EPR Properties (EPR 1.15%) is a real estate investment trust, or REIT, that focuses exclusively on experiential properties. In its portfolio of more than 300 properties are movie theaters, "eat and play" properties, waterparks, ski resorts, and much more.
As you might expect, EPR got crushed when the COVID-19 pandemic started. After all, this is a REIT full of properties that require people to physically go to places, and for a while, that simply wasn't a thing in the United States. And when it comes to the largest property type -- movie theaters -- it took years for a return to normality.
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However, EPR rebounded nicely once its tenants were gradually allowed to reopen and an end to the era of social distancing was in sight. One of its largest tenants filed for bankruptcy protection in the wake of the shutdowns, but the matter was resolved in a favorable way. In a nutshell, EPR's business is performing quite well. Over the past five years, EPR has outperformed the total return of the S&P 500 by about 50 percentage points.
1 big reason to buy EPR Properties now
After a recent pullback, EPR trades for a low valuation of 10.8 times its full-year FFO (funds from operations) guidance, which is the real estate equivalent of earnings. The company has a 6.4% dividend yield that is paid to investors in monthly installments.
To be fair, there are some good reasons for the cheap valuation, such as ongoing movie theater uncertainty. But the main reason is the persistently high-interest rate environment. Elevated interest rates put downward pressure on commercial property valuations and also make borrowing money to acquire properties more expensive.
However, this could also mean that EPR Properties is a bit of a coiled spring. Management sees a $100 billion investable market opportunity, and as cost of capital improves, it could create a dramatically stronger growth environment for this REIT.
