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This Small-Cap Stock Sees a $100 Billion Growth Opportunity

By Matthew Frankel, CFP® – Updated Aug 27, 2021 at 9:32AM

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Here's a small and unique real estate stock with a ton of runway ahead.

EPR Properties' (EPR -2.16%) growth ambitions may have been put on hold by the COVID-19 pandemic, but that doesn't mean the company is abandoning them altogether. Quite the opposite, actually. In this Fool Live clip, recorded on August 17, Millionacres real estate analyst Matt Frankel, CFP, and editor Deidre Woollard discuss EPR's massive addressable market opportunity and why investors might want to put the stock on their watch list.

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Matt Frankel:  They're not necessarily selling a ton of their theaters, they're going to keep the high performing ones. But they are planning to reduce their concentration to movie theaters in favor of other experiential properties which they see a huge opportunity in.

Deidre Woollard: Yeah. Let's talk a little bit about that because I know they have the Topgolf San Jose and they were talked on their earnings, how that's doing well. But I also like that they have a couple of these Margaritaville brands. I was talking with some of the Fools yesterday about the Jimmy Buffett empire. Because Bloomberg did a fascinating at Bloomberg business we did a cover story on it a few months ago. Margaritaville is quite the draw and EPR has the Margaritaville Nashville Hotel. They've also got the RV Resort in Pigeon Forge, Tennessee that just opened, but they're really getting into these other aspects of experiential far beyond the movie theater.

Frankel: The Margaritaville brand is a powerful force. That's where our Orlando house is, it's in the Margaritaville Resort.

Woollard: Really, smart man, it's such a big brand. It's amazing to me.

Frankel: As of yet, EPR hasn't bought it. That could change, I guess. But they see this as a huge opportunity. I mean, you mentioned that, they are talking about cultural properties, which could be a really interesting source of expansion like museums, really steady source of revenue because most museums are really stable and year-after-year they make money. They're down profits. They pay their rent every year. Gaming properties are big one. They have one casino property in their portfolio right now. They see that as a big growth opportunity. Right now, when it comes to gaming properties, there's pretty much two players. There's VICI Properties (VICI -0.36%) which is buying MGM Growth Properties (MGP).

Woollard: Yes.

Frankel: That's the big one. Then there is Gaming and Leisure Properties (GLPI -0.58%). Those are really the only ones that own substantial portfolios of gaming properties. It's really going to be interesting to see how they capitalize on that. But they see $100 billion rather addressable market of properties that they would like to buy. Like not just in those categories, but they're investible universe. They have $1.5 billion in liquidity, including over $0.5 billion in cash. That's a lot for a company with a $3.6 billion market cap. That's a lot of spending power. Now they said they terminated their debt covenant relief period early, which is what allowed them to suspend the dividend, that stuff. They did it so they can reinstate their dividend, and they did it specifically, they said to get back to growth. They weren't allowed to start going on a buying spree while the relief period was in effect. I'm curious to see how that evolves over the next year or two because they've really pumped the breaks on growth a little bit before the pandemic in a lot of ways. Then when the pandemic ended, they just said, no, we're not buying anything right now. As you mentioned, experiential is a big category. They're not limiting themselves. When I was a kid at Disney (DIS -3.22%) we stayed at the Quality Inn and stuff like that, now we're in the Margaritaville. What Americans want from their leisure time has really evolved a lot and EPR is evolving with it. It is going to be interesting to see how they do that.

Woollard: Owen, one of the things I think you knew all through the pandemic that maybe I was a little more pessimistic about was how fast the demand for experiential would bounce back. I was afraid that people's habits would change, that they might be afraid of going to water parks or something like that. I was dead wrong on it, people rush back into the malls, they rush back into the water parks. This summer has just been a vacation-palooza everywhere. EPR is really well-positioned for that.

Matthew Frankel, CFP owns shares of EPR Properties and Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends EPR Properties, Gaming and Leisure Properties, and MGM Growth Properties (Class A). The Motley Fool has a disclosure policy.

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Stocks Mentioned

EPR Properties Stock Quote
EPR Properties
EPR
$40.02 (-2.16%) $0.88
Walt Disney Stock Quote
Walt Disney
DIS
$95.69 (-3.22%) $-3.18
Gaming and Leisure Properties Stock Quote
Gaming and Leisure Properties
GLPI
$50.97 (-0.58%) $0.30
MGM Growth Properties (Class A) Stock Quote
MGM Growth Properties (Class A)
MGP
VICI Properties Inc. Stock Quote
VICI Properties Inc.
VICI
$33.24 (-0.36%) $0.12

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