is a good indicator, lead indicator of how things will shape out for the rest of the year. Deidre, this is a good one. Later, we're going to talk about resorts and some of those hotels that really depend on conference bookings, but that is looking better certainly for the second half of 2021 as well.

Deidre Woollard: Absolutely. I think everyone is really excited about the return of business travel. Most of what I'm hearing about conferences is that there's still going to be a hybrid, but a lot of them are booking, maybe not the same amount of room space they would have two years ago, but at least, some room space for in-person attendance.

Matt Argersinger: Right. Well, I can't believe I read this. I think it's true. I read it in a couple of places that the San Diego Comic-Con in July is going forward as in-person.

Deidre Woollard: Good.

Matt Argersinger: I think they are setting probably some occupancy limits there. But the San Diego Comic-Con is going to happen. That's a huge event for the San Diego area. That actually might be the first big nationwide event notable conference, I guess, that we'll see actually take place in 2021. Hopefully, that remains true.

Deidre Woollard: Yeah.

Matt Argersinger: Why is this happening? The health situation. We're seeing widespread inoculations. The bullet here says expected by the end of the summer, but I almost think sometime maybe in early or middle part of the summer we could probably be in a situation where everyone who wants to get vaccinated, and I hope everyone wants to get vaccinated, is able to get vaccinated. That's super good news. I think it seems like it's getting better by the day. Then that, of course, leads to re-openings. We've already seen a lot of school districts around this country open back up. Theaters are now open in most places to limited capacities. Museums are opening up, concert venues are finally booking dates in the second half of 2021. This is one you found, Deidre, which is interesting, these increased these day traveler throughputs. We're seeing a whole lot more people take to the airways recently.

Deidre Woollard: Yeah. That's a fun number to keep an eye on, is that the TSA publishes their throughput and so you can really see overtime what happened last year. The numbers that it got down to during the height of the pandemic were startling. Now, we're back over around a million travelers a day, which is still low. But during the heart of the pandemic, you were seeing 200,000 people or 300,000 people which is really low for travel in this country.

Matt Argersinger: Oh my goodness, yeah. It's getting better out there, people are getting more confident as they should. States and localities are opening up and loosening restrictions. This is all hopefully getting to a place where we can all safely go out and live normal lives hopefully really within a few months, which is pretty exciting and that means like good things for hotels and retail that we'll talk about. I love this chart, Deidre. This is one of the charts where I just geek out on. I could sit here and stare at this for a long time. [laugh] You found this. Do you want to maybe give the picture here?

Deidre Woollard: Yeah. This is from Calculated Risks blog. If you don't follow that blog, it's a great source for information on real estate, the economy in general. He puts together a lot of interesting charts. This one just takes a look at hotel occupancy rates. You can see at the top, the blue number is the occupancy rate for the past 20 years, black number is 2020. You see that little hopeful 2021. It's like we're not quite there yet but we're starting. I'm feeling like this is a pretty good little chart. We're not going to get to where we were before the pandemic instantly, but we're trending in the right direction.

Matt Argersinger: I love that. I love the blue chart. Because you can see, this is 20 years, basically, of me in occupancy. There are seasonalities to this. You see how in the summer months it picks up and we hit peak occupancy. What is that? The 31 month of the year, so late summer, and mid late summer, and then it actually goes off. That's your natural occupancy curve. This is 2009, which I love, which shows last year where we had a significant recession, but we didn't have a pandemic but we certainly had a downturn. You can see we're certainly lower than your median by a meaningful amount. But then 2020, you see this 2020 chart and this is just extraordinary. I mean that is just unprecedented and this is what the right history books and economic book is about. It's just this right here, which is so historic. When I jump back here, and as you point out, 2021, now, we're still tracking below 2009, if I'm a betting person, which I think I am, I would say, this number if we revisit this in six months, this red number has surpassed 2009. It might not get back to the blue line. Or it might actually by the second half of the year, but I certainly think it'll pass 2009. We'll have a slightly slower year than our average and that's because obviously we're still in the midst of this in the first half of the year. But I believe this red line will be like somewhere around here in the back half of the year, which is really exciting. A lot of hotels that are just sitting right now on pretty precarious cash flow and balance sheet situations, that obviously is something you want to see and I expect we will.

