When the COVID-19 pandemic started in early 2020, few types of stocks were hit as hard as retail and hotel real estate. However, these two REIT (real estate investment trust) subsectors 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 Sept. 3, Millionacres senior real estate analyst Matt Frankel, CFP, discusses some of the names worth keeping an eye on in these two categories.
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Matt Frankel: Next, we have retail REITs. This is one that there are a lot of sub subsectors of. Most retail REITs specialize in a single type of retail properties. There are three main categories. There are malls, shopping centers, or freestanding net lease retail properties. Malls are self-explanatory. Simon Property Group (NYSE: SPG), you see an example right there, ticker symbol SPG, is the biggest example. At one point, it was the biggest REIT in the market, but that's not the case anymore.
Shopping centers, think of open-air centers that are anchored by things like grocery stores or discount stores like TJ Maxx (NYSE: TJX) is a big shopping center tenant. Kimco Realty (NYSE: KIM) is a big player in the shopping center space, ticker symbol KIM.
Finally, freestanding net lease retail, that might sound like a complicated term. All it means are retail properties that have one tenant in them. Examples of these are things like dollar stores. A lot of dollar stores are freestanding. Drugstores like CVS (NYSE: CVS) and Walgreens (NASDAQ: WBA), a lot of those are freestanding. Warehouse clubs like Costco (NASDAQ: COST) are freestanding properties. Convenience stores with gas stations especially are generally freestanding properties that are owned by these retail REITs.
Realty Income (NYSE: O) is actually the first REIT I ever bought, and it's the biggest player in freestanding retail. Ticker symbol is just O. There also you notice the monthly dividend company because they pay distributions every month, which is rare in the space. They actually own a trademark on that term. They've been paying monthly dividends for so long. They've made over 600 consecutive monthly dividend payments. So if you're an income seeker listening to this, that's one that you might want to put on your radar. A very big investment for me and it's a big part of my personal retirement plan.
Hospitality REITs is the next one. These are generally hotels. Owners and operators have hotels and resorts. One interesting thing to note when you're talking about hospitality REITs is they have a very unique lease structure when compared to every other type of commercial real estate. Think of what we've talked about so far. Office REITs generally lease out spaces to tenants for 5-10 years at a time. Industrial REITs lease out space to tenants like Amazon (NASDAQ: AMZN) for years at a time. Retail REITs, mall tenants, rent their space for, say, a 10-year lease.
With hotel REITs, your tenants are people staying at the hotel. So they're technically leasing it on a day-to-day basis. It creates a really interesting dynamic where during prosperous economic times, hotels are in great positions to benefit because they can adjust their rent daily to keep up with demand. If they notice demand surging for travel, like it is right now in late 2021, they have the ability to raise their rent accordingly, their daily room rate. On the other hand, in bad economies, hotel REITs tend to get crushed worse than other REITs because they have lots 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 bad times.
Hospitality REITs have a few different subcategories. There are some that have large-scale resorts, some that have smaller, what they call select service hotels that don't have restaurants and convention space, things like that. Then you have business-focused hotels. A couple of examples, Host Hotels & Resorts (NASDAQ: HST) is the leader in the hotel space. Ticker symbol HST. They own a lot of luxury type resorts. Apple Hospitality REIT (NYSE: APLE) also listed there, ticker symbol APLE. They own a lot of the extended stay-type properties. Those are the select service category I was just talking about.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matthew Frankel, CFP owns shares of Realty Income. The Motley Fool owns shares of and recommends Amazon and Costco Wholesale. The Motley Fool recommends CVS Health and The TJX Companies and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls 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.
