Have you ever considered trying to cash in on the growing popularity of the recreational vehicle lifestyle? If the thought has crossed your mind, yet you’ve nixed the idea of opening a dealership or attempting to set up a park, there is still a way to take advantage of all those dollars flowing into the RV industry. That opportunity is investing in real estate investment trusts (REITs) that manage RV resort properties.
Buying shares in a real estate investment trust (REIT) is similar to purchasing shares of a mutual fund or publicly traded stock. However, in the case of a REIT, the underlying assets are real estate related. REITs allow average investors to benefit from real estate investments without having to actually buy, finance, or manage property.
Most REITs own portfolios of income-producing commercial real estate that generate income from rent. REIT investors can own any type of underlying property: apartments, shopping centers, hotels, mini-storage complexes - and yes even RV parks.
To qualify as a REIT, at least 75% of the assets must be real estate and the company must derive at least 75% of its income from real estate-related activity. Any net rental income is paid out as dividends to shareholders. In fact, by law, REITs must pay out at least 90 percent of their taxable income to shareholders each year.
People invest in REITs primarily for the dividends. Unlike corporate dividends, which are tied to profits and can be unpredictable or even non-existent, a REIT’s dividends are tied to rental income. Since rents are naturally recurring, REITs are noted for their ability to generate a steady stream of income despite market conditions.
While REITs have historically provided above-average dividends, it’s not necessarily at the exclusion of capital appreciation of the shares. As properties are added to a REIT’s portfolio or the underlying properties appreciate in value, a REIT’s share price can appreciate as well.
This combination of steady income and potential for long-term capital appreciation can produce impressive total returns.
Two companies stand out as REITs for the RV industry in particular - Sun Communities and Equity Lifestyle Properties.
Real estate, particularly in the commercial sector, is strong in 2018. That bodes well for real estate as a whole, which has historically returned an average of about 7% across good markets and bad.
Yet, one of the great things about real estate investment trusts is that they can focus your investment dollars on certain categories of real estate. Various trends in our economy make certain REITs - particularly those connected to travel and hospitality - well positioned as promising investments.
Consider the shift away from owning a big house to live the American dream as an example. Millennials are foregoing home ownership in favor of more “mobile” living options like apartments and co-living arrangements. Essex Property Trust, an apartment REIT, is cashing in on that. Even baby boomers are downsizing from large suburban homes and need space to store their overabundance of possessions. Public Storage is making a play on that with trusts specializing in mini-storage.
A generally strong economy has meant higher discretionary income (and spending), and a lot of it has been flowing into travel. There are spillover effects from that spending that may not be initially obvious. For example, Hospitality Properties Trust has among its REIT holdings 199 Petro and TA travel centers located along the country’s interstate highways. These are benefitting not only from the rise in travel but also from the boom in e-commerce impacting the trucking industry.
Many of these trends run head-on into the recreational vehicle industry. Some of those Millennials are choosing full-time RV living over home ownership. Many downsizing boomers are hitting the road for extended trips. And, while the generally good economy is triggering increased travel, many families choose RV vacationing to economize.
The bottom line - REITs rooted in hospitality property, whether it is hotels, resorts, or RV parks, stand to benefit from the outdoor industry.
If the idea of investing in REITs appeals to you and you’d like to concentrate some of your investment in RV-related properties, there are a couple of good choices. Two companies in particular - Sun Communities and Equity Lifestyle Properties concentrate their portfolios in RV resorts and similar properties.
Sun Communities owns and/or has an interest in 367 recreational vehicle and manufactured housing communities located in 31 states in the U.S. and Canada. As of 2018, the company has 126,000 developed sites in its portfolio and recently acquired a new 175-site RV resort in Saint Augustine, Florida.
Tom O’Branovic, senior vice president of operations with Sun Communities says about the growth of RV vacationing: “I’m bullish on the industry. It’s a solid and affordable vacation for people. It has a recession-proof quality to it”. He also noted, “We are looking for opportunities to take advantage of great locations.” That includes ground-up developments underway in Paso Robles in the wine country of California, Myrtle Beach, and Granby, Colorado at the front door of Rocky Mountain National Park.
Company shares have been available since 1993 and are currently traded on the New York Stock Exchange (NYSE) under the symbol SUI. Dividend yield was 2.79 percent as of September 2018; the share price has appreciated approximately 12 percent since the beginning of the year.
ELS is one of the country’s largest REITs with 410 properties in 32 states in the U.S. and Canada. As of 2018, the company has 153,549 developed sites in its portfolio. The company recently acquired new communities in Clearwater; Riverview; and Holiday, Florida.
Investor Relations at ELS describes their history and portfolio: “Over nearly fifty years, we have grown a portfolio of premier manufactured home communities, RV resorts, and campgrounds in the most desirable locations in the country”, adding, “Many communities are one-of-a-kind properties...irreplaceable assets found in locations where these types of developments simply cannot be built anymore.” What makes ELS attractive for your portfolio is the fact that their clusters of communities create economies of scale in operations, providing residents high levels of services and amenities at competitive prices.
Equity Lifestyle Properties also trades on the New York Stock Exchange. Shares have been traded since 1992 under the symbol ELS. As of September 2018, dividend yield was 2.27 percent. The share price has appreciated nearly 10 percent since the beginning of the year.
If you are interested in investing in Sun Communities, Equity Lifestyle Properties or any other REIT, the process is fairly straightforward. Most REITs trade on either the New York Stock Exchange or NASDAQ. You simply buy publicly-traded shares on either exchange as you would any other security - through a registered broker such as Etrade, Ameritrade or your local licensed broker.
To follow a REIT’s shares and conduct research before any acquisition, tools like Yahoo Finance will allow you to look up the company via its name or stock symbol and get information ranging from current stock price to company news to the date of the next dividend distribution.