REIT CEOs speaking during a general session on day two of REITweek: 2021 Investor Conference highlighted the strong signs of recovery within their individual sectors as the industry emerges from COVID-19, but added that a full recovery may not be apparent until 2023 in some instances.
The panel, moderated by Nareit President and CEO Steven Wechsler, featured Marc Ganzi, president and CEO of Colony Capital, Inc. (NYSE: CLNY), Leslie Hale, president and CEO of RLJ Lodging Trust (NYSE: RLJ), and Ed Pitoniak, CEO of VICI Properties Inc. (NYSE: VICI).
Ganzi noted that Colony’s digital business is “as strong as ever,” with expectations that growth will accelerate with the continued adoption of 5G, cloud computing, and the Internet of Things. Meanwhile, the company’s health care assets, which Colony ultimately hopes to divest, are also beginning to recover and perform.
Fundamentals also appear strong in the gaming REIT sector, with a “growing recognition over the last few weeks that Las Vegas is the epicenter of leisure recovery,” Pitoniak said.
As for lodging, leisure demand will be the dominant driver over the summer, while the reopening of offices later in the year could bring about a “step change” for business travel, Hale said. Group, meanwhile, “is a 2022 story,” meaning that an ultimate recovery for the sector is unlikely before 2023. “We need all three legs of the stool for a full recovery,” she said.
For his part, Pitoniak noted that the “idea of a permanent secular decline in business travel doesn’t stand up to scrutiny.”
The panel also addressed the potential challenge of rising inflation. Ganzi stressed the importance of being able to recover costs through leases; Pitoniak added that VICI also has inflation protection built into its leases. Hale said that as a lodging REIT, “our ability to reprice (rooms) daily is our hedge.” She added that she sees inflation as transitory, and a development for which the lodging industry is uniquely positioned to respond.
Panelists also addressed the importance of infrastructure improvements, with Pitoniak describing improved broadband as “our 21st century road grader”—a reference to how the improvement of rural roads enabled Sears Roebuck to carry out home delivery of its goods. Ganzi added that investment in broadband must focus on rural areas and schools in order to “level the playing field.”
Turning to the recent recovery in REIT stock prices, Ganzi pointed out that investors are pricing in a recovery and strong, predictable earnings, and management teams will be under pressure to deliver. Pitoniak added that REITs entered the pandemic as an under-appreciated asset class. “I’m going to hope that we’re about to enter a golden period for REIT investment,” given the asset class’ long-term income returns and capital appreciation, he said.
On ESG matters, Ganzi highlighted the company’s commitment to diversity, equity, and inclusion (DEI), including the addition of five Black universities to Colony’s summer internship program. Colony has also promoted more women than men this year.
Hale pointed out that diversity has always been in RLJ Lodging’s DNA and stressed the importance of being able to bring your whole self to the workplace in order for an employee to reach their maximum potential.
In conclusion, the panel agreed that the pandemic has strengthened the importance of human connections and fostered a greater appreciation for mobility.