Shares of EPR Properties (EPR +0.39%) are off to a strong start in 2025, up about 10% year to date and currently trading near a 52-week high. The market appears to be cheering an effort from the real estate investment trust (REIT) to diversify beyond its traditional focus on movie theater properties toward more high-growth assets.
EPR Properties stands out through its 7.1% dividend yield and monthly payment schedule offering a compelling income opportunity. On the other hand, that ultra-high yield can sometimes signal a corresponding level of risk that investors need to balance.
Can the rally in EPR Properties keep going, or is now the time to sell the stock? Here's what you need to know.
NYSE: EPR
Key Data Points
The case to buy or hold EPR Properties stock
EPR Properties is a leading specialty REIT focused on investing in experience-driven venues such as theaters, amusement parks, eat and play centers, and ski resorts. The company's portfolio of 352 properties across the U.S. and Canada offers investors exposure to a unique side of consumer spending themes.
While the leisure and entertainment industries were significantly impacted during the COVID-19 pandemic, the latest trends show a solid recovery. The good news for EPR Properties is that some of its key performance indicators now exceed pre-pandemic benchmarks. Its last reported total portfolio rent coverage multiple, for the trailing 12 months ended Sept. 30, was 2.1 -- higher than the 1.9 multiple in 2019. This metric is important as it describes EPR customers' underlying earnings relative to their base rental obligations, with the higher number reflecting a greater ability to comfortably cover their rents.
The improvement for EPR has been driven by the non-theater segment of its portfolio, which serves high-profile commercial tenants like Six Flags Entertainment, Vail Resorts, and Top Golf Callaway Brands. This dynamic has balanced the weaker trends in movie theaters from names like AMC Entertainment, which have been marred by sluggish box-office ticket sales amid an industry shakeup.
Image source: Getty Images.
EPR has moved to gradually reduce its reliance on theaters by selling off underperforming locations while investing more selectively in other categories. The plan is to build a stronger foundation for sustainable growth to enhance shareholder value.
Favorably, it appears the strategy is already paying off. EPR previously guided for full-year adjusted funds from operations (AFFO) per share between $4.80 and $4.92, which at the midpoint represents a 3.2% increase compared to 2023. This cash flow indicator more than covers the current annualized dividend of $3.42. There is some anticipation for EPR to announce a new increase to its monthly dividend rate when it releases its fourth-quarter earnings (for the period ended Dec. 31) on Feb. 27.
Investors confident that EPR Properties can successfully execute its growth strategy have plenty of reasons to buy and hold the stock for the long run.
Data by YCharts.
The case to sell EPR Properties stock
It's tough to beat the allure of an investment yielding 7% alongside a climbing share price. That said, the other side of the equation is the risk, with a consideration for what could go wrong.
EPR Properties benefits from a resilient economic backdrop, but a scenario in which conditions deteriorate through a slowdown in consumer spending or a spike in unemployment would likely affect the financial health of its tenants and pressure the stock. All this is against a broader concern regarding EPR's balance sheet debt position of approximately $2.9 billion in total debt. Despite ample liquidity to fund near-term obligations, some uncertainty regarding interest rates and the ability of the company to secure new low-cost financing could introduce volatility.
Investors who see EPR Properties struggling to grow while having difficulties managing its debt can consider selling the stock or at least avoiding it for now.
Decision time: A bullish outlook
2025 will be a pivotal year for EPR Properties to reaffirm its market potential. I'm optimistic that the company can continue delivering positive shareholder returns, with the dividend supported by firming fundamentals. For investors with a long-term time horizon, buying shares of EPR Properties can add an attractive income component to a diversified portfolio.
