The coronavirus pandemic brought a screeching halt to travel for business and pleasure, and now inflation, record-high gas prices, and uncertainty around events in Europe make a sustained post-pandemic travel boom seem even more distant.
But the pandemic does appear to be abating in the United States, and the latent demand to get out and be social may well spur a travel boom this summer and beyond, especially if conditions improve and concerns ease.
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Real estate has always served as a good way for investors to counter stock market volatility in a portfolio, and even among the volatile hospitality and travel sectors, there are some good candidates to consider. Two of those are Host Hotels & Resorts (HST -0.16%) and EPR Properties (EPR -0.32%). Both are real estate investment trusts (REITs), and each has its potential appeal.
EPR Properties, a staycation and drive-to-play
Being bullish on a REIT whose holdings are 45% movie theaters might seem odd, but EPR Properties has a lot else going for it. The company's $6.4 billion portfolio currently comprises 353 local and drive-to locations occupied by more than 200 tenants in 44 states and Canada. Many are just the types of properties that will benefit as the vacation season arrives, but gas prices make staying closer to home more appealing.
Along with family entertainment centers and districts, this includes 175 theaters; 56 eat-and-play properties like the popular Topgolf franchise; 18 waterparks and amusement parks and even indoor skydiving facilities; 11 ski resorts; 8 experiential hotel developments; and even a handful of cultural attractions like the City Museum in St. Louis, as well as a smattering of wellness centers and gyms. About 5% of EPR's business also is with operators of private schools and early childhood education centers.
EPR has rallied nicely after losing money and briefly suspending its dividend during the depths of the pandemic. Net income was $74.5 million in 2021, compared with $155.9 million in red ink, and the company's CEO, Greg Silver, said collections in the fourth quarter of 2021 were at the high end of expectations and point to improved operating conditions for its tenants.
The company is guiding funds from operations (FFO) at $4.30 to $4.50 per share in 2022, which would be a 42% gain from 2021's performance at the midpoint of that range. Its balance sheet is also quite clean, with $288 million in cash on hand and a zero balance on its $1 billion in unsecured revolving credit. That should handily fuel the $500 million to $700 million that EPR Properties says it plans to invest in 2022.
EPR just raised its monthly dividend by 10% to $0.275 a share, eight months after restoring it following 15 months of paying no dividends from April 2020 through July 2021. That's good for a yield of about 5.93% based on a share price of about $52.42, well off its 52-week low of $41.14 and approaching its 52-week high of $56.07.
The company also has a long record of rewarding shareholders, providing a 1,241% return from the end of 1997 to the end of 2021, compared with 804% for the MSCI US REIT index.
Host Hotels & Resorts, prime properties positioned for any rebound
Host Hotels & Resorts is the largest of lodging REITs and one of the nation's largest owners of luxury and high-end hotels, with a portfolio of 75 properties in the United States and five international holdings.
The portfolio is heavy on properties that are notable parts of big-city skylines and major presences at iconic coastal and inland destinations. Just a few: 1 Hotel South Beach in Miami; Alila Ventana Big Sur, California; Boston Marriott Copley Place; Four Seasons Resort Orlando, Florida; and Grand Hyatt Atlanta in Buckhead.
Conditions are improving. In its Q4 2021 report, Host said revenue per available room (RevPAR) was up 13% from the previous quarter and that the business was seeing particular recovery at its Sun Belt resorts and urban business-oriented properties. 70 of its hotels saw positive hotel-level operating profits in the fourth quarter, including three in New York City, two in downtown Boston, and its San Francisco Marriott Marquis. Those are the kinds of destinations that should also benefit from growing leisure traffic should that occur this summer.
Going forward, "We expect sequential quarterly RevPAR improvements driven by demand growth across our portfolio and continued rate strength at our resorts. We expect a continued ramp-up in business transient and group business alongside sustained strength in leisure," the company said in its February 2022 investor presentation.
Host has reduced its portfolio by 14 properties in the past five years and is focusing its acquisition and improvement dollars on the Sun Belt and its most desirable urban properties.
For instance, last month the company said it bought the 319-room luxury lifestyle Hotel Van Zandt in Austin, Texas, a $246 million investment in a property only built in 2015. At the same time, Host sold the 1,220 room Sheraton Boston for about $233 million and made significant renovations at several properties, including the 1,966-room New York Marriott Marquis and The Ritz-Carlton in Naples, Florida.
Meanwhile, the company has just begun paying dividends after stopping them in 2020 during the initial pandemic shutdown. They were paying $0.20 a share then. Now it's $0.03 per share, yielding only about 0.62% at a share price of about $18.20 that's well off the 52-week low of $16.57 and still trailing its 52-week high of $19.75.
Host did not issue guidance for 2022, citing the continuing uncertainty the pandemic is causing in the travel, lodging, and event industries. The company also said January results were down from December but that February appeared more promising, at least when its year-end and fourth-quarter results were issued on Feb. 16.
While REITs are typically seen as income plays, that's not the case here, at least for now. The company has provided nice payouts in the past, though, and that could well happen again. Host's impressive portfolio of high-end destination properties gives reason to believe that both growth and income could quickly return to attractive levels.
Nothing's for certain, but these are good choices
There's no getting around the fact that we live in uncertain times, and the travel and leisure industries are certainly among the most vulnerable.
But if you believe there's a turnaround afoot, these two companies are prime candidates for consideration if you want to invest in that trend. Based on their prior performance, their balance sheets, and their portfolio of properties, both should benefit from any new travel boom.
