EPR Properties(US:EPR) Seeking Alphaยท2024-06-06 00:10Company Overview - EPR Properties is a net lease REIT focusing on experiential properties such as movie theaters, ski resorts, and entertainment venues like Topgolf and Six Flags [3][4] - The company reported that theater rent coverage levels have returned to pre-COVID levels, while the non-theater portfolio is performing 30% better than in 2019 [3][4] Economic Resilience - Historical data indicates that the theater business tends to outperform during recessions, as consumers seek escapism through movies [5][6] - Other experiential properties, such as ski resorts and amusement parks, also perform well during economic downturns as families opt for staycations [6][7] Acquisition Strategy - The company is being selective in acquisitions due to a high cost of capital environment, focusing on durable assets with long-term leases [8][10] - EPR Properties typically engages in deals ranging from $50 million to $100 million and seeks to establish relationships for future investment opportunities [10] Movie Theater Business - EPR Properties owns some of the most productive theaters in the U.S., representing 3% of theaters but capturing 8% of the box office [11][19] - The average food and beverage spend per patron in theaters has increased from $4.50 to nearly $7.75, contributing to higher margins [16][17] - The company anticipates a box office recovery, projecting revenues to match or exceed pre-COVID levels as the industry rebounds [20][42] Diversification and Future Plans - EPR Properties plans to diversify its portfolio by potentially selling theater assets while maintaining a focus on experiential properties [21][42] - The company is exploring growth opportunities in the eat & play segment, which includes venues like Topgolf and Andretti Karting, with average spending around $40 per person [22][24] Financial Health - The company maintains a conservative debt-to-EBITDA ratio in the low 5s and has regained its investment-grade rating post-COVID [34][36] - EPR Properties has a strong cash position, allowing for $200 million to $300 million in annual investments without needing to access capital markets [36][37] Seasonal Operations - The ski and water park segments are less impacted by seasonality due to fixed income streams from leases, although weather can affect water park attendance [31][32] - The introduction of season passes has stabilized revenue for ski resorts, allowing for predictable performance metrics [31] Market Position and Valuation - EPR Properties is currently trading at a discount compared to competitors, with a focus on improving stock valuation through strategic asset management [41][42] - The company believes there is significant potential for value creation as the market for theaters recovers and diversifies [44][50]