While it isn't exactly a household name, EPR Properties (EPR -0.10%) owns a portfolio of real estate occupied by many companies you're probably very familiar with. EPR is an excellent income stock with lots of growth potential and an excellent management team. Not only is it one of my favorite real estate stocks to follow, but it's one that I own in my stock portfolio and have added to several times.
EPR Properties in a nutshell
EPR Properties is a real estate investment trust, or REIT, that specializes in experiential properties. Think of it in a similar context to a retail REIT, except instead of selling products, EPR's tenants sell experiences.
NYSE: EPR
Key Data Points
The top property type in the company's portfolio is movie theaters, which make up 40% of its rental income. AMC Entertainment (AMC -4.07%) and Regal Entertainment are the two main tenants, with Regal recently completing a bankruptcy restructuring that worked out quite favorably for EPR. The company wants to gradually reduce the theater exposure over time, but it's important to know that EPR's theaters are generally top-notch properties that perform better than the average movie theater.
Beyond theaters, EPR's largest property type is "eat & play" destinations, and a great example of this is TopGolf, EPR's second-largest tenant. It also owns waterpark properties, amusement parks, ski resorts, experiential lodging (the Margaritaville Hotel Nashville is an example), and more.
EPR is a fantastic income stock. It currently has a 7.5% dividend yield, which it pays in monthly installments, and its payout is well-covered by the company's funds from operations (the real estate version of "earnings").
Several catalysts in a bull market
EPR is a relatively small REIT with a market cap of just $3.3 billion. The company has an excellent balance sheet and lots of financial flexibility and sees a massive opportunity to grow. Plus, EPR aims to gradually diversify away from movie theaters, and has mentioned family entertainment centers, casino resorts, RV resorts, museums, zoos, and live entertainment venues as just some of the underpenetrated real estate opportunities it could target. In all, the company sees an addressable market of more than $100 billion worth of real estate that it could potentially acquire.
It's also important to note that while it isn't a guarantee, a new bull market would likely be accompanied by (or triggered by) some relief in inflation and interest rates. This could improve EPR's cost of capital, both by making borrowing cheaper and by providing a tailwind to the company's stock price, making equity capital more attractive. EPR sees a massive opportunity to grow, as mentioned, but the current high-interest environment is a major limiting factor.
Finally, a bull market is likely to be a very strong catalyst for virtually all of EPR's tenants. After all, in prosperous financial times, people are more likely to spend money at theaters, waterparks, ski resorts, and other leisure experiences.
A solid track record that should continue for decades
To be fair, EPR Properties isn't exactly a low-risk stock, and there's quite a bit that investors should keep an eye on. Most significantly, the company still has a lot of exposure to the theater industry, and while its tenants are on solid financial footing for now, that could change if box office revenue isn't strong in the years ahead.
However, EPR has a solid track record of long-term market-beating performance and navigating tough times well. In fact, since going public in 1997, EPR has produced a 1,310% total return for investors, roughly double the S&P 500's total return in the same period, and keep in mind that this includes the worst recession in a generation (2008-09), a global pandemic that shut down nearly all of EPR's properties, as well as several rising-rate environments when costs of capital weren't favorable.
