billyhoiler
EPR Properties (NYSE:EPR) just hiked its monthly cash dividend by 3.6% to $0.285 per share, this is $3.42 per share annualized and means an 8.2% dividend yield for the internally managed experiential property REIT. EPR’s dividend yield north of 8% is abnormally high for a triple-net lease REIT and reflects continued market angst around the solvency of EPR’s third-largest tenant, AMC Entertainment (AMC). The lackluster market reaction to the dividend hike came as AMC reported earnings that deepened the uncertainty around its ability to remain a going concern on the same day as EPR announced the dividend hike.
AMC forms a towering specter over EPR with its dividend yield reflecting AMC’s heightened credit risk. I’ve embraced this risk by starting a new long-term position in EPR. This was built before the dividend hike after I last covered the REIT. EPR is swapping hands for 8.6x the midpoint of its FFOAA guidance of $4.86 per share for its 2024 fiscal year. This is cheap for a REIT that just hiked its dividend by 3.6% and is increasingly diversifying a property portfolio let on long-term triple-net leases. This means tenants are required to pay all expenses related to the operation and maintenance of the property.
EPR Properties Fiscal 2023 Fourth Quarter Presentation
Dividend Coverage, Investment Spending, And Lease Expirations
There are a ton of reasons to be bullish, even with the pending AMC debacle. EPR’s annualized dividend distribution is 142% covered by the midpoint of its 2024 FFOAA guidance, a substantial level of safety that also opens up the possibility of further dividend hikes through 2024. The REIT has underpaid on dividends since 2022 and the 3.6% hike could represent an inflection point for the common shares. Theatres represented 37% of adjusted EBITDAre at the end of the fourth quarter.
EPR Properties Fiscal 2023 Form 10-K
EPR generated full-year revenue of $705.67 million during 2023 with AMC driving $94.7 million, around 13.4% of total revenue. The race is to get this percentage lower against a still ill-defined timeline for when or if AMC files Chapter 11. EPR’s strategic focus on reducing theatre exposure is key to its valuation multiple. The REIT is guiding for investment spending of $200 million to $300 million through 2024 with dispositions of between $50 million to $75 million. This comes as occupancy stayed constant at 99% at the end of the fourth quarter, with what’s an extraordinarily long-dated lease expiration profile. EPR is set to see an average lease of 2% of revenue coming up for expiration per year. These are leases with annual rent escalators of between 1.5% to 2% against EPR weighted average lease term of 12 years. Critically, these are great metrics for long-term growth, but the AMC specter remains the core barrier to the expansion of EPR’s valuation multiple.
EPR Properties Fiscal 2023 Fourth Quarter Presentation
The Fed, Preferreds, And Debt Maturities
Possible movements by the Fed to cut base interest rates by at least 75 basis points this year should form an obvious catalyst for EPR’s valuation expansion. The REIT faces $136.6 million in debt maturities in 2024 against $78.1 million in cash on hand and a $1 billion unsecured revolving credit facility that has zero borrowings as of the end of the fourth quarter.
EPR Properties Fiscal 2023 Fourth Quarter Presentation
There is another $300 million of unsecured senior notes coming due in 2025 that the REIT should be able to refinance on the back of Fed rate cuts. I also took a position in the Series G preferreds (NYSE:EPR.PR.G) in response to what’s currently a steep, roughly 20% discount to their $25 per share liquidation value. The common shares represent the better pick across all of EPR’s public trading securities, with a yield that’s in excess of the other three securities set against the possibility of further dividend hikes through 2024.
| Preferred series | Discount to liquidation price ($25) | Annual distribution | Yield on cost % | Call date |
| 5.75% Series C Cumulative Convertible Preferreds (NYSE:EPR.PR.C) | -22.8% ($19.29) | $1.44 | 7.45% | 1/15/2012 |
| 9.00% Series E Cumulative Convertible Preferreds (NYSE:EPR.PR.E) | +12.5% ($28.12) | $2.25 | 8.00% | 4/20/2013 |
| 5.75% Series G Cumulative Redeemable Preferreds (EPR.PR.G) | -22% ($19.48) | $1.44 | 7.38% | 11/30/2022 |
The delayed reaction of the commons to the dividend hike fundamentally represents an opportunity for an expansion of my position through dividend reinvestment. I think EPR has finally reached an inflection point where continued FFOAA growth now set within the wrapper of pending Fed rate cuts looks set to open up a pathway for the recovery of the monthly dividend to the pre-pandemic level. I’m rating the common shares as a buy even against AMC risks with the three preferred series being rated as a hold.