Deidre Woollard: You've got some interesting guidelines coming out from the CDC. They've said that it's safe for fully vaccinated people to gather unmasked, which could be good for family reunions, short-term rentals. But they have cautioned against traveling for fully vaccinated people traveling, obviously, in a plane or something with unvaccinated people, that is still considered risky. My theory, and I think, last year, I've kept saying it was the great American road trip. I think that's still going to continue this year where you're going to see more people drive in places rather than flying as much, at least, through probably maybe half of the summer. That's something to consider too, is where the hotels are located as well.

Matt Argersinger: Well, let's see what's on the next chart. The next two slides we're going to talk about, okay, I'm an investor. I certainly understand the macro situation where we've been, where we might be going. Now, I'm interested. We'll learn a little more about hotel REITs and maybe how I can invest in the hospitality side of the real estate market. I think this is a pretty good breakdown right here. If you look at the types of hotels, the thing to understand is what am I investing in? What kind of hotels is my REIT investing in their portfolio? You have, I'd say, four food groups when it comes to hotels. You got the full service hotels, your Hyatt, Ritz-Carlton, your Westin's, where there's a lot of attention on the amenities, things like room service and nice gyms. Most of these hotels have full service restaurant attached to them. There's a lot more built-in to that average daily rate than just staying at the hotel, staying in the room. That's one part of the market. Then you get into the limited service, which is your Courtyard by Marriott or Hampton Inn, maybe your Hilton Garden Inn where used a lot by travelers, where I'm staying. There's some amount of service. There's not room service or anything like that but there's a small gym, maybe there's a pool for the kids to go hang out in. Your low to mid-tier hotel option when you're traveling. Then you've got the budget hotels like the Motel 6s or the economy lodges or the extended stay hotels where very limited in terms of service. You're really just going there to stay in a room and do what you need to do, or an extended stay might have a larger room with a small kitchenet or something like that where you can plan to be for a few weeks or even a month or so. Then we've got the whole different animal in this portfolio, the resorts. You've got the REITs that are really focused on their destinations in themselves. People go there to enjoy the amenities, maybe they are on the beach or near tourist attractions in cities. It's a nice place to hang out and enjoy while you're traveling. You go there with a purpose. That's really a whole different businesses in itself. We talked about some of the key metrics here in that earlier slide, but occupancy, average daily rate, revenue per available room. We're going to go through some nice case studies comparing those when we talked about different hotel REITs. But these will all vary depending on what kind of hotel you are looking at. For example, a full-service hotel, occupancy is important, but it's not necessarily the be-all end-all. You really focus maybe on average daily rate because what's the revenue I'm generating per guest as they book in my hotel and they use my services, they eat at my restaurants, they go to the bar, they order room service. There's a lot more that goes into it than just occupancy. Whereas you're limited service or budget or hotels where everything's very streamlined, everyone has roughly the same experience, maybe it's an occupancy game more. It's more of a scale game. The resorts, of course, it's a whole bunch of different factors. Then, Deidre, the next one, flag or I'd say, brand is important. Can you maybe expand what is meant by that?

Deidre Woollard: The flag or the brand is just what the hotel is, is it a REITs or a high-end? How many of each of those types of brands does the REIT have within it? Some of them have relationships with different flags and some of them are equal opportunity to have a bunch of different brands in their portfolio.

