Investment Advice for EPR Properties Shares: To Acquire, Shed, or Maintain?
EPR Properties' shares are prospering in the 2025 market, with an approximately 10% year-to-date gain and a near 52-week high. Investors are cheering the REIT's push to diversify beyond its traditional movie theater focus towards high-growth assets. The 7.1% dividend yield offered on a monthly payment schedule presents a compelling income opportunity, but one should remember the higher yield often means a corresponding higher risk.
Should the EPR Properties' rally continue, or is it time to sell? Let's weigh the pros and cons.
Invest in or Hold EPR Properties Shares
EPR Properties is a leading specialty REIT that invests in experience-driven atmospheres, such as theaters, amusement parks, eat-and-play centers, and ski resorts. Its portfolio of 352 properties in the US and Canada offers investors exposure to unique consumer spending themes.
Though the leisure and entertainment industries were impacted during the COVID-19 pandemic, recent trends show a strong recovery. EPR Properties' key performance indicators have surpassed pre-pandemic benchmarks. Its most recent trailing 12-month total portfolio rent coverage multiple, with a value of 2.1, is higher than the 1.9 ratio in 2019. This metric signifies EPR customers' underlying earnings better covering their rental obligations, with a higher number showing a more comfortable position to meet rent payments.
This growth stems from the non-theater segment, which serves high-profile commercial tenants like Six Flags Entertainment, Vail Resorts, and Top Golf Callaway Brands. This balance helps counteract the weaker movie theater trends from names like AMC Entertainment, which has been affected by sluggish ticket sales and industry shifts.
EPR has been actively reducing its theater reliance by jettisoning underperforming locations while investing in other categories. This move aims to strengthen its foundation for sustainable growth and increase shareholder value.
Encouragingly, EPR previously projected full-year adjusted funds from operations (AFFO) per share between $4.80 and $4.92, representing a 3.2% increase compared to 2023 at the midpoint. This solid cash inflow easily covers the current $3.42 annualized dividend. There is anticipation for EPR to announce a dividend rate boost when it publicly releases its fourth-quarter earnings (for the period ending Dec. 31) on Feb. 27.
Investors confident in EPR Properties' ability to execute its development strategy have numerous reasons to hold or buy the stock for the long haul.
Sell EPR Properties Shares
The lure of an investment boasting a 7% yield along with a rising stock price is difficult to resist. However, the flip side is the risks, particularly when considering worst-case scenarios.
EPR Properties benefits from a robust economic setting. Yet, unfavorable conditions such as a downturn in consumer spending or a surge in unemployment may impact its tenants' financial health and put pressure on the stock price. This concern is intensified by EPR's total debt position of approximately $2.9 billion. Despite ample liquidity to fund near-term obligations, uncertainty surrounding interest rates and the capacity to secure new low-cost financing can bring volatility.
Investors wary of EPR Properties facing growth challenges and difficulties managing its debt could consider selling the stock or at least postponing obtaining it for the time being.
Final Thoughts: A Bullish Outlook
2025 will be a pivotal year for EPR Properties to affirm its market prowess. I am "bull" on the company's ability to keep delivering attractive shareholder returns, with dividends propped up by strengthening fundamentals. For investors with an extended investment horizon, adding EPR Properties shares to a well-diversified portfolio could provide an appealing income component.
Enrichment Data Insights
EPR Properties is a leading experiential real estate investment trust (REIT) that has adapted its portfolio focus to capitalize on consumer trends favoring out-of-home entertainment and leisure activities. The company demonstrates a strong commitment to shareholder returns, maintaining a dividend payout of 29 consecutive years. However, its high payout ratio of 148.05% may pose potential challenges in preserving dividend levels during earnings fluctuations. EPR Properties' annual gross profit margin is 91.39%, while its market capitalization stands at approximately $3.72 billion. The company faces challenges like competition, property damage from natural disasters, and constrained investment environments. Analysts hold mixed views on EPR, with some maintaining a "Hold" rating due to pre-pandemic sector slowdowns and potential interest rate changes. UBS projects a 3.9% growth in adjusted funds from operations by 2025.
- With EPR Properties' shares currently experiencing a 10% year-to-date gain and a near 52-week high, some investors might be considering diversifying their portfolio by including this REIT, given its emphasis on high-growth assets beyond movie theaters.
- As EPR Properties continues to show promising growth, particularly in its non-theater segment, some investors might be contemplating investing in or holding onto EPR Properties shares, viewing the 7.1% dividend yield as a compelling income opportunity.
- Despite EPR Properties' robust growth and attractive dividend yield, potential risks to consider include a possible downturn in consumer spending or a surge in unemployment, which could impact its tenants' financial health and put pressure on the stock price.
- Looking towards 2025, EPR Properties aims to affirm its market prowess, making it an appealing option for investors with an extended horizon, who are looking to diversify their income component in a well-diversified portfolio.
