Real estate investing is a time-tested strategy for generating passive income. For years, investors have been buying apartment buildings, office complexes, industrial facilities, self-storage properties, retail locations, and hotels to collect rental income. There are well-established markets for those properties, and many real estate companies focus on those sectors.
However, new property classes are emerging as investable opportunities. That's opening new doors for investors to step off the beaten path and further diversify their real estate portfolios. Gladstone Land(NASDAQ: LAND), Sun Communities(NYSE: SUI), and VICI Properties(NYSE: VICI) are among the real estate companies blazing new trails by owning non-traditional real estate. They're providing investors with new ways to generate passive income from real estate.
Cultivating a growing dividend
Farmland has been a superior asset class over the past several decades. It has historically produced strong total returns from crop income and land value appreciation. Farmland has also been a great inflation hedge and portfolio diversifier.
Gladstone Land is one of two farmland real estate investment trusts (REITs). The company owns 169 farms with 116,000 acres across 15 states and 45,000 acre-feet of banked water in California.
The REIT leases its properties to farmers who operate the farms. The company owns properties that grow fresh produce annual row crops, like berries and vegetables, or permanent crops, like orchards and vineyards.
The company signs long-term triple net leases (NNN), which require tenants to pay a fixed rent or a fixed rate plus a percentage of the farm's gross revenue. These leases provide the company with a stable income base and upside potential. That gives Gladstone Land money to pay dividends.
The REIT pays a monthly dividend that currently yields 3.7%. It has increased its payout 30 times over the last 33 quarters, growing it by 53.3% overall. It aims to raise its dividend by at least the long-term inflation rate in the future, supported by rent growth and farm acquisitions.
A leader in these property types
Manufactured-home communities are very stable investments. It's very expensive to move a home once it's in a community. Because of that, owners of these communities collect very durable and rising rental income.
Sun Communities is one of three residential REITs focused on manufactured-housing communities. In addition, it owns recreational-vehicle (RV) communities and marinas. It's the largest publicly traded operator of all three property classes. The company's diversified portfolio generates steadily rising rental income.
Sun Communities currently pays a 2.8%-yielding dividend. It has grown that payout over the years, including by 5.7% in early 2023. That payout should continue rising as income at existing properties grows and the REIT continues expanding its portfolio via acquisition, new developments, and expansion projects.
A low-risk bet
Spending on experiences has steadily grown over the years. People increasingly desire to connect and create lasting memories. That's driving growth for companies that operate experienced-based attractions.
VICI Properties is a leader in owning experiential real estate. The company has an industry-leading portfolio of gaming properties leased to high-quality operators. It's also increasingly investing in non-gaming properties like golf facilities, health and wellness resorts, and indoor waterparks.
The REIT leases these properties back to operators under very long-term triple net leases, the majority of which contain rental-escalation clauses tied to the inflation rate. It also routinely invests in new experiential properties.
These factors help grow VICI's rental income, enabling it to pay an attractive, growing dividend that yields 5%. The REIT has increased that payout in all five years since its formation, including by 8% late last year.
Leaders in these attractive and emerging property classes
Gladstone Land, Sun Communities, and VICI Properties are opening new doors for investors. They are leaders in owning non-traditional commercial real estate investments.
These high-quality property classes have historically been strong performers. Because of that, these REITs should benefit from above-average organic growth and limited competition for new property acquisitions. That should enable them to continue growing their dividends in the years to come, providing investors with attractive passive-income streams.
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Matthew DiLallo has positions in Gladstone Land, Sun Communities, and Vici Properties. The Motley Fool has positions in and recommends Gladstone Land and Sun Communities. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.
