APLE - REITs Capitalizing On Taylor Swift's Eras Tour

2023-07-14 13:45:13 ET

Summary

• Sweden's Central Bank reported a higher than expected 9.7% inflation rate in May, partly attributed to the impact of Beyonce's Renaissance Tour on hotel prices.
• The article explores the potential for hotel REITs to benefit from major concert tours, citing evidence of increased occupancy and room rates during Taylor Swift's Eras Tour.
• The article identifies Service Properties Trust and Apple Hospitality as the REITs with the most exposure to Swift's tour, suggesting they may see enhanced demand and profitability.

In early June, Sweden's Central Bank reported a higher than forecast 9.7% rate of inflation for the month of May. In explaining the surprise, Danske Bank economist Michael Grahn described that the Stockholm kickoff of Beyonce's Renaissance Tour sent hotel prices soaring and may have contributed more than 0.2% to the cost index's climb.

What?

Citing a musical superstar will probably get you more page views than saying food and energy prices are rising, but that's not inflation. That's a cultural phenomenon. That is supply and demand. The supply of Beyonce was far outstripped by the demand; when that happens, I want to buy Beyonce all day long.

Since Beyonce was still in Europe, we struck upon the even bigger sensation that has been rolling out here in The States over the last few months: Taylor Swift's Eras Tour. If hotel rates soared along Taylor's tour schedule, we could identify which hotel REITs might benefit. We are not looking for an inflation hedge, we want to find and buy the winners tangential to huge show-business success.

The Exercise

We did not just take Sweden on their word; before we pursued this theme, we looked for evidence that hotels actually profit from concert tours like these. On June 7th, the Cincinnati Enquirer reported that area hotels had sold out at wallet-gouging room rates north of $1,000 in anticipation of Swift's scheduled July 1st concert.

Closer to the realm of our REIT hotels, in responding to my inquiry of how The Georgian Terrace had been affected by Taylor's 2 Atlanta performances in late April, Mack Simms, Sotherly Hotels VP of Operations replied, "The Taylor Swift tour provided a big boost for both occupancy and ADR. We sold out at the hotel versus 81% occupied same time last year. ADRs were approximately 30% higher than the same weekend a year ago."

It looks like this theme has legs.

Portfolio Income Solutions maintains a Property Directory that identifies commercial real estate owned by public real estate companies across the nation's top 50 MSAs. In a thematic investment pursuit such as this, we could use the directory to screen for who owned the hotels in the submarket for each of Taylor's 27 stadium shows.

Here is the tour schedule and the screen result:

Source: Portfolio Income Solutions

Included in the screen are the 16 US-based, publicly traded hotel REITs as well as Canada-based, but US hotel-owning, American Hotel Income Properties (AHOTF, HOT.UN). The hotels identified in the tour cities are color-coded by property type (Full-Service Hotel, Limited Service Hotel, Extended Stay Hotel, and Unclassified).

The bottom line tallies the parameters of the screen.

*The tour has twenty-seven shows in twenty cities.

* The stadiums accommodate seating for almost two million Taylor Swift fans. Presumably, some of those 2MM fans will need a place to stay.

* Each REIT had at least some "Event Night" exposure across the path of the tour. The bottom line tallies the number of property level "Event Nights" each REIT has for the entire US tour.

The Winners

With 192 Event Night exposures, Service Properties Trust ( SVC ) is the hands-down winner. SVC is also the only REIT to have properties in every city on the tour.

SVC owns 220 hotels with more than 37,000 rooms, so 192 event nights don't necessarily make the quarter, but if those event nights create significantly higher occupancy, room rates, and REVPAR, that improvement all translates to margin expansion. The point is that the concert exposure is extra.

With 129 Event Nights, Apple Hospitality ( APLE ) was a very strong 2nd on the screen. APLE has properties in all but one of the tour cities.

APLE also has 220 hotels with almost 29,000 rooms. While the mega concerts are a bonus, Apple has a focus on being in cities that have a busy, year-round events calendar, like our own Madison, Wisconsin, where APLE will soon open its second hotel. Madison is the home of the University of Wisconsin football, basketball, and hockey, as well as the State Capitol and world headquarters for Epic Systems and Exact Sciences (EXAS).

You Don't Have to Choose Just One

The purpose of this exercise was to see if given events are incremental to property operations and profitability. We have identified which REITs had the most exposure, but we won't really learn of the results until the 2nd and 3rd quarter results are reported.

This report is not a measure of any REIT's intrinsic share value, but rather an identification of how much exposure to enhanced demand each company may have had. That said, we can disclose that we are long the screen winners SVC and APLE, as well as the foreign ordinary shares of American Hotel Income Properties (AHOTF).

Coming Soon to a Stadium Near You

Now that Beyonce's tour is wending its way through the United States, we will soon publish the screen for her shows and venues. Many venues overlap with Taylor Swift's tour, so we'll see if it creates a layering effect on operations and profitability. Maybe post-pandemic pent-up demand will make concertgoers a new force in the hospitality sector.

For further details see: