EPR Properties: Bullish versus Bearish

REP properties (NYSE: EPR) becomes one of the most popular real estate investment trusts (REITs). This is likely due to its high-yielding monthly dividend, which makes it an attractive option for those looking for passive income.

Given the growing popularity of the REIT, we asked a few of our contributors to provide the bullish and bearish scenario to give investors a more complete picture of the upside potential and risk profile of the EPR. Here’s a closer look at the pros and cons of buying shares of this high-yielding REIT.

Lots to like about this high-yielding REIT

Matt DiLallo (bull case): The bull thesis for EPR Properties is simple. Spending on experiences continues to rise as more consumers prioritize buying their hard-earned cash to enjoy an experience over buying products. This drives more visitors to experiential properties like cinemas, gaming venues, attractions, dining and gaming venues, and experiential accommodations.

The continued growth of experiences drives operators to grow. One of the ways they can finance their growth is to partner with EPR Properties to complete sale-leaseback transactions, releasing the value of their real estate and giving the capital to grow. EPR Properties plans to make new investments of $500-700 million this year, which will help grow its income-generating experiential real estate portfolio. Overall, the REIT sees a more than $100 billion investment opportunity in experiential real estate.

Future acquisitions should enable EPR Properties to increase its attractive dividend. The REIT pays a monthly dividend which currently yields more than 6%. That’s nearly double the REIT industry average and even more around the 1.6% return of a S&P500 index fund.

This payment is based on a solid foundation. EPR Properties expects its dividend payout ratio to be around 70% of its operating funds this year. This is a conservative level for a REIT, providing a cushion for the dividend while allowing EPR to retain cash to fund acquisitions. Meanwhile, the company has a superior balance sheet with over $300 million in cash and a $1 billion untapped credit facility at the end of the first quarter, giving it ample financial flexibility to enter into deals. agreements.

Put it all together, and EPR looks like a great REIT to own for the long haul. It offers investors solid growth prospects and a lucrative passive income stream. This should allow it to produce attractive total returns in the years to come.

These speed bumps could slow the growth of EPR

Mike Price (bear case): EPR is a tough stock to defend, but I think there could be some speed bumps if the economy goes into a recession. Let’s look at its concentration risk and balance sheet.

Ten tenants represent just under 70% of the REIT’s total, and the top four represent just under half of the revenues. These four are AMC Entertainment Holdings, TopGolf, Regal Entertainment Groupand Cinemark Assets. That’s three movie chains and a swollen driving range. You can argue that movie theaters and bloated training grounds would be among the first things to be cut from personal budgets in a recession.

There are many successful businesses that have concentrations of revenue and EPR is currently investing in diversification. Just keep in mind that an investment in the EPR is an investment in the financial viability of its tenants.

EPR has its work cut out on its balance sheet. At the end of the first quarter, it had approximately $300 million in cash and $2.8 billion in debt. Interest expense of $33 million accounted for almost a quarter of rental income. The good news is that all of this debt has fixed rates below 5%.

The bad news is that all debt is due within the next 10 years. About $1 billion of that amount is due by 2026. Normally, the REIT would simply refinance the debt as it matures and move on. But that’s not a good strategy when interest rates will likely have doubled by the time EPR can refinance and interest expense is already nearly 25% of revenue.

The next step is to raise lease prices. Of its 323 properties, only 14 have leases expiring by 2026. Its leases have projected increases every year, but management acknowledged contract escalations may not even keep up with inflation in the company’s annual report. ‘last year. This means the REIT will need to increase its revenue to meet new debt obligations by buying more properties to generate more cash flow. This means taking on even more debt at higher interest rates.

The REIT could potentially issue shares to repay debt, but this reduces the dividend yield. This might offload some existing properties, but it reduces cash flow. Either way, it will have pros and cons and may affect your investment.

The high-yield REIT is a bit more risky

EPR Properties offers investors an edge on growing experiences from a real estate perspective. It should be able to continue to provide them with an ever-increasing stream of passive income. However, the high yield REIT is not without risk. Investors should not bet too much of their portfolio on the upside and income potential of this high-yielding REIT.

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Matthew DiLallo holds positions within EPR Properties. Mike Price has no position in the stocks mentioned. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
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