Matt Argersinger: I think that's interesting because most hotel REITs, as we'll see on the next page, they own the hotel but they don't actually operate the hotel. It's operated under a service agreement or a franchise agreement with like a Marriott or Hilton, or in some cases, a Kimpton. Those are the ones who are actually operating the hotel and generating revenue and the hotel REIT is simply the landlord, the owner. There might be some operating percentage of rent that's getting paid but they're essentially the landlord, not the operator of the hotel. If you go to the next slide, what are some of the advantages and disadvantages of hotel REITs? Well, advantages are, if you own a hotel, think about it. I don't have long term leases. I don't have a apartment tenant or an office tenant that's on a one year or a five year, 10 year lease, and so I can react quickly. If the economy is good, I can raise my daily room rate or I can adjust things. Quicker value-added opportunities. If I recognized an opportunity to improve something at the hotel, it's a lot easier to throttle down my occupancy. Set aside some rooms to do some improvements or some other things. Much easier to do that versus like, say, an office landlord or office owner that has an office tenant on a five-year lease. I can't just go in there and say, "Hey, guess what? I'm going to come renovate all the offices. Stop what you're doing, go home." It doesn't work that way. I can do that with a hotel in most cases. Then of course, there are location advantages depending on what kind of hotel you're at. If you can position your hotel at an airport or near business centers where people are going for work or near tourist destinations, you can really take advantage of natural demand drivers and natural traffic to those destinations. As a hotel, you can really take advantage of that and really pinpoint where you want to try to be successful with your offering. The disadvantages and the risks of hotels compared to other property types are really paramount. For example, you essentially have tenants that are one-day leases. [laughs] As we saw in the pandemic last year, your occupancy can go from 80 percent one day to 20 percent the following week. That's just because things change and all of a sudden no one's staying at your hotel anymore. That obviously doesn't happen in an office or industrial or even apartment building which has tenants on at least six-month, if not, one-year leases, or office tenants that are on 5-10 year leases. Your tenant at a hotel is on a one-day lease. Don't forget about that. More so than any other property types as well is the operating manager is crucial to success. Like crucial. If you think about the property manager of an office building or the property manager of an apartment building, yeah, there's obviously some impact they can have on the success of the building, but hotel, it's a business, it's a daily, hourly business that has to be operated really well, efficiently, otherwise, margins go away and the hotel gets in distress and then all of a sudden you have a tenant that can't pay it's rent. That's another disadvantage. You have to have a great operator manager, and that's why a lot of hotels as Deidre was mentioning in the previous slide, that's why a lot of hotels, they hook up with a Marriott or a Hilton, which are great operators, historic, successful scale, they know what they're doing. I own the hotel and it's managed by a Marriott and they do all the hotel services and stuff and I just collect my rent check, and that's where a lot of hotels decide to do that. Now, the amount of rent they're going to make is less than if they were, say, a Partick operator that managed their own hotel, but we'll get into that in a little bit. Then of course, big disadvantage which we've already talked about is hotels are, obviously, more cyclical and seasonal compared to other real estate classes. The business goes up and down. If the economy's bad, hotels tend to suffer. If there's a pandemic, as we see, [laughs] hotels can suffer historically and seasonally, obviously, if I own an hotel. Actually, I'll tell a quick story. There's a case study I read a while ago about hotels in Omaha. Well, when the Nebraska football team was a powerhouse football team in the '90s and maybe early 2000s, I don't follow college football so well, but there were so many hotels built around the idea that people were traveling to see Nebraska football. A lot of hotel sprung up and they're obviously hugely popular in the fall when the team was playing, but what happened was too many hotels were built and the team fell off in its success. Nebraska football as you know, not as successful as it once was compared to nowadays. Not only did that traffic die down a little bit, but they had built too many hotels, and a lot of hotels in Omaha and the surrounding area went under, which I think is fascinating. You can see, it's just location really matters. What are you building the hotel for? Then of course, it can be very cyclical and seasonal. You got to make it, got to plan correctly. Let's go to the next page. Awesome. Another table, Deidre, I could just stare [laughs] and be fascinated by it for hours. What's going on here?

Deidre Woollard: Well, [laughs] this is from Nareit, and this is looking at the different sectors of REITs and how they've been doing, and lodging and resort REITs were up 23.91 percent in February. This was from the tail end of February. We're just seeing a huge bounce back because they were down so far in 2020. Retail REITs have also gone up a bit. They were up around 12 percent for the month. Retail REITs and hotels are all part of that same movement of like, okay, there's some pent-up demand. These prices and these returns have been suppressed, and now, we're getting to a more exciting stage as we move through this cycle of the pandemic.

Matt Argersinger: Yeah, and I love it. This table is just really a fascinating look at market sentiment. As you said, it's like, wow, they're so beaten down. Look at lodging resorts, they are the most beaten down REIT class in 2020. You'd expect a big snapback, a big bounce back in February, and year-to-date, they're up really nicely as well. Similar story with retail, I don't know. Maybe retail's down even more, but retail had a similar bounce back in February and then year-to-date is just on fire. Look at regional malls. How many times last year did we talk when we looked at the situation for regional malls and we're just like, wow, this is not looking good for malls, but look at the bounce back there.

Deidre Woollard: The interesting thing is too, you look at this chart and you look at the types of REITs that benefited during the pandemic. Data centers, for example. It's a little bit of a different story for them now. That's just the way the stock market works. It's like, okay, the things that we loved last year, those stocks that were related to industrial REITs and data center REITs, oh, we need all of that's up. They're taking a little bit of a hit that they don't really deserve. It's a hit that they don't really deserve because there's nothing that's happened with those companies, that's a sentiment play.

