Younger generations prefer enjoying experiences over purchasing products. That's powering growing demand for places that provide fun and memorable experiences.
Because of that, companies operating these venues need more capital to fuel their growth. They're increasingly turning to real estate investment trusts (REITs) to provide financing solutions, like sale-leaseback transactions or development investments, to help fund their continued expansion. The experiential real estate sector represents a more than $100 billion growth opportunity for REITs like EPR Properties Trust (EPR +1.43%), Realty Income (O 0.74%), and VICI Properties (VICI +0.92%).
Building new experiences
EPR Properties is a leader in owning experiential real estate. The specialty REIT owns over 360 properties, including eat & play, gaming, experiential lodging, attractions, cultural, live venue, and theater properties. The company leases these properties back to the operator under long-term net leases.
NYSE: EPR
Key Data Points
Those agreements supply the company with relatively predictable rental income to support its monthly dividend, which currently yields 7.7%. It expects to pay out about 65% of its cash flow this year in dividends. That allows it to retain a significant amount of cash to fund new investments.
EPR Properties currently expects to invest $200 million to $300 million in growing its portfolio this year. It has already spent $46.7 million to buy a health and wellness property, and invested $52 million on build-to-suit development and redevelopment projects, including financing the first Goodsurf in Dallas. This stand-alone standing wave concept also combines food and beverage and outdoor entertainment. EPR has also committed to investing $245 million over the next two years in additional experiential projects. These investments will grow the REIT's cash flow, which should support a rising dividend.
Growing-the-experiences part of its portfolio
Realty Income has a small but growing experiential real estate portfolio. The diversified REIT gets 2.5% of its annual contractual rent from tenants in the movie theater industry and 4.1% from health and fitness. Meanwhile, it has expanded into the gaming industry over the past year. It acquired the Encore Boston Harbor Resort and Casinos in a $1.7 billion sale-leaseback transaction with Wynn Resorts at the end of last year. That property currently contributes 2.7% of its rent.
NYSE: O
Key Data Points
The REIT recently secured its second investment in the gaming industry. It agreed to invest $950 million into the real estate assets of Bellagio Las Vegas. Realty Income will invest $300 million to acquire a 21% indirect interest in the property through a joint venture with Blackstone. It will also invest $650 million in preferred equity into the joint venture.
Experiential real estate fits well within Realty Income's investment strategy. It aims to acquire properties that are either resilient to economic downturns or isolated from the pressure of e-commerce. While experiential businesses have some recession risk, you can't replicate them online. These investments help support the company's ability to pay a steadily growing monthly dividend. That payout currently yields an attractive 5.7%.
Diversifying beyond gaming
VICI Properties owns one of the largest portfolios of gaming, hospitality, and entertainment destinations. It owns 54 gaming facilities across the U.S. and Canada, including many iconic properties along the Las Vegas Strip.
NYSE: VICI
Key Data Points
The company also has a growing portfolio of non-gaming experiential property investments. It has provided financing to Great Wolf Lodge (indoor waterparks), Canyon Ranch (health and wellness experiences), BigShots Golf (driving ranges), and Cabot (destination golf experiences). Many of those investments could turn into sale-leaseback acquisitions.
VICI Properties' growing portfolio has supported a steadily rising dividend. The REIT recently increased its dividend by 6.4%, its sixth straight year of dividend growth since its formation. That pushed its dividend yield up to 5.4%. Future acquisitions and investments across the gaming and non-gaming sectors should enable VICI Properties to continue increasing its dividend.
Exiting dividend stocks
EPR Properties, Realty Income, and VICI Properties are leaders in the emerging experiential real estate sector. They've already built sizable experiential portfolios, which should continue growing as they tap into the more than $100 billion opportunity to acquire and develop these properties. Those investments will grow their rental income, which should enable these REITs to continue increasing their already sizable dividends.
