EPR properties (NYSE: EPR) was one of the hardest hit real estate investment trusts (REIT) by the pandemic. The emphasis on owning experiential properties like cinemas and other attractions has hurt her over the past couple of years. Many of its tenants are struggling to pay their rent, which has impacted the company’s cash flow.
As rent collection rates have steadily recovered, a resurgence of the pandemic has weighed on the REIT’s share price in recent months, pushing it down more than 16% from its peak. However, the lower the shares, the more I buy. Here’s why.
We thirst for experiences
The pandemic has been difficult for most people. We want to connect with others and share our experiences. This has been evident this year as spending on experiments has risen sharply as widely available vaccines and therapies have made more people comfortable going out and enjoying the experiments again. In a single example, the last Spider Man The film recently landed the second-highest opening weekend in box office history.
That makes the game of EPR Properties. It has the largest experiential real estate portfolio, including theaters, restaurants, games, skiing, attractions, experiential accommodation, games, cultural, fitness and wellness venues.
As people flock to have the experiences again, EPR tenants have the money to pay the rent. The company’s rental collection rate rebounded to 90% in the third quarter (from a low of 21% in the second quarter of 2020), and it expects to collect 95 to 97% in the fourth quarter. Meanwhile, tenants are regularly paying off rent that the business deferred during the pandemic.
Collections could be closer to 100% again in 2022. In many cases, recent non-theatrical performance has surpassed pre-pandemic levels. Meanwhile, a solid film roster is slated for 2022, which should lead to continued box office success. This should allow these tenants to pay rent.
Financial flexibility to develop
Another reason I am increasingly optimistic about the future of EPR is its financial situation. The REIT has significantly improved its balance sheet in recent quarters. It recently issued $ 400 million in low-cost debt, which, along with its cash position, allowed the company to repay a $ 400 million term loan facility and repay $ 275 million on notes maturing in 2023. As a result, it has no debt maturity until 2024.
In addition, it has an unused credit facility of $ 1 billion and cash of $ 144 million. All of this means that the rating agencies have raised its credit rating to investment grade, making it easier and cheaper to borrow money in the future.
This increased financial flexibility will allow EPR Properties to expand its portfolio of experiential properties. The company wishes to reduce its exposure to cinemas (currently 44% of its turnover) while developing its real estate portfolio outside the cinema.
The REIT spent $ 39.3 million in the third quarter on new investments, bringing its cumulative total to $ 107.9 million. Recent investments have included custom built experiential development and the acquisition of joint ventures that had an experiential accommodation project.
Overall, EPR sees a market opportunity of over $ 100 billion in experiential real estate. Target property types include casinos, golf entertainment complexes, themed accommodations, concert halls, zoos, water parks, and a host of other experiential properties. The company’s vision is to build the first experiential real estate portfolio.
Gradually widen my position
EPR Properties will benefit from the continued resumption of shared experiences. This will support the company’s attractive 6.8% return. monthly dividend. To the advantage of the company is added its solid financial profile, which allows it to develop.
Future growth will further support its dividend and ultimately allow the company to increase its distribution. That’s why I am taking advantage of the current liquidation caused by new pandemic concerns to strengthen my position in what appears to be a long-term winner.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.