EPR Properties: High Dividend Yield And Large Margin Of Safety

Core Viewpoint - EPR Properties is a specialized REIT focusing on experiential properties, with a strategic shift away from education towards the experiential economy, which is expected to thrive as younger generations favor experiences over material goods [1] Portfolio Overview - EPR Properties holds a total of 358 properties, with 288 classified under experiential categories and 70 in education [2] - Theatres account for 37% of the portfolio, while eat & play concepts, attractions, and ski resorts are areas targeted for growth [2] - The company aims to reduce its exposure to the theatre segment, which has seen a decline from 41% to 37% in 2023 [12] Financial Performance - The theatre segment has shown signs of recovery, with box office revenue increasing by nearly 30% year-over-year to $8.9 billion, although still 22% below 2019 levels [12] - Rent coverage for theatres has improved to 1.7x, matching pre-COVID levels, indicating a stabilization in cash flows [12] - The stock is currently undervalued at 8.2x forward FFO, with an implied cap rate of 8.6%, suggesting potential for significant upside [14] Investment Recommendations - Preferred shares, particularly Series C, are recommended due to their high 7% dividend yield and lower risk compared to common shares [4][20] - The company is expected to maintain stable cash flows, supported by a reasonable payout ratio of 70%, ensuring dividend sustainability [19] Market Outlook - The movie theatre sector is anticipated to continue recovering, bolstered by major film releases and investments from companies like Apple and Amazon [13] - Despite a slow start in Q1 2024, box office revenue is projected to reach $8-8.4 billion for the year, sufficient to support rent coverage [13] - The market has overly discounted the theatre segment, creating a buying opportunity as fears of obsolescence are deemed exaggerated [11][20]