EPR Properties: Undervalued 6.7%-Yielder Set to Soar in Consumer-Led Economic Recovery
February 17, 2022
EPR Properties Resumes Monthly Dividends
With millions of North Americans quarantined and hundreds of thousands of out of work, the COVID-19 pandemic devastated the economy. Some industries were hit harder than others. One sector that was hobbled was the entertainment and experiential sector: movie theaters, restaurants, and travel destinations like amusement parks, casinos, and ski resorts. One company that felt the brunt of that was EPR Properties (NYSE:EPR).
As you can see in the chart below, EPR Properties stock took a nosedive in late February 2020, losing 80% of its value. After raising its monthly dividend to $0.3825 in March and April of that year, the company suspended its dividends for 15 months.
But with the end of the pandemic in sight and more people getting outdoors, the demand for entertainment and experiential properties has been bouncing back. Case in point, restaurant sales in September 2021 were 8.5% higher than they were in February 2020. (Source: “Investor Presentation Q3 2021,” EPR Properties, last accessed February 16, 2022.)
And when it comes to group occasions, 70% of consumers would rather opt for an entertainment venue than a casual-dining restaurant.
That’s good news for EPR, which relies on rent money from properties that cater to people getting out of the house and spending money.
The company’s cash collections were back up in the third quarter of 2021, exceeding management’s expectations. Moreover, EPR has been collecting deferred rent and interest. On top of that, the company recently completed a new $1.0-billion credit facility, which can be extended to $2.0 billion. This allows the company to pursue acquisitions. (Source: “EPR Announces New Amended and Restated $1.0 Billion Revolving Credit Facility and Provides Business Update,” EPR Properties, October 6, 2021.)
For income hogs, a gradual return to normal has resulted in EPR resuming its monthly dividends. In July 2021, the company announced a monthly dividend of $0.25 per share, for a yield of 6.7%. (Source: “EPR Properties Announces Resumption Of Monthly Cash Dividend To Common Shareholders Following Early Termination of the Covenant Relief Period,” EPR Properties, July 13, 2021.)
Furthermore, EPR stock’s price has been on the move, up by 15% year-over-year.
Chart courtesy of StockCharts.com
EPR Properties stock hasn’t yet erased all of its losses associated with the coronavirus-fueled stock market crash, but it’s getting there, up by approximately 285% from its March 2020 lows.
The stock needs to climb by 50% to get to its October 2019 pre-pandemic record level near $72.00 per share.
About EPR Stock
EPR Properties is a real estate investment trust (REIT) that invests in experiential properties. It also owns an education portfolio, although it has been reducing its focus on that segment.
The REIT’s $6.5-billion portfolio is made up of 358 properties and more than 200 tenants in 44 U.S. states and Canada. Its portfolio comprises:
- 177 theater properties, responsible for 44% of the company’s contractual cash revenue
- 65 early childhood education properties, responsible for three percent of its contractual cash revenue
- 57 “eat & play” properties (restaurants, golf, bowling, etc.), responsible for 28% of its contractual cash revenue
- 18 water and amusement parks, responsible for 18% of its contractual cash revenue
- 13 ski resorts, responsible for eight percent of its contractual cash revenue
- Nine private school properties, responsible for two percent of its contractual cash revenue
- Eight experiential properties (indoor water parks, recreational properties, and leisure properties), responsible for four percent of its contractual cash revenue
- Seven fitness and wellness properties, responsible for one percent of its contractual cash revenue
- Three cultural properties (zoo, aquarium, and museum), responsible for one percent of its contractual cash revenue
- One gaming property, responsible for two percent of its contractual cash revenue
Thanks to the company’s diverse portfolio, it has been able to provide EPR Properties stock investors with long-term gains that have outperformed the Russell 1000 Index and the MSCI US REIT Index in terms of total returns. This includes consistent, high-yield dividends.
From November 1997 through 2019, EPR stock has posted total returns of 1,762%. Over the same time frame, the Russell 1000 Index returned 441% and the MSCI US REIT Index returned 584%.
That said, it’s because of the nature of its portfolio that EPR was clobbered during the pandemic. But that’s in the past; the company has been rebounding. It’s expected to do even better over the coming quarters as the demand for experiential outings accelerates.
Third-Quarter 2021 Results
For the third quarter ended September 30, 2021, EPR announced that its revenue more than doubled year-over-year to $139.6 million. It also swung to profitability of $26.0 million, or $0.35 per share, versus a third-quarter 2020 net loss of $91.9 million, or $1.23 per share. (Source: “EPR Properties Reports Third Quarter 2021 Results,” EPR Properties, November 3, 2021.)
The all-important funds from operations as adjusted (FFOAA) came in at $64.1 million, or $0.86 per share, compared to a third-quarter 2020 FFOAA loss of $11.7 million, or $0.61 per share.
The company’s 2021 third-quarter cash collections (from tenants and borrowers) were approximately 90% of its contractual cash revenue for the quarter. On top of that, EPR Properties collected $11.3 million of deferred rent and interest, as well as $5.3 million on a previously reserved note receivable.
The REIT also strengthened its balance sheet. In September 2021, it repaid its $400.0-million unsecured term loan facility. As of September 30, the company had cash on hand of $144.4 million and no borrowings on its $1.0-billion unsecured revolving credit facility.
For full-year 2021, EPR expects to report FFOAA in the range of $2.95 to $3.01 per diluted share (up from the previous estimate of $2.76 to $2.86) and net income in the range of $0.76 to $0.84 per share (up from the previous estimate of $0.65 to $0.79).
The Lowdown on EPR Properties Stock
EPR Properties isn’t entirely out of the woods, but it’s well on its way. The strength of the consumer-led recovery at its experiential properties has helped boost its cash collections, which have exceeded its in-house guidance. The REIT has solidified its balance sheet and has enhanced its liquidity with a new credit facility and the repayment of its unsecured term loan facility.
EPR stock’s price has been on the move, and the company reinstated its monthly dividends. The outlook is bright for this high-yield dividend stock. With an active pipeline, EPR Properties is well positioned to reaccelerate its growth and expand its portfolio with strategic acquisitions.
