1 REIT Still Trading at a Big Discount

EPR Properties (EPR 0.14%) is an experiential real estate investment trust (REIT) whose properties (theaters, attractions, ski resorts, and other leisure and recreation sites) were mostly closed during the early days of the pandemic. But since that time, its business has come back nicely. However, the stock is still trading for significantly less than where it was before the pandemic started. In this Fool Live video clip, recorded on Aug. 17, Millionacres real estate analyst Matt Frankel, CFP, and editor Deidre Woollard discuss why EPR could be a smart stock for investors to put on their radar. 

Deidre Woollard: Let's talk about one that I think people are getting a little worried about, which is one of your faves, which is EPR. It's been down from maybe, stock's been down around 6% last five days or so. I think part of that is the problem with EPR that people worry about is they immediately go to AMC (AMC -1.80%) movie theaters and all of that issue. They were making a big deal out of the Free Guy box office this weekend and it was strong. They're surprisingly high, but only $28.4 million. Now, that's a big number, but compared to what box office was a couple of years ago, that would have not been that good, but it is good news for EPR. One of the things that I think is interesting is that 96% of the EPR theaters are in the top 50% of all theaters. Anytime there's a good box office, which we've seen with Free Guy, we saw it with Black Widow, there is a little hope on that movie front even if maybe there's a little bit of concern that people have to wear masks in movie theaters.

Matthew Frankel: Yeah. Like we both agree because normally you're the one who pushes back on this a little bit that there's probably not going to be lockdowns again.

Woollard: No. Yeah, I'm not as pessimistic as I used to be about this.

Frankel: Yeah, normally it was me saying reopen. You were saying, "Whoa." Glad we're on the same page with that now. But what I will say is like, I'm glad you brought up the quality of their theater properties. These are the destination like megaplex theaters that are located in the shopping districts that have a ton of foot traffic already. These are not the falling-apart movie theaters that everyone has in their town. That's not EPR's portfolio, that's not what they invest in. They invest in the big AMC-like multiplex and [inaudible]. There is no danger of AMC not paying its rent in the foreseeable future.

Woollard: Right?

Frankel: AMC just was able to raise about $2 billion of fresh capital since this whole meme stock thing started. Don't go buy AMC stock, buy EPR if you want to. But they can thank AMC traders for that. That really changed the story. I don't think EPR would've been able to reinstate their dividend as quickly as they did if it hadn't been for AMC's financial condition. I didn't think they would reinstate the dividend at the full previous amount, which they ended up doing, $0.25 a month, which translates to something like a 6% yield. Even like Simon (SPG -0.69%) didn't bring back their full dividend when they brought it back, Tanger (SKT -0.65%) didn't bring back their full dividend when they brought it back. EPR did. I think AMC's financial condition was a big reason.

AMC doesn't need gigantic box office numbers for their properties to be OK at this point. Box office revenue was up 25% from June to July. We're seeing it really ramp up. The holiday season is really going to be the time to watch. I mean, that's true with most years, the big blockbusters are around. You have your summer blockbusters, which this year we expect it to be like that. But then you have your holiday movies, which is really when you get people in the theater because in most of the country it's too cold to do anything else. We're going to see how that really battles against streaming. I know a lot of the streaming services are doing the simultaneous releases, but just for this year, they are not planning on doing that in 2022. I think the movie theater situation will be all right. There is a lot of uncertainty there. Out of the three we've talked about so far, this is the one with the most uncertainty going forward. They stayed profitable during the pandemic just because they don't have a ton of overhead. As soon as they suspended their dividend, they stopped hemorrhaging cash. Even when the rent collection was down to the 30% ballpark like it was in the middle of last year. Pretty much all of their properties closed last year. They're in experiential REIT. It wasn't just the movie theaters. They own water parks. No one was going to the water park in June of last year. Topgolf is one of their big tenants. Those were closed. They own a lot of ski resorts, those were closed. They have very high-quality tenants, Topgolf is a pretty high-quality tenant. It's the best-in-breed. Vail Resorts (MTN 1.29%) is one of their tenants for ski resorts, it doesn't get much better than that. They're tenant quality is best-in-breed.