These three companies, although in different sectors, are deeply involved with real estate — the investment world’s oldest path to success
Real estate investor and philanthropist Louis J. Glickman once said, “the best investment on earth is earth.” We examine three companies that take this tenet to heart: One with many theme parks, one a listing service that started to invest in its own properties, and one specializing in leisure resorts.
The Walt Disney Company (NYSE: DIS) is a media and entertainment colossus owning film and television studios, theme parks, and streaming services. Disney’s involvement in real estate covers not only its many theme parks around the globe but also residential complexes and resorts. The Walt Disney World Resort is about 30,000 acres (roughly the size of San Francisco). Approximately 35% of the land is used for the parks and resorts and 25% for wildlife conservation; that leaves roughly 40% yet to be developed — and that’s only in Florida. Disney also has parks in California, Tokyo, Hong Kong, Paris, and Shanghai.
The company originally paid $5 million for its Florida purchase. In 2011, the company opened Golden Oak, an upscale residential community within the Walt Disney World Resort, with home prices ranging from $2 million to over $10 million. Disney also made land purchases totaling 2,775 acres and costing $40 million in Florida in the last two years. From its real estate investment in parks and resorts, Disney made $26.23 billion in revenue in 2019, or more than a quarter of its total intake. Making money from physical properties can have risks though. Recently, Disney announced a potential loss of $175 million due to closures of its parks in Shanghai and Hong Kong due to the COVID-19 outbreak, while violent incidents such as protests in Hong Kong can also affect attendance.
Zillow Group (NASDAQ: ZG) is a real estate database and search engine company that was founded in 2006 by CEO Richard Barton, Executive Chairman Lloyd Frink, and former CEO Spencer Rascoff. The company saw its revenue surge from $17 million to $2.743 billion between 2009 and 2019, a 16,035% increase. Zillow offers varying value estimates and reports on properties as well as aerial views and prices of comparable homes in the area being searched. In 2009, the company began listing rental properties and offering tools for credit checks and eviction history. Zillow primarily makes money from advertising for property managers for rentals, real estate agents, mortgage lenders, designers, contractors, and other such companies.
In April 2018, the company entered the iBuying (instant buying) market by launching Zillow Offers in limited markets in the U.S. With this program, Zillow will purchase a seller’s home, make any required repairs and renovations and list the property hoping to sell it within 90 days. In 2019, roughly 50% of the company’s revenue came from its Homes Segment, which includes the Offers program. The program has expanded to twenty-four territories, including highly populated areas like Los Angeles, the second-largest housing market in the U.S., and Phoenix, and is expected to reach more markets in 2020.
There are risks involved with iBuying. The margins aren’t ideal; Zillow records nearly $5,000 in losses per home and its Homes division lost $312 million in 2019. Additionally, a recession in the housing market, like in 2008, can seriously affect earnings.
3. Vail Resorts
Vail Resorts, Inc. (NYSE: MTN) is a mountain resort company founded in the early 1960s by ski patrol guides Pete Seibert and Earl Eaton. The company owns and operates 37 resorts in the United States, Canada, and Australia. Acquisitions have been a major growth driver for the company, boosting its EPS threefold between fiscal 2015 and 2018, from $3.07 to $9.13 per share. Vail generates 86% of its revenue from its Mountain segment (ski school, dining, retail & rental operations) and 14% from its Lodging segment (hotels, golf courses and ground transportation).
There are two risks to Vail’s business. The first is climate change, causing shorter winters and affecting the company’s bottom line. To combat this, Vail pushes season pass sales and has seen success with this strategy in the past. The second is the economy. People travel for leisure less when they have less disposable income and a recession could seriously hurt Vail’s profits.
Real estate has always been a safe bet as it offers a source of passive income and profit from value appreciation. Massive investments, however, can carry inherent risks in the form of a pandemic, a recession or climate change.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.