Matt Argersinger: It totally is, you're right. It's like dump the work from home stuff in February because we're all going back to [laughs] work or we're going back to school and let's buy everything else that got being down. You see that perfectly in this table here. Very curious to see if that continues, what continues in 2021. Like you said, I think when you talk about data centers or industrial, we've talked a lot, but just the secular tailwinds that those particular types of real estate have. Not just in 2020, but for the next decade, if you think about where the world is going and the needs for data, and the needs for warehouse space. One of the questions, I think we're going to try to answer it maybe during the show. It's a tough question to answer, but do you as a real estate investor, do you go in and dive into hotels or retail or do you stick with what's working and what's probably going to work almost guaranteed for the next many years, which is your industrial and your data centers? That's a tough one. Let's go. This is a colorful chart, Deidre, but this is not great color. This is not what we want to see.

Deidre Woollard: This is not great. This is not great color. This is a situation that is getting better, but it's been the amount of hospitality loans under distress, it's still a huge issue. It's been going down a little bit. It's closer to 20 percent, but that's still a huge issue right now. In fact, this week, we had the Fairmont San Jose in California, suddenly went bankrupt. Actually, the hockey team, the Vegas Golden Knights were expected to stay there that night because they were playing The Sharks. They had to find a different place to stay, that's how fast that bankruptcy happened.

Matt Argersinger: Oh my gosh, that's fascinating.

Deidre Woollard: We've seen this, we've seen Ashford Hospitality has gone through this a lot. They've got a lot of loans on the books. They've already turned back in. Last I looked at over a dozen hotels, they returned back to the lenders. This is a huge problem that we're going to show later some of the distressed asset funds. This is something that we've been looking at for the past year. The question is, you talked earlier about that one-day rent. A lot of these loans, they can't make their money if they don't have enough people in the place. The question is, how fast can hotels recover in order to resolve the delinquency status on some of these?

Matt Argersinger: Right. What's also interesting is the next layer of this, which is you have a lot of banks who have obviously lended to these hotels. They're not super excited at maybe about taking over these assets because in a lot of cases when a bank takes over an office building or another commercial property, the idea is, well, hopefully, I've got enough equity in the building and I've got enough reserves that I can manage to get a third-party manager in there, turn the property around, maybe sell it hopefully soon, and recoup most of my outstanding debt. In this case, if you're a bank, and you're looking at you have loans out on a hotel that right now is 40 percent occupancy, bleeding cash. Is this something I really want to add to my bank's portfolio right now? [laughs] Rather than can I work something out with the hotel, with the operator or the owner and try to give them some relief, knowing that I'm probably going to take a haircut, I'm not going to get paid maybe some interest for some time, but maybe that's a better opportunity for me to recoup more sense of my dollar, so to speak. Those discussions have to be happening in a lot of cases. You just wonder if a lot of the conversations are, well, we know things are going to get better 3-6 months from now. If you can just help me hang on. Defer my interest, do whatever you need to do, take some of those principal payments and delay them until next year or something or add them to the balance. Whatever the strategy is that can help me get through the next 3-6 months. I'm sure a lot of bank underwriters are sitting there like, okay, this is a huge gamble. Is occupancy going to bounce back? Are cash flows going to bounce back? Or we're better off just cutting our losses and taking over the asset and trying to find a buyer.?Those are the things that are certainly happening behind the scenes here, but wow, that's not a pretty mountain there on the lodging side. [laughs] Hey. We're going to talk some REITs. We're going to talk a few examples, and once you get the rundown here, Deidre, on Apple Hospitality. They're not a huge amount of big hospitality REIT, and I think this is actually one larger ones even the market caps, three or four billion, there roughly.

Deidre Woollard: Some of the hotel REITs are really exciting. What's interesting about it is it's a select service hotels, and that is things like where you have a kitchen in there and things like that. Those have done pretty well during the pandemic, partly because people wanted to have access to a kitchen, they didn't necessarily want to go to restaurants, so these actually worked well for families that are road tripping, things like that. The RevPAR is rising, you see that number there? They're going to have an issue as all hotels will, but they are definitely coming back. They reinstated their dividend and because they are select service, they may come back faster.

