The experiential real estate sector is witnessing a surge in demand driven by the younger generations' preference for experiences over product purchases. This trend has opened up a growth opportunity exceeding $100 billion for real estate investment trusts (REITs) such as EPR Properties (NYSE:EPR) Trust, Realty Income (NYSE:O), and VICI Properties (NYSE:VICI). To meet this growing demand, these businesses are increasingly leveraging financing solutions like sale-leaseback transactions or development investments.
EPR Properties Trust, a key player in this sector, owns more than 360 properties across various sectors including dining and entertainment, gaming, experiential lodging, cultural attractions, live venues, and theaters. The company leases these properties back to the operators under long-term net leases, generating a steady rental income stream that supports its monthly dividend. This year, EPR plans to invest between $200 million and $300 million to expand its portfolio. The company has already spent $46.7 million on a health and wellness property and invested $52 million on build-to-suit development and redevelopment projects.
Realty Income is another REIT expanding its footprint in the experiential real estate sector. The company earns 2.5% of its annual contractual rent from movie theater tenants and 4.1% from health and fitness industry tenants. In the past year, Realty Income has ventured into the gaming industry with acquisitions such as the Encore Boston Harbor Resort and Casinos through a $1.7 billion sale-leaseback transaction with Wynn Resorts (NASDAQ:WYNN). Additionally, it made a $950 million investment into the real estate assets of Bellagio Las Vegas.
VICI Properties is diversifying its extensive portfolio of gaming, hospitality, and entertainment destinations across the U.S. and Canada into non-gaming experiential property investments. The company offers financing to businesses like Great Wolf Lodge (indoor waterparks), Canyon Ranch (health and wellness experiences), BigShots Golf (driving ranges), and Cabot (NYSE:CBT) (destination golf experiences). Many of these investments have the potential to transform into sale-leaseback acquisitions.
As pioneers in the burgeoning experiential real estate sector, EPR Properties, Realty Income, and VICI Properties are tapping into an over $100 billion opportunity to acquire and develop properties in this sector. This strategy is expected to boost their rental income, enabling them to continue growing their already substantial dividends.
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