Top 5 REITs and Resorts with Wealth Effect Momentum

The article discusses the relationship between REITs and affluent consumers, focusing on the "wealth effect." It highlights that nearly 50% of consumer spending comes from the top 10% of income earners, who are more likely to invest in luxury resorts and amenities. The article identifies five top REIT picks with wealth effect momentum, including those with a focus on luxury resorts and affluent consumer spending.

As the U.S. economy moderates and interest rates fall, the "wealth effect" continues to influence consumer spending, particularly among the top 10% of income earners. According to the U.S. Census Bureau, nearly 50% of consumer spending originates from this high-end demographic, driven by rising asset values and home prices. In this environment, luxury resorts and high-end real estate investments are poised to benefit.

REITs (Real Estate Investment Trusts) and resort stocks, in particular, are well-positioned to capture this wealth effect momentum. The following are five top REIT picks that align with affluent consumer spending trends:

1. Host Hotels & Resorts, Inc. (HST)
- Market Capitalization: $11.92B
- Quant Rating: Strong Buy
- Sector Ranking: 6 out of 176
- Industry Ranking: 1 out of 15
- Sector: Real Estate
- Industry: Hotels and Resort REITs
- Description: Host Hotels & Resorts, a quality income-tilted real estate sector stock, is primed for a falling rate environment. The company's recent earnings call highlighted a 19% RevPAR (Revenue Per Available Room) growth at its Maui resorts, and the CEO raised full-year 2025 revenue guidance to between 1.5% and 2.5% over 2024. HST's forward P/FFO (Price to Funds from Operations) of 8.47 is supported by its impressive dividend growth of +15.38% for the trailing twelve months.

2. Xenia Hotels & Resorts, Inc. (XHR)
- Market Capitalization: $1.38B
- Quant Rating: Strong Buy
- Sector Ranking: 8 out of 176
- Industry Ranking: 2 out of 15
- Sector: Real Estate
- Industry: Hotels & Resort REITs
- Description: Xenia Hotels & Resorts invests in uniquely positioned luxury and upscale hotels and resorts. Its recent earnings call reported significant increases in revenues and hotel EBITDA compared to the prior year, with the Grand Hyatt Scottsdale Resort driving growth. The company raised its full-year guidance for adjusted EBITDA by $8 million, reflecting strong second-quarter performance.

3. DiamondRock Hospitality Company (DRH)
- Market Capitalization: $1.64B
- Quant Rating: Strong Buy
- Sector Ranking: 15 out of 176
- Industry Ranking: 3 out of 15
- Sector: Real Estate
- Industry: Hotels & Resort REITs
- Description: DiamondRock Hospitality owns a portfolio of hotels concentrated in leisure destinations and top gateway markets. Its forward P/FFO of 7.65 suggests better value relative to its cash earnings, offering potential upside. The CEO noted increased out-of-room spending trends and maintained the company's full-year outlook for RevPAR growth.

4. Howard Hughes Holdings Inc. (HHH)
- Market Capitalization: $5.01B
- Quant Rating: Strong Buy
- Sector Ranking: 1 out of 176
- Industry Ranking: 1 out of 4
- Sector: Real Estate
- Industry: Real Estate Development
- Description: Howard Hughes Holdings develops master-planned communities in the U.S., particularly around Las Vegas, Houston, and Phoenix. The company's recent earnings call reported strong results, with adjusted operating cash flow of $91 million, and EPS diluted year-over-year growth of 124.51%. The CEO noted plans to use a $900 million cash infusion to transform the company into a premier diversified holding company.

5. Melco Resorts & Entertainment Limited (MLCO)
- Market Capitalization: $3.49B
- Quant Rating: Strong Buy
- Sector Ranking: 19 out of 483
- Industry Ranking: 1 out of 29
- Sector: Consumer Discretionary
- Industry: Casinos and Gaming
- Description: Melco Resorts & Entertainment Limited operates in the Macau casino sector. The company is expected to benefit from strong tourism marks in the summer and the NBA's China games for the 2025 preseason. Its year-over-year revenue growth of 12.41% and 6-month price return of over 70% outpaced the consumer discretionary sector and the broader market.

In conclusion, these REITs and resort stocks are well-positioned to capture the wealth effect momentum driven by affluent consumers. As interest rates fall and asset values rise, these investments are likely to benefit from increased spending on luxury resorts and high-end real estate.