Matt Argersinger: Yeah. I think that you make some great points, and I noticed that they are modified funds from operations of $20 million per year. That's actually pretty good. Modified FFO is essentially taking the operating cash flow of the company and stripping out a lot of onetime expenses or not, and who knows what those are? Those could be meaningful, but at least on a going forward basis, like for Apple Hospitality's generating positive funds from operations, which is good. But yeah, I'd see this is one that might bounce back faster. If you look at the bottom of the screen, we clip this from the 2020 10K, I think this is interesting. You can just see the changes in the key three metrics for Apple Hospitality guided your average daily rates. Steady 2018/2019, of course, falling out, falling down in 2020, your occupancy fell off the cliff as well, and your revenue per available room gets cut more than half in 2020. Again, just showing you again how difficult year it has been or was for hotel rates. But this is interesting. I mean, reinstating your dividend in December, I would say, gosh, reading that headline would make me think Apple Hospitality, either they are aggressive and bold and courageous, or they have enough comfort within the balance sheet, and enough visibility, even though no one really has any visibility, but enough, I guess, expectations for things to improve, and that's a good sign. That's a really good sign.

Deidre Woollard: They've been doing some interesting things in terms of consolidation. They're trying to really focus on those rooms only hotels, the ones that are that select service because they see that as a safer place to be.

Matt Argersinger: Let's talk of one that's really almost on the Xenia Hotels and Resorts, I hope I'm saying that right. This, Deidre, is on the opposite side. We're talking about luxury, upscale hotels in some really top locations.

Deidre Woollard: Absolutely. These are luxury hotels, you've got your Waldorf-Astoria and things like that, they are in resort locations. They're really betting on that pent-up demand. They're seeing an increase in occupancy, let's see, they sold four hotels. They're doing that same thing with consolidation, and that's something that we're seeing across all hotels. We're seeing them pay much more attention to data base decision-making, looking which hotels are really performing, which ones aren't. They have a balance sheet, they re pretty solid, they've got some liquidities. They are really starting to look around at where they can expand and where they can trim back, but really, they're betting on people wanting to travel. One thing that we didn't talk about is that international travel is probably not going to bounce back, and most of the brands that we're talking about here are US based, and mostly US hotels. I think that's a factor too, is that we're not going to see a lot of, especially international tourism in 2021 or even 2022. People still want to have that luxury experience, and may have the money to spend, but they want to do it in the US, so that's also good news for Xenia. This is also part of the other trend that we're seeing is that case shaped recovery. We've talked a lot about that is that things like the stock market that some people, we're seeing the middle-class and upper middle-class maybe have more disposable income and really be ready to spend.

Matt Argersinger: All good points. I think what's really interesting here is, if you look at at the bottom again, and when you see the occupancy, average day rates, revenue per available room. Xenia's occupancy, and if I go back one, you'll see you have Xenia's occupancy at 27 percent in 2020. Apple Hospitality, much higher occupancy, much better occupancy. It's a little more affordable on a value spectrum rate, but look at Apple Hospitality revenue per available room, $51, Xenia's same thing, revenue per available room, roughly the same. Xenia is able to charge average daily rates are much higher. They can get by a little bit better on lower occupancy. Occupancy is not necessarily that important to them as it is to an Apple Hospitality rate, and so you have two hotels, two REITS on pretty much opposite side of the spectrum, but one has a much lower occupancy than the other, which is interesting for comparison.

Deidre Woollard: Also with something like Xenia, you're getting revenue from other sources too, because you're getting revenue from bars, and spas, and other services too, so that plays a role as well.

Matt Argersinger: Hundred percent, exactly. Let's talk about another animal in our hotel REIT world, which is the resort. Now, when you think about resorts, obviously, we think about destinations. People are going there not just to travel and be in that location, they're going there to enjoy themselves at the hotel, at the destination, and all the amenities that usually come with resort style hotels and Ryman Hospitality. Their occupancy's obviously been hit pretty hard. They're dependent on a lot of things like Apple Hospitality REIT is not, which is, if I'm going to Apple Hospitality REIT, I'm really just focused on booking rooms. I'm looking to book a stay at that hotel and do what I need to do. But what I'm going to Ryman, I'm thinking I'm going to a concert, or I'm going to a convention, or maybe a big family reunion gathering at the resort, all these things that just totally got stopped in 2020 and are only now trickling back into it. I might have this wrong, I think Ryman Hospitality, if I can remember, got $15 a share in March or April. It's bounced back, I think it's $70 now. The stock price might even be higher than where it was pre-pandemic, which I think is crazy. [laughs]

Deidre Woollard: Could say, it's currently at $81.62.

Matt Argersinger: Unreal. I have to look at how it got back last year, but what a bounced back?

Deidre Woollard: I think the lowest they got was around, I'm just taking a look, around, let's see, around $21 a share.

