EPR Properties (EPR 0.48%) is a real estate investment trust, or REIT, that focuses on experiential properties. Among the types of properties you'll find in EPR's portfolio are movie theaters, ski resorts, golf attractions, family entertainment centers, and indoor waterparks, just to name a few.
The company has grown impressively over the years, and investors have been rewarded with market-beating returns as a result. Investors receive monthly dividend payments and an attractive 6% yield. However, EPR is still in the early stages of growth and appears ready to step on the gas once again. If successful, this unique REIT could double investors' money within the next five years.
EPR has almost fully recovered from the pandemic
Not surprisingly, EPR was one of the hardest-hit real estate stocks when the COVID-19 pandemic started. After all, its properties rely on the ability and willingness of people to get out and experience things. At one point early in the pandemic, EPR's rent collection dropped to just 15% of its normal level.
However, the company's recent fourth-quarter 2021 earnings report shows that the business is essentially back to normal -- even in the movie theaters. Total rent collection is 97% of contractual levels, and EPR was repaid $11.2 million of deferred rent during the quarter. And thanks to the business normalizing, EPR is expecting funds from operations (or FFO, the REIT version of "earnings") to rise by 42% year over year in 2022.
In fact, EPR is so confident in the rebound of its business that it just announced a 10% increase in its monthly dividend. EPR now yields about 6.7%, and with a payout ratio of just 75% estimated 2022 FFO, it should be well covered.
Management is ready to get into growth mode
The real reason to be excited about EPR is that management not only appears ready to get back to growth mode after a roughly two-year pause, but that it plans to do so aggressively.
EPR's management expects to spend between $500 million and $700 million on new investments in 2022 alone, and with nearly $290 million in cash on hand and an untapped $1 billion credit line, it could realistically spend this much or more without diluting its investors. And for context, EPR's entire market cap is about $3.7 billion, so this is a rather ambitious rate of growth.
Management has mentioned the desire to diversify away from movie theater properties (which make up nearly half of EPR's rent) and sees a $100 billion addressable market of properties to go after. In addition to the company's current core property types, EPR plans to target gaming properties, cultural attractions, live entertainment venues, and more in order to create a well-rounded experiential portfolio.
Could EPR Properties double your money in five years?
For one thing, if EPR were to grow at the forecasted 2022 rate for the next five years ($600 million of asset purchases at the midpoint), it would nearly double the size of its portfolio. And it's worth noting that although the company's business has normalized, its asset values have not. In fact, EPR Properties is still about 34% below its pre-pandemic highs, despite essentially full rent collection and overwhelming demand for experiences in the United States.
And then, don't forget about the dividend. In order to double investors' money in five years, EPR would need to deliver a total return of about 15% annualized over that period. Assuming a dividend yield of more than 6%, that means the stock price would need to rise by less than 9% per year to give investors a double within five years.
To put it mildly, given the aggressive growth strategy, strong business results, depressed share price, and the well-covered dividend, I believe EPR could double investors' money (or more) within the next five years.