People are increasingly craving experiences that they can't get at home. They want to watch blockbuster films on the big screen, have a spa day, meet friends at a bowling alley, or go to a casino. Spending on experiences has steadily grown over the past quarter-century as people seek new adventures.
Each of the experiences I named have one thing in common. They require a physical space that can deliver a memorable experience. Many of the companies that have developed these experiential properties are realizing that they don't need to own these properties to deliver the best experience to consumers. That's leading them to partner with real estate companies that will own the properties, which provides them with capital to expand.
There are an estimated $400 billion of operator-owned casino properties in the U.S. and more than $100 billion of other experiential properties. That's providing real estate investment trusts (REITs) focused on this unique sector with a wide-open door to expand their portfolios, providing them with more rental income to increase their dividends. Here's a look at three REITs cashing in on this $500 billion opportunity.
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EPR Properties
EPR Properties (EPR 0.70%) is a pioneer in the experiential real estate space. The REIT has built a diversified portfolio over the past 25 years, consisting of over 330 experiential properties across the U.S. and Canada, leased to more than 200 tenants. It owns movie theaters (38% of its earnings), eat & play venues (24%), attractions and cultural properties (13%), fitness and wellness locations (8%), ski properties (7%), experiential lodging (2%), and gaming (2%). It also has a small educational property portfolio (early childhood education and private schools) that it's steadily selling off to recycle capital into experiential properties.
The company aims to invest $200 million to $300 million annually into new experiential properties. It will acquire properties; it bought Diggerland USA for $14.3 million in the first quarter, the only construction-themed attraction and water park in the country. The REIT will also fund experiential development and redevelopment projects. It recently made its first traditional golf investment by financing the construction of a private club in Georgia. The company currently has $148 million of projects lined up that it has agreed to fund over the next two years.
EPR Properties' current investment rate should support 3% to 4% annual growth in its funds from operations (FFO) per share. That should drive a similar growth rate in its dividend. The REIT currently pays a monthly dividend that yields 6.7%.
Realty Income
Realty Income (O 0.25%) is a leading diversified REIT. It owns retail, industrial, gaming, and other properties. Included in its retail portfolio are health and fitness properties (4.3% of its annual base rent), theaters (2.1%), and entertainment properties (1.8%). The REIT also gets 3.2% of its rent from gaming properties.
The company entered the gaming sector in 2022, acquiring the Encore Boston Harbor Resort and Casino in a $1.7 billion sale-leaseback transaction with Wynn Resorts. It followed that up in 2023 by investing $950 million into The Bellagio Las Vegas ($300 million of equity and $650 million preferred equity). The REIT expanded into the gaming sector because it opened the door to an estimated $400 billion market opportunity to invest in U.S. gaming properties.
Realty Income's growing rental income supports a steadily rising monthly dividend that currently yields 5.8%.
Vici Properties
Vici Properties (VICI 0.10%) was formed in 2017 when casino operator Caesars Entertainment spun off most of its real estate assets into a new REIT. It has steadily expanded over the years and now owns one of the largest portfolios of market-leading gaming, hospitality, wellness, entertainment, and leisure destinations. It owns 54 gaming properties and 39 other experiential properties (38 bowling entertainment locations leased to Lucky Strike Entertainment and Chelsea Piers, a sports and entertainment complex in New York City). The REIT also has development partnerships with leading experiential operators, including Great Wolf Resorts, Cain International, Cabot, and Canyon Ranch.
The company forms partnerships with leading experiential property owners and developers that it aims to be "win-win." This strategy routinely provides follow-on investment opportunities. For example, it recently formed a strategic partnership with Cain International to collaborate on experiential investment opportunities. The first project will see the REIT invest $300 million into a mezzanine loan to support the development of a landmark luxury mixed-use development in Beverly Hills that will feature an all-suite Aman Hotel, a carefully curated selection of luxury retail and dining options, and botanical gardens.
This strategy has paid dividends for shareholders. Vici Properties has increased its payout (which currently yields 5.5%) in all seven years since its formation, growing its payment at a 7.4% compound annual rate.
Exciting dividend stocks
EPR Properties, Realty Income, and Vici Properties are tapping into the growing demand for experiences. These REITs are building and buying experiential properties, which provide capital to experiential operators to expand their footprints. These investments are growing their rental income streams, enabling the REITs to steadily increase their already lucrative dividend payments. With a $500 billion investment opportunity ahead, they have plenty of room to continue growing.