Matt Argersinger: Twenty one dollars, so it didn't go quite as well as I thought, but still what a turnaround. There you have people saying, if Ryman is $21 a share, your thinking the world is going to be back an beautiful by the end of this year, conference bookings are going up, and they are. You can see what's happening here from Ryman. The bookings have bounced back. 2022 bookings, which for big conferences and stuff, you have to book from afar out. They're in line where they were in the past few years. What Ryman business is saying is that people or businesses and event planners are thinking 2022 is going to be back to where we were pre-pandemic, and Ryman is going to be a big beneficiary of that.

Deidre Woollard: We have a question from Jen, "Do you like Ryman at this price?"

Matt Argersinger: Yes. I will say yes, because full disclosure, it's an active recommendation for us in Real Estate Winners and our mobile service. I own shares, and what I love about Ryman is if you look at the historical performance of Ryman going back 10 years or so, and you see an extraordinarily well-run business, and with Ryman, and I think Matt Frankel, who I know, Fool Live a lot, is just some of the unique assets they have. You can't really replace some of the assets the Ryman has, and so that's a big reason why I like Ryman. I think the market is recognizing that this a company of business, and a REIT that is going to do pretty well. Do I think the stock has bounced back pretty fast [laughs] based on some optimistic assumptions about the rebound in hospitality? I would say probably a little bit, but hey, the market is discounting mechanism, and the market says, "Things are going to get better." So who might argue with the market. Another one that's also in the hospitality space, and that is MGM Growth Properties. So we all know MGM. We know the casino and gambling company, and gaming company, MGM, but this is actually MGM Growth Properties, which was split out from MGM, the bigger company a little while ago. MGM still is actually majority shareholder of MGP. So MGM is in this business as well. But MGP is the property portion of the MGM business, even though it's into gaming, and resort hotels, and properties, it's merely the landlord. It's merely the company that owns the assets. You can look at us and say, "Wow, well, my exclusive tenant is MGM for most of my properties." That's both good and bad because as MGM goes so is my business. As MGM, the tenant goes good or bad, it's going to affect me as MGP as the growth properties part of it. But MGM has held up pretty well even though gaming and casino's revenue suffered in 2020 along with everything else, and people weren't traveling to Vegas or other places where MGM has resorts. The business held up pretty well. Obviously, MGM kept paying its rent. It's not a blue chip company, but it's a very large company, very diversified. This is a way of attaching ourselves to the biggest casino operator in the country, and to bet a little bit Deidre on the growth of gaming, which we've seen expand tremendously in recent years. It feels like it's picking up the pace in lot of cases too.

Deidre Woollard: Well, it's also a bet on the return of Las Vegas too. We saw this week, I believe it was a VICI Group. I'm not sure if I'm saying that right. Bought The Venetian from Las Vegas Sands, and so we're definitely seeing a little bit of optimism returning to Las Vegas. Certainly, vaccination is going to be a huge factor there.

Matt Argersinger: Right. Yeah. I think that's your point. Don't bet against Vegas. [laughs] I think that's true. Before the pandemic, Vegas was one of the fastest-growing large urban areas of the country. I think the population growth was growing between four and five percent a year. It was growing as fast as places like Denver and [inaudible 00:42:57] and of course, 2020, got to put a little hurdle in front of that, but yeah, I agree it's a great point. It's great way betting on Vegas, and the rebound there. But also, if you look at the business, MGM Growth Properties thinks their runways is pretty large. They're seeking through global view of things, and they think they can 10X their net operating income within, I want to say, 10 year. So that's hugely ambitious. So this company is looking bigger. They're looking beyond gaming and MGM. They're looking about being a server worldwide resort company, and they're seeing a lot of opportunities in the market today. So one to follow up for sure. Do we have one more slide? Oh, we do. Yes.

Deidre Woollard: The last slide is just some notes I put together on distressed hotel asset funds. Just because I find this really interesting we saw in mid pandemic, May, June last year, the beginning of distressed asset funds. We saw this in a variety of sectors, but especially, in hotel because everyone is looking at where can we capitalize? There's a lot of dry powder right now sitting on the sidelines waiting to pounce. You've got Barry Sternlicht of Starwood Capital. You've got Alex Rodriguez. [laughs] A-Rod is pretty sharp when it comes to CRA. You've just have a lot of money waiting for deals, and I think that's a factor too. What I've seen so far in commercial real estate is very low deal flow last year, but prices didn't really drop and so there was just so much dry powder. Businessweek has written about it a lot as that what happens to all of these funds if the opportunities that they were expecting never materialized?

