EPR Properties Stock: Overlooked 8.4%-Yielder Pays Monthly Dividends
March 15, 2023
EPR Stock Has 21% Upside
Some stocks got hammered during the COVID-19 pandemic for obvious reasons. One of them was EPR Properties (NYSE:EPR), a specialty real estate investment trust (REIT) that owns “experiential” and educational properties. The company didn’t fare too well at a time when government quarantine orders shut down the entertainment and restaurant industries.
As you can see in the chart below, EPR Properties stock took a big hit in February 2020, shedding 80% of its value back then. Moreover, after having raised its monthly dividend to $0.3825 in March and April of that year, it suspended its dividends for 15 months.
In July 2021, it resumed its monthly dividends after making meaningful progress in its property openings and cash generation. In January 2023, it paid dividends of $0.275 per share, for a current yield of 8.4%.
In order to qualify as a REIT, a company is legally required to distribute at least 90% of all its taxable income to its shareholders as dividends.
EPR Properties’ earnings continue to grow, with its overall rent and interest coverage higher than in 2019. Furthermore, it has continued to collect previously deferred rent and interest.
Despite that good news, EPR stock is about 40% lower than where it was before the pandemic. On the plus side, EPR Properties stock is up by about 115% over its March 2020 pandemic low. It’s also up by 5.2% year-to-date.
Despite EPR stock’s slow start to 2023 in terms of share price, it has great near-term potential. Analysts have provided a 12-month forecast in the range of $45.00 to $47.00 per share, which points to gains of up to 21%.
Chart courtesy of StockCharts.com
About EPR Properties
As previously mentioned, EPR Properties is a REIT that invests in experiential and educational properties. The company’s $6.7-billion real estate portfolio is made up of 363 locations in 44 U.S. states and in Canada. The company has more than 200 tenants. (Source: “Investor Presentation Q4 2022,” EPR Properties, last accessed March 14, 2023.)
EPR’s property portfolio is made up of:
- 172 theaters, which are responsible for 41% of the company’s annualized earnings before interest, taxes, depreciation, and amortization for real estate (EBITDAre)
- 65 early childhood education centers, which are responsible for five percent of its EBITDAre
- 57 “eat and play” (also called “eatertainment”) properties (e.g., golf centers, bowling centers, and indoor go-kart facilities with restaurants), which are responsible for 24% of its EBITDAre
- 23 attractions (e.g., water parks, amusement parks, and adjacent lodging), which are responsible for 11% of its EBITDAre
- 15 fitness and wellness properties, which are responsible for three percent of its EBITDAre
- 11 ski resorts, which are responsible for seven percent of its EBITDAre
- Nine private schools, which are responsible for two percent of its EBITDAre
- Seven experiential lodging properties (e.g., lodging with entertainment, recreation, or leisure activities), which are responsible for four percent of its EBITDAre
- Three cultural properties (e.g., zoos, aquariums, and museums), which are responsible for one percent of its EBITDAre
- One gaming property, which is responsible for two percent of its EBITDAre
The company’s restaurant sales in November 2022 were above where they were in February 2020 before the COVID-19 pandemic. The company estimates that its attraction visits in 2022 outpaced their 2019 numbers.
The company plans to reduce its financial interests in theaters, early childhood education centers, and private schools—and to expand its other segments. The company says there are several underpenetrated experiential segments that represent an addressable market opportunity of more than $100.0 billion. As such, the company has committed $250.0 million to experiential development and redevelopment projects. This amount will be funded over the next two years without the need to raise additional capital.
EPR Properties Delivered Solid Q3 & Q4 Results
For the third quarter ended September 30, 2022, EPR announced that its total revenue increased by 15.5% year-over-year to $161.4 million. The REIT’s net income jumped in the third quarter by 71.6% year-over-year to $44.7 million, or $0.60 per share. Its funds from operations as adjusted (FFOAA) climbed in the quarter by 37.5% year-over-year to $88.2 million, or $1.16 per share. (Source: “EPR Properties Reports Third Quarter 2022 Results,” EPR Properties, November 2, 2022.)
When it comes to REITs and their dividends, it’s important to look at their adjusted funds from operations (AFFO), which is a measure of their true cash flow. EPR Properties’ AFFO grew in the third quarter by 34.5% year-over-year to $93.3 million, or $1.22 per share. That was more than enough to cover EPR Properties stock’s dividends in the quarter.
During the third quarter, the company’s investment spending totaled $82.0 million, bringing the year-to-date total to $321.3 million. Through September 30, 2022, the REIT collected nearly $110.0 million of rent and interest that had been deferred as a result of the pandemic.
For the fourth quarter of 2022, EPR announced that its total revenue increased by 15.4% year-over-year to $178.7 million. The REIT’s net income fell in the fourth quarter by five percent year-over-year to $42.3 million, or $0.48 per share. Its FFOAA climbed in the quarter by 17.4% year-over-year to $95.0 million, or $1.25 share. (Source: “EPR Properties Reports Fourth Quarter and 2022 Year-End Results,” EPR Properties, February 22, 2023.)
EPR Properties’ AFFO grew by 16.2% year-over-year in the fourth quarter to $97.0 million, or $1.27 per share. That was more than enough to cover its EPR stock’s dividends in the quarter.
During the fourth quarter, the REIT’s investment spending totaled $81.2 million, bringing its full-year total to $402.5 million. In 2022, the company collected more than $120.0 million of rent and interest that had been deferred as a result of the pandemic.
EPR Properties ended 2022 with $107.9 million in cash on hand, no borrowing on its $1.0-billion revolving credit facility, and a consolidated debt profile at fixed interest rates with no maturities until 2024.
The Lowdown on EPR Properties
EPR Properties is well positioned to take advantage of the post-pandemic economy. As mentioned earlier, its overall rent and interest coverage is higher than it was in 2019.
The company isn’t out of the woods yet, but that has more to do with the broader economy than anything going on at the company. If anything, the REIT has been doing everything right in order to accelerate its growth, expand its real estate portfolio, and enable EPR Properties stock to reward dividend hogs.
The company has been able to report high earnings, AFFO, and FFOAA growth; benefit from its investment pipeline; collect a significant amount of deferral rent; and maintain a strong liquidity position.
