Exploring Significant High-Efficiency EPR Features: Should One Acquire, Dispose, or Maintain?
EPR Properties, with a current stock price dip of -0.77%, is a unique real estate investment trust (REIT) that has its fair share of appeal and concerns. Let's dive into the reasons to steer clear and those that might draw you in.
Dislike EPR Properties
Regrettably, the coronavirus pandemic and the subsequent dividend cut served as a harsh reminder of one significant reason to be wary of EPR Properties. The pandemic led to closures or reduced operations for many of its tenants, who aren't classified as essential businesses.
As a result, EPR Properties wasn't just cutting its dividend in 2020; it eliminated it entirely after reporting a staggering $156 million net loss for that year. It wasn't until the second half of 2021 that the dividend was brought back, although at a diminished level.
The rollercoaster ride of EPR's dividend could be a concern for those who rely on their portfolio for income. If the lack of diversification, with more than a third of its rent coming from movie theaters, keeps you up at night, EPR Properties might not be the REIT for you.
Like EPR Properties
If you have a more adventurous investing palette, there are reasons to find EPR Properties attractive. The pandemic-induced dividend suspension was more of a cautious move to protect its liquidity and tenants during the pandemic.
Once management felt the worst was behind them, the dividend was reinstated, although at a lower rate. As time has passed, they've slowly increased the dividend again.
Moreover, rent coverage outside of movie theaters has improved, going from a multiple of 1.9 in 2019 to a strong 2.1 today. Additionally, EPR's adjusted funds from operations (FFO) payout ratio in the third quarter of 2024 was a reasonable 66%.
The company is also actively working to reduce the risk posed by its movie theater exposure. This includes selling assets, leasing space to more resilient tenants, and reworking leases with current tenants to secure stronger financial positions.
The high 7.7% dividend yield is undoubtedly another attractive feature. It's significantly higher than the 1.2% yield provided by the S&P 500 index and about twice the 3.7% average for the REIT sector.
EPR Properties: A Taste for Risk and Reward
EPR Properties is a turnaround play, striking a chord only with a niche group of investors who are more aggressive by nature. Its focus on experiential properties—movie theaters, amusement parks, ski resorts, and so on—increases risk due to the cyclical nature of these businesses.
However, the REIT shows promise with a resilient portfolio, strong financial performance, and dedicated leadership. Its current downturn may serve as an opportunity for investors with an appetite for risk and reward. If you own EPR Properties, it might be worth sticking around as the underlying business seems to be on the mend. Just remember to consider the inherent risk alongside the reward.
Despite the current stock price dip of -0.77%, EPR Properties' focus on experiential properties, such as movie theaters and amusement parks, provides opportunities for potential investment gains. The company's strategic efforts to reduce the risk posed by its movie theater exposure, including asset sales, leasing to more resilient tenants, and renegotiating leases, are commendable.
The pandemic-induced dividend suspension was a prudent move to protect the company's liquidity and tenants during the downturn. As the worst seems to be over, EPR Properties has gradually increased its dividend, currently offering a significant 7.7% yield, significantly higher than the S&P 500 index's 1.2% and the REIT sector's 3.7% average.
Investors with a more adventurous palate may find EPR Properties appealing, considering the prospect of potential high returns. However, it's crucial to remember that the company's focus on experiential properties increases its risk due to the cyclical nature of these businesses.
Even during the coronavirus pandemic, EPR Properties demonstrated its resilience, cutting its dividend and suspending it entirely for a time but ultimately reinstating it, albeit at a lower rate. The company's financial performance and dedicated leadership are additional factors to consider when evaluating the potential rewards of investing in EPR Properties.