Matt Argersinger: Yeah. In a lot of ways, I think there's something to be said for what these entities are doing because what they're seeing is a lot of stress as we all see. They're seeing a lot of distress in this market, and what you'll find often is, it's much more effective to go in and buy existing distressed assets than it is to develop those assets from scratch. Especially, and we talked about that sometimes, but the cost construction these days is wow. The price of lumber, the price of copper is through the roof. It's really expensive to build something right now. So a lot of these companies are coming and saying rather than build something it's much cheaper for me on a per square foot basis to go in and acquire existing assets even if there is some risk there and it's distressed, but cash is cheap, capital is available. A lot investors are interested in this and especially, when we talk about someone like Barry Sternlicht at Starwood Capital, they've been doing this for decades with huge success. They know when to get in and get it out. Really one of the best operators in the market, and so they're seeing opportunity in this market. I think that tells us as individual investors, "Hey, we should be looking for opportunities in this market." There is this expectation that things are going to bounce back. Valuations are cheap, and hospitality is a good business. It's cyclical and seasonal like we talked about but it's a good business overtime, and whatever role Airbnb is going to play as a competitor in that, we'll see. But obviously, these organizations and these managers have a lot of confidence.

Deidre Woollard: All right. You're ready for a few questions?

Matt Argersinger: Oh, yeah. Always.

Deidre Woollard: Awesome. I've got a question about Vail Resorts. I know that, that's when you've been following. I was wondering too if skiing is like we saw in the summer golf got a big boost because it's a good social distancing activity. I feel like that's happening to some extent with skiing, and it looks like Vail is having a pretty good run as far as the stock right now.

Matt Argersinger: Vail to me was lucky in the way that the NFL was lucky. Let's get back to 2020. We had the Super Bowl in early February, and then the NFL season goes out without a hitch we have the Super Bowl, and a few weeks later the pandemic really hits. You see the NBA with middle their season, the NHL in their season, and baseball just starting their season all have to shut the doors for months. Big damage. NFL was lucky but not lucky, but they were able to sit back for several months in the off season figure out how to approach COVID policies, and they pulled off the 2020 NFL season, which is still amazing to me by the way. When you think about Vail Resorts the ski season was just ending when the pandemic hit last year, and their business is so seasonal. It wasn't going to pick up again until, say, November of this last fall. By then, again, they had time to put in COVID protocols to understand what kind of occupancy they wanted to have their resorts to do to operate them safely. The nature of skiing, as you point out with golf and things like that is, it's a bit of a solitary thing. I go to a resort with my family, we can stay, we can ski together. Everyone is wearing a mask anyway. It's much safer activities to do, than going into a beach resort or things like that. I want to say, Vail just, I feel, like they just threaded the needle there perfectly with [laughs] their business. They got very lucky with the seasonality in a way, and so skiing wasn't so affected as it was with other businesses. Then Vail has got a lot of things going for them in terms of off-season activities and things like that. They don't really depend on huge leap, but again, people can go rent a condo at one of Vail's resorts. It's a family knit activity that you can do things together with, and I think that's was a huge benefit for them. I want to say Vail stock prices probably went again higher than it was pre-pandemic, which is incredible [laughs] when you think about it.

Deidre Woollard: Yeah. Today, it looks like it's around 307, and that actually it is higher, last peak was around just under 300 in 2018. Of course, at the height of the pandemic it was down to around a 131.

Matt Argersinger: What an opportunity. Such great operators, such a great business, irreplaceable assets as we know, and gosh, they've expanded it.

Deidre Woollard: Yeah, of course.

Matt Argersinger: I mean, I remember when Vail bought it and I just was like, "Oh my gosh, there's nothing there that I could touch." They are going to buy everything, but what a phenomenal business and I'm not surprised just given the nature of the skiing business, I'm not surprised they thrived through this global pandemic.

Deidre Woollard: One thing I think that's interesting that has changed the world of skiing is those passes like the Icon Pass. That is a really big deal now so Vail I know one of their earnings showed they had to discount because they didn't have the whole season, so they had to discount and give some people a lower-price on their passes for this year. But those passes are huge revenue generator.

Matt Argersinger: Yeah, big time. In the same way that Starbucks sales gift cards, it's just so much deferred revenue that they can take advantage of. Yeah, that helps, and they just have such a loyal base of people that ski on those resorts and those mountains every year. They're just coming back every year to buy those passes again. It's a great business when you have assets that people love and a recurring business model that people love to attend every year.

Deidre Woollard: JP is asking if there are any good hotel REIT ETFs?

