EPR Properties (EPR -0.32%) is an appealing real estate stock that currently yields investors a dividend of 8%. Its monthly payout makes it an attractive stock for income investors. However, over the last several years, the stock has taken investors on a roller coaster of emotions.
The company suffered mightily during the pandemic, which put pressure on the experiential industry it caters to, but it has since recovered nicely. Here's how much a $5,000 investment in EPR Properties would be worth today and how it plans on delivering for investors going forward.
EPR Properties is a high-yield dividend payer serving the experiential economy
The company operates as a real estate investment trust (REIT), which allows it to avoid corporate taxes as long as it distributes 90% of its taxable income to shareholders in dividends. Its tax treatment is why REITs can make attractive income stocks to hold in retirement accounts like IRAs.
The company specializes in experiential real estate or properties where consumers spend time for experiences like movie theaters, amusement parks, and ski resorts. EPR leases properties long-term to tenants under triple-net leases. Triple-net properties require tenants to cover almost all of the property's operating expenses. This lease type allows tenants to get lower rental rates, while EPR avoids surprises for maintenance or other costs.
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Here's what a $5,000 investment in EPR Properties would be worth today
EPR Properties has delivered quite the roller coaster experience for its shareholders. If you purchased $5,000 in shares in EPR Properties a decade ago, you would've seen your investment grow to $11,330 by the end of 2019. However, we all know what happened next: The COVID-19 pandemic essentially shut down the world.
With little to no traveling at all, experiential properties suffered. Box office ticket sales suffered, falling 80%, as theater attendance cratered. EPR cut its dividend payment in a precautionary measure, and investors would've seen the value of their investment plummet to $2,037.
As economies reopened in the years following the pandemic, pent-up consumer demand went back into travel and leisure. This tailwind benefited EPR Properties, which has resumed its dividend, and the stock price has since recovered. That initial investment of $5,000 would now be worth $7,155.
EPR Total Return Level data by YCharts.
EPR Properties' latest moves to solidify its dividend
EPR Properties stock has recovered nicely since its pandemic lows. However, the company is dealing with another issue today: the struggling movie theater industry. Movie theaters represent 40% of EPR's properties and have struggled relative to its other investments.
The difference is apparent when you look at the rent coverage ratio. This ratio shows how well a tenant pays its rent. A ratio of 1 means a tenant is just covering rent, and a higher ratio is more desirable. Its non-theater coverage ratio is 2.7 times, up from 2 times before the pandemic. On the other hand, movie theaters have seen this ratio go from 1.7 times before the pandemic to 1.3 times as the industry struggles to fully recover post-pandemic.
EPR has worked with tenants in the theater industry, offering rent reductions and deferrals. It recently signed a new agreement with Regal, whose parent company filed for bankruptcy last year, covering 41 of the 57 properties it had previously leased to the theater operator. The move resulted in a $42 million write-down for EPR but provides more certainty over the company's future cash flows.
Is EPR Properties for you?
EPR Properties caters to experiential properties and has delivered quite the experience for its investors of the last decade. The company navigated challenging times during the pandemic, and those who held saw the value of their investment recover nicely, still delivering positive returns overall.
The REIT is making moves, working with tenants, and strategically reducing its theater properties. Its recent actions provide more clarity over its cash flows. The stock still faces risks from its extensive theater portfolio, especially if movie theaters fail to recover to pre-pandemic levels. However, its 8% dividend yield makes it an appealing investment opportunity if you're willing to ride out that uncertainty.
