When the COVID-19 pandemic began in early 2020, few types of inventory have been hit as badly as commercial and hotel real estate. However, these two sub-sectors of REITs (Real Estate Investment Trust) could end up being among the biggest winners as life in the United States slowly, but surely returns to normal. In this fool live Video clip, recorded on September 3, Matt Frankel, CFP, senior real estate analyst at Millionacres, discusses some of the names worth watching in these two categories.
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Matt Frankel: Then we have retail REITs. It is the one of which there are many sub-sectors. Most commercial REITs specialize in only one type of commercial property. There are three main categories. There are malls, malls, or independent net leasehold retail properties. Shopping centers are self-explanatory. Simon Real Estate Group (NYSE: SPG), you see an example here, the ticker symbol SPG, is the larger example. At one point, it was the largest REIT in the market, but it is no longer the case.
Malls, think of outdoor malls that are anchored by things like grocery stores or discount stores like TJ Maxx (NYSE: TJX) is a big tenant of a shopping center. Kimco Real Estate (NYSE: KIM) is a major player in the shopping center space, stock symbol KIM.
Finally, stand-alone net rental retailing, it may seem like a complicated term. All that means are commercial properties that have a tenant. Examples of these things are things like dollar stores. Many dollar stores are independent. Pharmacies like CVS (NYSE: CVS) and Walgreens (NASDAQ: WBA), many of them are autonomous. Warehouse clubs like Costco (NASDAQ: COT) are independent properties. Convenience stores with gas stations in particular are generally independently owned and operated by these retail REITs.
Real estate income (NYSE: O) is actually the first REIT I have ever purchased, and it is the largest independent retailer. The ticker symbol is just O. Here, too, you notice the monthly dividend company because it pays distributions every month, which is rare in the space. They actually own a mark on that term. They’ve been paying monthly dividends for so long. They have made over 600 consecutive monthly dividend payments. So if you are on the hunt for income and are listening to this you might want to put it on your radar. A very big investment for me and it is a big part of my personal retirement plan.
Hospitality REITs is next. They are generally hotels. The owners and operators have hotels and resorts. One interesting thing to note when talking about hotel REITs is that they have a very unique lease structure compared to any other type of commercial real estate. Think about what we’ve been talking about so far. Office REITs typically lease space to tenants for 5-10 years at a time. Industrial REITs lease premises to tenants like Amazon (NASDAQ: AMZN) for years at a time. Retail REITs, mall tenants, lease their space for, say, a 10-year lease.
With hotel REITs, your tenants are people staying at the hotel. So technically they rent it out on a day-to-day basis. This creates a really interesting dynamic where, in times of economic prosperity, hotels are in an excellent position to benefit as they can adjust their rent on a daily basis to meet demand. If they notice an increase in travel demand, as is currently the case at the end of 2021, they have the option of increasing their rent accordingly, their daily rate. On the other hand, in bad economies, hotel REITs tend to be more squeezed than other REITs because they have a lot of vacancies. It’s not like a tenant has a 10-year lease and can’t leave. Their properties can become vacant very quickly in difficult times.
Hotel REITs have a few different subcategories. There are some that have large scale resorts, some that have smaller hotels, what they call selected service hotels that don’t have restaurants or convention spaces, things like that. Then you have business-oriented hotels. Some examples, Hotels and resorts (NASDAQ: HST) is the leader in the hotel space. Stock symbol TVH. They own a lot of luxury resorts. Apple Hotel REIT (NYSE: APLE) also listed there, ticker symbol APLE. They have a lot of extended stay type properties. These are the chosen service category that I just spoke about.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Matthew Frankel, CFP owns shares of Realty Income. The Motley Fool owns shares and recommends Amazon and Costco Wholesale. The Motley Fool recommends CVS Health and The TJX Companies and recommends the following options: $ 1,920 long calls in January 2022 on Amazon and $ 1,940 short calls in January 2022 on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.