Real estate investment trusts (REITs) are structured specifically to pass income on to shareholders. However, some landlords have a heavier focus on growth. If that sounds interesting to you, take a quick look at these three growth-minded REITs. One is an old hand, the others are relatively new players, but all of them have substantial growth prospects ahead.
1. A brand-new industry
Innovative Industrial Properties (NYSE: IIPR) primarily owns marijuana growing facilities. It uses the net lease approach, which means that the lessee has to pay for most of a property's operating expenses. The REIT generally buys assets from a pot company and then leases them right back to the former owner in what's called a sale/leaseback transaction.
That's important because the slow process of legalization has left marijuana companies with limited access to capital. Innovative Industrial has, basically, stepped into the void. And, because of the marijuana industry's limited financing options, it has been able to ink deals at very attractive returns.
The REIT has grown quickly, expanding from one property at the end of 2016 (the year it IPOed) to 69 in May. It paid its first dividend of $0.15 per share per quarter in mid-2017 and declared a dividend of $1.40 per share per quarter in June 2021.
At this point, it has a first-mover advantage in this niche sector that should allow it to remain a major player even if marijuana legalization increases funding options for pot companies. Notably, Innovative Industrial expects the marijuana industry to more than double between 2020 and 2025, so there should be plenty of opportunity ahead. The current yield is a modest 2.6% or so, but if growth is important to you, that shouldn't dissuade you from stepping aboard.
2. A big bet
VICI Properties (NYSE: VICI) also uses the net lease approach, only it applies it to the gambling industry. It was spun off from Caesars Entertainment in late 2017 with a portfolio of 19 properties. At the end of the first quarter, it owned 28 properties. That may not sound like a huge change, but these are giant facilities that include gaming, hotels, restaurants, and more. It has relationships with some of the biggest names in the gambling industry.
It paid its first dividend in 2017 at $0.15 per share per quarter. It declared a dividend of $0.33 per share in June. There's a couple of interesting levers for growth here.
First, the REIT hopes to continue buying casinos. Second, it also owns some entertainment properties that aren't casinos, including four golf courses and an investment in the Chelsea Piers in New York City. Adding more nongaming properties is a huge opportunity. And, third, it owns 34 acres of undeveloped land in Las Vegas on which something fun could eventually be built. The yield here is around 4.2%, which actually makes it a decent mix of growth opportunity and yield.
3. In all the right places
The first two names here are probably acquired tastes, given their youth and focus on emerging REIT niches. The last company is a bit different, having been around for decades in an industry that has existed since well before there were REITs to own the properties.
Today, Prologis (NYSE: PLD) is the largest publicly traded warehouse landlord you can buy. Warehouses may not be as exciting as marijuana grow houses or casinos, but they are a vital link in the global economy. Prologis, for its part, focuses its portfolio of nearly 1,700 properties in key transportation hubs around the world. Its portfolio would be impossible to replace.
But here's the exciting part. Prologis has built nearly half of its portfolio from the ground up, and it currently has enough land to support what it believes could be $17 billion worth of growth projects. The growth of online retail has increased the need for warehouses and the interconnectedness of the world, both of which support Prologis' growth prospects.
That said, warehouses are hot right now, and Prologis' yield is a miserly 2% or so. The dividend, which was cut during the deep 2007 to 2009 recession, has increased from $1.12 per year per share in 2013 to $2.32 in 2020. Still, for those looking for growth, this REIT has a huge built-in opportunity to keep expanding without the need to buy another property. And, for reference, the company estimates that its ground-up construction efforts have resulted in an average return of around 20%. That might just be worth a premium price.
Going for growth
While most investors look to REITs for the income they generate, that doesn't mean it's the only way to view landlords. Innovative Industrial, VICI, and Prologis all take a slightly different approach to the space that highlights growth. And that can turn out to be pretty rewarding for investors over the long term, given the dividend growth that often comes with it.