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Gaming The System: How Experiential Retail Boosts REITs

Just as investors realized the power of experiential retail to reinvigorate sagging shopping centers in the years leading up the pandemic, REITs specializing in the properties that house Instagram-worthy activities like ax-throwing or perfecting your chip shot are weathering the latest stock market shocks better than their more traditional counterparts.

Retail REITs have had a bad run recently, with year-to-date returns down more than 26%, according to NAREIT, despite the return of shoppers to shopping centers. But, aided by the draw of unique experiences after two years of pandemic doldrums, experiential retail real estate has growth potential, even as the greater market suffers.

Topgolf combines the concepts of indoor mini-golf with the driving range and adds table service.

“The crazier the idea, the more it makes sense to the consumer,” Phillip Hooks Jr., a Dallas-based partner with Advisors Commercial Real Estate, told Bisnow. “The more they want to experience those crazy ideas.”

In addition to hurling axes, experiential retail offerings include indoor skiing and snowboarding, indoor putt-putt, skateparks, trampoline rooms, video and tabletop gaming and even so-called rage rooms, where patrons dressed in safety gear unleash their angst on empty wine bottles, old ceramics and the occasional antiquated television.

One of the best-known REITs to specialize in experiential retail is EPR Properties, which owns movie theaters, experiential lodging, eat-and-play venues, ski facilities and more, totaling more than 350 locations in North America.

Perhaps the biggest name in EPR’s portfolio is Topgolf, a concept that combines mini-golf with a driving range and clubhouse. Topgolfs have taken many metro areas by storm, cropping up wherever they can find adequate space, a concentration of customers and willing municipalities.

"There is still room for growth for top brands in experiential retail," Newmark Vice Chairman, Net Lease Capital Markets Matt Berres said. "For example, Topgolf appears to have runway ahead with figuring out creative ways, in addition to its already successful venue format, to move into high-barrier-to-entry locations," Berres said.

In El Segundo, California, Topgolf recently developed a facility at an existing municipal golf course, completely making over the traditional golf course. 

"This forward-thinking approach [by Topgolf] could be replicated in other markets across the country," Berres said, adding that other brands like Dave & Buster's may see growth as more malls are redeveloped into mixed-use destinations where there is a strong demand for entertainment retail tenants. That demand has translated into strong financial results for the companies that own the properties.

EPR reported net income of $50M in the third quarter of 2022, compared with $32M in the same period of 2021, and increased its guidance for key financial indicators for the rest of the year. The company spent $320M so far this year on development, with another $250M planned.

“We are prudently investing in attractive experiential assets as we further diversify our portfolio, with significant committed investment spending to drive future growth without the need to raise additional capital,” EPR Chairman and CEO Greg Silvers said in the company’s earnings call.

Another experiential specialist, VICI Properties, was founded in 2017 as part of the bankruptcy reorganization of Caesars Entertainment Corp., and now owns 43 gaming properties comprising over 122M SF, under numerous famed brands, as well as hotels, restaurants, nightclubs and golf courses. 

The company is riding the wave of people returning to casinos. The Las Vegas Convention and Visitors Authority reported that more than 3.35 million people visited southern Nevada in September 2022, a total 39% higher than the same month in 2021, and 3.5% shy of September 2019.

VICI has seen its stock increase in value this year, up nearly 9% year-to-date as of Nov. 2, very much against the trend for retail REITs — and all REITs, for that matter, which are down nearly 28% this year alone, according to NAREIT.

The company also reported at the end of October that revenues doubled during the third quarter of 2022 compared to the same period last year, and that adjusted funds from operations were up 82.8% year-over-year.


"Global place-based wellness stands to be one of the fastest-growing consumer spaces for years to come, thanks to the strong cultural and demographic factors around wellness," VICI CEO Ed Pitoniak said during the REIT's third-quarter earnings call in late October. The company didn't respond to direct queries from Bisnow.

During the call, Pitoniak elaborated on the thinking behind the move into this brand of experiential real estate, which he said offers "pilgrimage experiences" that "tend to attract within that experiential category, the most valuable and loyal clientele."

"We have invested in relationships with high-quality partners operating in high-quality experiential segments," Pitoniak said.

It’s not all good news, though.

Movie theaters, which haven't completely recovered from the pandemic, have proven to be something of a drag on EPR, since nearly half (46%) of EPR’s annualized revenue is derived from movie theaters. Among the company’s theater tenants is the beleaguered Regal Cinemas, which leases 57 properties from EPR. Regal filed for Chapter 11 bankruptcy over the summer and has missed September rent, according to EPR’s third-quarter filing, resuming in October. However, Regal has said that it will “optimize” its real estate portfolio as part of its restructuring.

The question now for experiential landlords is whether consumers will continue to crave their offerings, be they more standard casinos and resorts, or some of the more unusual offerings that the industry is trying out, especially as the economy worsens.

One school of thought has it that the surge in interest in experiential retail is more than just a rebound from the worst of the pandemic restrictions. Rather, it is supported now — and was before the pandemic — by a growing "experience economy," a term popularized by economist Joseph Pine in the 1990s.

Pine argued that businesses that create unique experiences for customers will be able to differentiate themselves from their competitors, and capture a rising interest among young consumers for experiences they believe enrich their lives, or at least have a corking good time.

The experience economy is much broader than retail or even resorts, including travel, theme parks, virtual reality and other industries focused on experiential services, rather than goods.

"It’s all about long-term excitement, generated by venues based around an activity that can grow into a hobby or passion for patrons, such as golf or bowling, and offer food, drinks and service," Newmark's Berres said.

Kearney partner Michael Brown, who is Americas retail leader at the company, is a little more skeptical about experiential retail, at least in the short term, such as when it comes to driving business during the all-important upcoming holiday season.

"After years of muted holiday celebrations, consumers are ready to celebrate this year," Brown said. "Inflation will not stop them from shopping, but they do want deals."

Experiences are always important, he said, but during holidays the impact is not as key.

"It’s about merchandise being in stock, deals and quick and easy shopping," Brown said. "Retailers need to focus on getting the basics right especially in this time when service is being negatively impacted by labor shortages. Experiential during the holidays means service, speed and smiles."