Peter Lynch, former manager of the Magellan Fund at Fidelity Investments and author of books such as "One Up on Wall Street," urged investors to count the cars in the parking lot to get a feel for how a Wall Street business is doing. Many investors today employ a similar style of investigation when following recent trends to ascertain what companies may benefit or decline in the future.
A few months ago, the Deloitte Consumer Industry Center surveyed Americans' summer 2024 travel plans. The results indicated that more people planned to stay home this summer and those who said they would travel planned to spend less and forsake expensive hotels and other accommodations for guesthouses, RVs and camping. In 2024, 34% of surveyors said that traveling has become too expensive, an increase from 26% a year ago.
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In addition, the number of people who said they wouldn't be traveling at all this summer increased from 37% to 42% year-over-year. This spells trouble in advance for certain REIT sectors, while others may flourish when third-quarter operating results are delivered in October. Take a look at who stands to benefit versus who stands to lose from the summer of 2024 trend:
Retail REITs
If fewer people travel this summer, this subsector may be the biggest winner of the third quarter. Money saved by not traveling could be spent in local mall stores, especially as families begin shopping in the "back to school" period, when clothing, school supplies, and other gear are typically purchased.
A few REITs, such as Simon Property Group Inc. SPG and Tanger Inc. SKT, could benefit the most from folks staying home. Simon Property Group is an Indianapolis-based retail REIT that owns and leases over 250 properties, including shopping malls, restaurants, outlet centers and entertainment venues. It has locations in the top 25 population markets across the U.S.
Tanger, formerly Tanger Factory Outlet Centers, is a retail REIT based in Greensboro, NC. It owns, co-owns or manages 40 indoor shopping centers and outdoor factory outlet malls with 15.6 million square feet and over 3,000 stores in 20 states and Canada. Tanger Factory Outlet Centers was founded in 1981 and had its IPO in May 1993.
Four Corners Property Trust Inc. FCPT is a diversified retail REIT that owns 1,132 properties, 79% of which consist of restaurants such as Olive Garden, Longhorn and Chili's. If Americans have extra money this summer from not traveling, some of it may be spent dining out. Four Corners' properties are 99.6% occupied and a strong summer period will help its restaurant establishments, particularly the 18 Red Lobster restaurants it still owns.
Experiential REITs:
EPR Properties EPR is a diversified experiential REIT with 354 properties across 44 states and Canada. Among these properties are 175 movie theaters, 56 eat-and-play properties and 18 amusement or water parks. With many families not traveling, EPR could benefit from one-day mini-vacations or evenings at theaters and other entertainment venues.
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While these REITs may stand to benefit from a decrease in summer traveling, some REITs will likely report third-quarter earnings that are depleted by a no-travel trend. These include:
Hotel REITs
Major hotel chains such as Marriott and Hyatt have already acknowledged that travel demand may weaken. This could hurt the earnings of a Hotel REIT such as Host Hotels & Resorts REIT HST, which has a significant percentage of Marriott and Hyatt Hotels in its 81-hotel portfolio. Declining demand hurts hotel Revenue Per Available room (RevPAR), greatly impacting Hotel REITs' quarterly earnings.
Service Properties Trust SVC is a REIT whose 969 properties are 62% comprised of hotels and service-focused retail properties such as travel centers and quick-service restaurants off major highways. A decline in travel or even a reduction in travel spending could negatively affect Service Properties' Q3 earnings.
Specialty REITs
VICI Properties Inc. VICI is a specialty REIT that owns a large portfolio of gaming, hospitality, and entertainment venues, many of which are casinos located in Las Vegas, NV. VICI’s portfolio is 127 million square feet and includes 60,300 hotel rooms and 500 restaurants, bars, nightclubs, and sportsbooks.
If Americans travel less this summer, that could include trips to Las Vegas and negatively impact VICI Properties' revenue and earnings for the third quarter. However, with more people staying home, VICI's recent purchase of Bowlero Corp BOWL with its 38 bowling alleys might help offset some losses.
Gaming And Leisure Properties Inc. GLPI is another specialty REIT that owns casino resorts. Gaming and Leisure Properties owns 65 facilities with 29.30 million square feet across 20 states. With Americans traveling less this summer, RevPAR in 15,100 hotel rooms could easily decline in the third quarter compared with Q3 of 2023.
Another factor, irrespective of the Deloitte survey, was the August weather. Tropical Storm Debby impacted much of Florida and the entire East Coast of the U.S. for a week, curtailing or canceling the summer travel plans of many tourists. It remains to be seen what the impact of this storm will have on third-quarter earnings.
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