EPR Properties (EPR -0.32%) has faced some stiff headwinds during the pandemic. Government-mandated shutdowns and travel restrictions had a big effect on demand for experiences, affecting companies operating movie theaters and other attractions. Because of that, many struggled to pay rent, which forced the real estate investment trust (REIT) to pause its dividend and its acquisition strategy.
However, with the pandemic's effect on society subsiding, people are enjoying experiences again. That has allowed the REIT to reinstate its monthly dividend, which currently yields about 6.5%. That monster payout could head even higher now that the REIT has also restarted its acquisition strategy.
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Hitting the accelerator in 2022
EPR Properties pulled back on investment spending over the past two years. In 2021, the REIT only spent $133.5 million on expanding its portfolio. That included investing $25.6 million in the fourth quarter to acquire a Topgolf development property in California and on experiential build-to-suit development and redevelopment projects.
Meanwhile, the company also sold several properties last year, including two ski properties, two theaters, an eat-and-play location, and a land parcel for $65.3 million in the fourth quarter. That brought the REIT's total proceeds from asset sales and mortgage note pay-offs to $101.2 million.
However, with demand for experiences improving, the REIT plans to go on the offensive this year. It expects to spend $500 million to $700 million on new investments in 2022, while only disposing of about $10 million in assets. EPR has ample financial capacity to fund these deals, including $323.8 million of cash and no borrowings on its $1 billion credit facility.
Getting the ball rolling
The REIT spent about $24.4 million during the first quarter on experiential build-to-suit development and redevelopment projects. It also bought a fitness and wellness property. It subsequently made another $66.1 million of investments through early May, bringing its year-to-date total to $90.5 million. It continued to fund experiential build-to-suit development and redevelopment projects and purchased an 85% interest in an experiential lodging property.
EPR Properties recently made an even bigger splash. In June, it agreed to buy the Village Vacances Valcartier resort and hotel in Quebec and the Calypso Waterpark in Ontario for a total of $142 million. The Village Vacances Valcartier is a large resort in Canada with water park attractions, winter activities, camping sites, and a four-star hotel. Meanwhile, Calypso is the largest themed waterpark in Canada.
These deals are only the beginning. CEO Greg Silvers commented in the company's first-quarter earnings report: "Our pipeline is ramping meaningfully, and we continue to expect the pace of investment to accelerate into the back half of the year." EPR remains confident that it can achieve its target of acquiring $500 million to $700 million of experiential real estate this year.
More room to grow the dividend
EPR Properties currently expects to generate $4.39 to $4.55 per share of funds from operations as adjusted (FFOAA) in 2022. That's an improvement from its initial $4.30 to $4.50 per share guidance range and significantly higher than the $3.09 per share it posted last year. That gives it ample room to cover its currently annualized dividend of $3.30 per share, which is 10% higher than last year's level.
With acquisitions weighted to the back half of 2022, the company won't feel their full effect until 2023. That suggests FFOAA per share should continue rising over the next year, giving the REIT more room to increase the payout. Meanwhile, with a strong financial profile, the REIT has the capacity to continue expanding its portfolio in 2023 and beyond, which could support further dividend increases.
A monster yield with upside potential
EPR Properties is restarting its growth engine this year. That should give the REIT the fuel to continue growing its already massive monthly dividend. That makes it an attractive option for investors seeking a lucrative passive income stream.
