Updated by Quinn Mohammed on March 2, 2023
Real estate and dividend stocks are two of the most popular ways to generate passive retirement income.
The downside of owning a rental property is that it is not TRUE passive. Any landlord who has had to call a plumber or electrician in the middle of the night can attest to this.
Real estate investment trusts (REITs) are a very attractive investment vehicle for investors looking to capture returns in the real estate sector while benefiting from the no-interference approach of dividend stocks.
EPR Properties (EPR) is one of the most famous REITs. EPR will resume its monthly dividend in late 2021, after being suspended for over a year due to the coronavirus pandemic.
This means EPR is back on the list of monthly dividend stocks. Click the link below and we’ve put together a list of 50 monthly dividend stocks, along with key financial metrics like dividend yield and payout ratio.
This article provides an in-depth analysis of EPR property investment prospects.
Business overview
EPR Properties is a triple net lease real estate investment trust focused on entertainment, recreation and educational properties.
A triple net lease means that the tenant pays for the three main costs of the property: taxes, insurance and maintenance. Operating as a triple net lease REIT can reduce operating expenses for EPR properties.
EPR has identified entertainment, recreation, and education as three large buckets for investment, respectively. We then identified attractive sub-segments of these larger segments, such as movie theaters, ski resorts, and charter schools, as examples.
The portfolio includes over $6.7 billion in investments across 363 locations in 44 states and Canada, with over 200 tenants.
Source: Presentation for investors
EPR is highly diversified geographically as well as tenants as it focuses on various metropolitan areas in the United States and parts of Canada.
EPR reported its fourth quarter and fiscal year 2022 results on February 22, 2023. The Trust reported his FFO per share for the fourth quarter at $1.27. This was $0.09 more than expected. Revenue was $179 million, up 15% year-over-year.
EPR said it could not provide guidance this year because one of its largest tenants, Regal, is in bankruptcy proceedings. EPR said it has received all scheduled rent and deferred payments to date from Regal, but also noted the risks inherent in EPR.
growth outlook
Prior to 2020, EPR maintained a track record of steady growth. From 2010 to 2019, EPR compounded his adjusted FFO per share at an annual rate of approximately 8%. The coronavirus pandemic has upended virtually all REITs, pushing EPR’s FFO per share down from $5.44 in 2019 to $1.43 in 2020.
The company faced significant challenges during the pandemic, which is reflected in the company’s financial results, but EPR continues to recover strongly. EPR still has many opportunities to drive its growth. The company’s focus on experience-based properties protects the company from e-commerce threats. EPR believes its properties will generate strong traffic because consumers still want these experiences.
The company believes location-based entertainment has significant future growth potential. That said, there are still some experiential segments that haven’t penetrated experiential real estate. The company believes there is a servicable market opportunity of more than $100 billion out there.
EPR decided to reduce its education portfolio while growing most property types in its experiential portfolio. EPR will focus on growing all types of properties in its experiential portfolio, excluding theaters. The company wants to reduce its reliance on theaters, which account for his 41% annualized adjusted EBITDAre at 172 properties with 19 operators.
Source: Presentation for investors
Overall, we expect 2% annual growth in FFO per share over the next five years. EPR’s growth is driven primarily by its competitive advantage in its specialty real estate portfolio. Through years of experience, EPR has systematically identified the most profitable properties and focused investments in these areas.
Competitive Advantage and Recession Performance
The company’s focus on experiential properties provides protection from e-commerce threats and gives it a competitive advantage. EPR believes its properties will continue to generate strong traffic as consumers continue to demand such experiences.
While the company is certainly recession-proof, we believe EPR is one of the better-run REITs in our coverage universe because of its business model and benefits. A return to growth should allow the company to slowly raise its dividend over time.
Dividend analysis
EPR’s dividend history has been impressive heading into 2020. The company increased its annual dividend per share by about 6% annually from 2010 to 2019. Of course, the pandemic forced the company to suspend its dividend for most of 2020.
Fortunately, EPR management hopes that recovery will continue. This forecast gave management the confidence to increase his monthly dividend by 10% to $0.275 per share in March 2022. This equates to an annual dividend of $3.30.
On an annual basis, the $3.30 per share dividend is still below the pre-COVID dividend of $4.59 per share. Still, at the $3.30 per share level, EPR stock yields 8.1%. Therefore, EPR stocks remain attractive to income investors as high dividend stocks.
EPR has a well-utilized capital structure, which gives it some flexibility. We have worked to repair our balance sheet in the wake of the pandemic, further improving our dividend security and growth potential.
Source: Presentation for investors
EPR’s total debt is approximately $2.8 billion with a weighted average debt maturity of 5.3 years and a weighted average interest rate of 4.3%. EPR has a $1 billion credit revolver with zero balances currently, giving EPR plenty of liquidity.
All of this underpins EPR’s growth plan, which in turn has the ability to not only pay dividends, but hopefully increase them over time.
The EPR dividend appears to be safe, and if FFO continues to recover to pre-COVID levels, the Trust could continue to raise its dividend by a significant percentage over time. This makes the stock attractive for those looking for current income and dividend growth.
final thoughts
EPR properties appear to be doing very well post-pandemic, continuing their strong recovery into 2023.
REITs dominate the ownership of movie theaters, recreational facilities and educational facilities.
These are relatively small sub-segments of the real estate industry, giving EPR the advantage of being a ‘big fish in a small pond’.
The EPR Property stock has a dividend yield of 8.1% and has resumed monthly dividend payments. As a result, the stock is once again attractive to income investors looking for high yields and monthly payments.
Of course, this depends on the continued recovery of EPR’s portfolio metrics and financial results. Based on all these factors, EPR properties appear to be a good choice for an income investor, or an investor looking for high-yield exposure to his REIT.
If you’re looking to find more quality dividend growth stocks for your long-term investment, the Sure Dividend database is here to help.
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