EPR Properties: Is There Light at the End of the Tunnel?

It shouldn't come as much of a shock that a real estate investment trust (REIT) focused on movie theaters, waterparks, and other experience-oriented property types isn't doing too well in 2020. EPR Properties (EPR 0.92%) is currently struggling to turn a profit, but could it be a good long-term investment opportunity?

In this Nov. 5, 2020 Fool Live video clip, Millionacres REIT analyst Matt Frankel, CFP and Millionacres editor Deidre Woollard discuss the most recent numbers and what investors should keep an eye on going forward.

Matt Frankel: Last one, which is not a blue chip, EPR Properties. This is one that I like. I own this stock. They own experiential REIT. They own things like movie theaters and water parks, TopGolf, and ski resorts, things that people aren't doing this year. Movie theaters, they are open but they don't have a product right now. There's no movies being released. They're treading water, but that's really about all they're doing. EPR gets about 45 percent of its revenue from movie theaters normally, but right now they're not getting much of anything from movie theaters. The thing that shocked me is that on an adjusted FFO basis, EPR was actually profitable for the third quarter. I was not expecting that. They have a negative cash flow of about four million dollars, but with a billion dollars of cash in the bank, that's really not a whole lot. Rent collection is steadily improving, this was probably the most encouraging thing. It went from 35 percent in July, to 40 percent in August, to 45 percent in September, and almost all of their non theater properties are open, so their water parks are reopening. Now it's getting cold, so it's probably not doing that much. Topgolfs have reopened, those were among the first to reopen in the summer. The ski resorts are about to get into their busy season. Like I mentioned, they have a billion dollars of cash on hand in years and years of liquidity. They're restricted from paying dividends for now under their agreements with their lenders until the end of 2021. That's [...] stock, if you're an interim investors and you don't want EPR in your portfolio. But when I think of what my expectations were going into this quarter and what EPR reported, it's not a great quarter by any stretch in terms of normal context, but just based on what I was expecting, I would have to give them an A minus or maybe even an A just because of the continuous improvement they're showing. I'm not saying go out and buy the stock; I'm just saying they pleasantly surprised me.

Deidre Woollard: I'm interested in what you think about ski season and how that might benefit EPR.

Matt Frankel: That's definitely going to be a nice tailwind because ski resorts are businesses that are, first of all, they're very conducive to social distancing, so the modifications are going to be minimal. I have waited in a pretty long line at a ski before that was [...] very socially distanced, but other than that, that's a minimal accommodation that they would have to make. I see that as being a nice tailwind. I see EPR actually trying to diversify away from theaters in the future, whether that means buying more water parks, ski resorts, or other types of properties, but I've seen them learning their lesson by being so concentrated. Not that another pandemic is going to happen, but that's a big concentration they have.