Summer is heating up, and the economy has started to reopen in a more broad manner. Even as COVID-19 cases and, sadly, the death toll have increased, businesses are working hard to strike the balance between opening their doors and taking steps to keep their customers safe.
One of the hardest-hit groups of stocks this year has been real estate investment trusts (REITs). This has been a shocking and unexpected outcome from the COVID-19 pandemic; real estate has historically been one of the safest investment classes during recessions.
But instead of avoiding the sector, investors looking for value and even safety should still be shopping in the REIT aisle. Three REITs that look particularly attractive right now are Ryman Hospitality Properties, Inc. (NYSE: RHP), Tanger Factory Outlets (NYSE: SKT), and Medical Properties Trust (NYSE: MPW).
If you're looking for big upside with some risk of losses in the short-term, the first two should be on your list; for dividend investors, go with the third pick. Keep reading for a closer look.
Back in business
After months of being shut down, hotel REIT Ryman Hospitality Properties' Gaylord hotels are now opening back up for guests. In a June 26 company update, the company offered some insight into how things are progressing: The first hotel to open, the Gaylord Texan, averaged 20% capacity in the first 15 days it was open, with weekend occupancy of about 40%.
Sure, this is a tiny level of business, particularly for a big brand like Gaylord. The company also noted that 95% of room demand was leisure travel stays, not the typical large mix of business travel, largely conventions and meetings it hosts on its properties, that makes up most of its business in "normal" times.
Yes, COVID-19 cases are raging higher, and there's very real risk there. But people still need to travel, and there are safe ways to travel and enjoy leisure, and frankly Gaylord properties can cater to the high-wealth individuals who are seeking this safer leisure travel experience during the pandemic.
This can go a long way toward offsetting the expense of maintaining the company's properties, versus sitting idle and sucking up cash off the balance sheet. The good news is even before reopening, the company had more than $660 million at the end of the first quarter, giving it a large margin of safety to ride out the downturn.
Why should investors buy now? In short, because with shares still down 64% this year, Ryman Hospitality looks like a real bargain for anyone who can buy now and then sit on their hands until business returns to normal and investors come back to this great business.
Tanger Factory Outlets, like other mall operators, was still working on optimizing its business before the COVID-19 pandemic turned retail upside down. The good news is most of the heavy lifting had already been done and the company was sitting on a good collection of high-traffic properties that retailers want to be in.
Of course that didn't stop the pandemic from causing all of its properties to be closed in early efforts to contain the spread, sending its stock down about 60% from the 2020 high at recent prices.
Tanger's properties have largely reopened at this point, and as of mid-June over 70% of tenants were open. As outdoor properties catering to discount outlets, shoppers are able to move with less risk of exposure, and bargains are appealing during economic downturns. The company reported traffic was up above 85% of last-year levels, a strong indicator that there's plenty of pent-up demand from consumers.
The company also amended its debt agreements, giving it a bigger safety net to remain within the terms over the next couple of years at lower risk of default. This is a good indicator that its lenders are favorable to its prospects to fully recover.
Tanger also has plenty of cash to cover expenses for an extended period, but as more stores open as we adapt to safe practices, the need to spend cash will diminish and the company will return to profits. Buying shares at a 60% discount right now is a better deal than you'll find at most of Tanger's tenants.
Looking for income? Just what the doctor ordered
Hotels and other hospitality REITs and retail REITs have been clobbered, but the healthcare industry has remained very much open. This is why Medical Properties Trust, which owns hospital properties that it then leases back under long-term agreements to healthcare operators, has held up much better than those other cohorts. At last report, more than 95% of tenant rents have been paid during the pandemic.
Not only is that unlikely to change, but its prospects on the other side of the pandemic are also quite good. As the U.S. population ages, there will be more need for healthcare facilities, and that tailwind should provide plenty of growth opportunities for the company.
Yet even this strong REIT is selling at a discount, with shares down 17% this year and 27% below the 2020 high. That's pushed the dividend yield above 6% at recent prices, and that payout should prove quite safe. It's been increased annually for seven straight years and only consumes about 75% of expected 2020 funds from operations.
For investors looking for a reliable high dividend yield, Medical Properties Trust is worth buying now.
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