Matt Argersinger: We get asked about ETFs a lot of time and I'm sorry that I have such dumb answers because I don't pay. I love investing in individual companies. I'd like to create my own ETFs, so to speak and so I don't really invest a lot of ETFS and I always get boring like if you're looking for a real estate ETF do the VNQ, which is a Vanguard Real Estate ETF, and it gets you exposure to hotel rates as well. Not as much, but it's a way nice, low-risk, diversified way to play the REIT market. Do you know any good? There must be.

Deidre Woollard: There must be, I think there's some hotel ETFs. I'm not sure if there's a specific hotel REIT ETF.

Matt Argersinger: Yeah, that's a good point. It is self detailed which is, when you're investing in hotel REITs remember most of the time you're not investing in the operator of the hotel, you're not investing in the Marriott or the Hilton or the Starwood. You're investing in the owner of the hotels, and so just something to keep in mind. That can play a role in any way you are thinking, if your interested in investing in the hotel business, you're probably more interested in investing in an operating company.

Deidre Woollard: I've got a question from Jason about Matterport. "Have you been following Matterport, that one is coming to market via SPAC?" I'm sure you're familiar with what Matterport is, it's those 3D doll house tour that are popular in residential real estate, but they're also getting into that digital twin market for commercial real estate.

Matt Argersinger: I'm getting old, so I'm totally befuddled by this. [laughs] I have no idea. It sounds interesting [laughs].

Deidre Woollard: It is very interesting, I think the challenge for Matterport is being able to have that dominance on the commercial side because their residential real estate agents love to use it on the residential side, but the interesting thing is Zillow came out with a new version of their 3D app, which is used by both agents and photographers so it seems there's not anything that Zillow isn't taking a look at.

Matt Argersinger: The Facebook of real estate, anything that someone else is going to do, they can do it better just because they are bigger and meaner. [laughs]

Deidre Woollard: I don't know if they are meaner.

Matt Argersinger: No, that's not fair for me to say, but they have the eyeballs, traffic and the scale that a lot of these smaller niche operators don't have and so yeah, they can test things easier and get wins or losses faster probably than other operators, and not that their whole business to do it, so that's strong.

Deidre Woollard: I've got a question or comment from Rodriguez who says am on a plane at the end of month to Florida, and both too and from are completely booked. Florida right now seems to be the destination of choice. Matt and I have two team members I know who are planning to go to Florida within the next few weeks. I don't know if this is partly because they are a little bit looser on the basking and the social distancing down there, but there definitely seems to be a lot or maybe we all could use some sunshine, but there seems to be a lot of travel heading to Florida right now.

Matt Argersinger: Yeah, Florida is having a bit of a moment. I think there's just some really big inertia there and probably it's people are getting a little tired of the cold at this point of the year so Florida's that easy, cheap destination and by the way, that's the thing, the flights still are relatively cheap but things are getting booked up. I think people are interested in going out and being in warmer weather and getting back to some kind of normalcy. So not surprised of Florida's beneficiary of that, I think it's been there a long time and I think I read that Disney world is also opening up, or at least it's a certain capacity pretty soon or maybe that was their California.

Deidre Woollard: I believe it was Disneyland.

Matt Argersinger: Disneyland, okay. Has Disney world been opened? at all

Deidre Woollard: Disney World, I believe has been more open than Disneyland. I think Disney World has been opened at limited capacity, but Disneyland in California had been closed for a long time, and it is expected to open in late April, which is certainly great news for Anaheim.

Deidre Woollard: Yeah. You said it, which is California's got different restrictions than Florida. Florida has less restrictions and so people that would normally maybe going to California or somewhere else are choosing the one where they have the least amount of restrictions.

Deidre Woollard: Well, and that's one thing we didn't really talk about, but as we wrap up, that's something that is going to have an impact on some of these different hotel REITS and hotel brands is that like an eviction moratoriums, like so many other things that we're seeing by state, by locality, it just seems to vary. There hasn't been really universal rules on things and different cities, they seem to have different protocols, we're in orange, we're in red, it changes all the time. There's a lot of confusion and I think that is probably something that's going to be a little bit of a factor this year is people are drawn to Florida just because it seems like there's less of a hassle there.

Matt Argersinger: Yeah, we'll see. You would expect a state like Florida to bounce back, so to speak faster maybe. Let's just hope that health wise and safety wise that hasn't been bad things for them in terms of hospitalizations and things like that. Hopefully, it won't and they can open and be ahead of everyone else. People are going to take advantage of it, which they already are.