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EPR Properties: The Place To Look For Both Entertainment And Returns

Summary

  • EPR Properties just published its results for Q4/2017 as well as for FY 2017.
  • Some may see the results as somehow disappointing. We believe that this is a short-sighted view.
  • EPR has grown in 2017 (versus 2016) and is expected to grow at an even faster pace more in 2018.
  • We are assigning a BUY rating to this eREIT, especially if the market may wish to test the 52-week low area.

An Entertaining Night

It's been a busy night for me yesterday, full of all sorts of entertainment:

  • Issuing a public announcement regarding Trapping Value joining The Wheel of FORTUNE, the opening shot of our "March Madness" campaign (You can also see TV's blog post here). We view this partnership as purely professional but also, admittedly, as an entertaining collaboration.
  • Purim, aka "The Jewish Halloween", night. This is always a night filled with lots of fun, happiness, joy, and entertainment.
  • Entertainment Properties, a company we now own, published its Q4/2017 results.

Overall, lots of entertainment although when it comes to the last item some may not view the numbers as so entertaining, i.e. encouraging, as they may have wished those to be. However, we are here to try sort things up.

An Entertaining Company

EPR Properties (NYSE:EPR) - founded in August 1997 and headquartered in Kansas City, MO. - is a uniquely positioned triple net lease ("TNL") equity real estate investment trust ("eREIT"), specializing in highly enduring segments of the real estate industry.

EPR engages in the development, finance, and leasing of theaters, entertainment retail, and family entertainment centers. The company operates through the following four segments:

  • Entertainment: Megaplex theaters, entertainment retail centers, family entertainment centers, and other retail parcels.
  • Education: Public charter schools.
  • Recreation: Metro ski parks, water-parks, and golf entertainment complexes.
  • Other: Vineyards and wineries, land held for development.

An Entertaining Operations

Please note that all the below charts that are part of the "An Entertaining Operations" section are taken from the company's website.

While traditional eREITs usually offer either high degree of specialization or high level of diversification, EPR chooses to be somewhat in the middle.

Nonetheless, over the past five years, this hasn't necessarily proven to be better than how traditional eREITs have performed.

EPR

  • The Wheel of FORTUNE is now offering a "March Madness" bargain deal that you don't want to miss out on! (See TV's blog post too).
  • Now that Trapping Value is part of The Wheel of FORTUNE you actually pay for one and gets two.
  • Both annual and monthly fees are going to rise on April 1st by 5% and 10%, respectively, so make sure you join before Fool's Day. Joining now ensures that you are grandfathering the current-lower fees.
  • In order to make it even easier and more worthy for you, the free trial is now on so you can take advantage of a two-week first-hand experience, free of charge before you commit to the service on a longer-term basis.
  • Make sure you read the reviews (124/125 possible stars) subscribers wrote about the service to gain a better understanding what you may expect out of it.

This article was written by

The Fortune Teller profile picture
21.44K Followers

The Fortune Teller is a team of two analysts with over 30 years of market experience between them. One of the principles is a formerly licensed investment advisor with a background in asset management. They also hold BAs in Accounting & Economics and Computer Sciences, as well as MBAs, which they use to inform their stock selections

They lead the investing group Wheel of Fortune where they share actionable trading ideas across all asset-classes, sectors and industries. The goal of the service is to provide a one-stop-shop for investment and portfolio ideas, while educating the vibrant community of subscribers. Features of the service include: the Funds Macro Portfolio (only ETFs and CEFs) for less active investors, the Single Macro Portfolio (single equity focused) for more active investors, educational content, and a live chat room to openly discuss ideas with like-minded investors and The Fortune Teller. Learn more.

Analyst’s Disclosure: I am/we are long EPR, WPC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am/We Are SHORT O I am/We Are SHORT O $50 PUT option

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (71)

PendragonY profile picture
I don't think its any secret that The Fortune Teller and I evaluate companies differently. So I think its fairly significant that we both agree that EPR is a good investment.
The Fortune Teller profile picture
Pen
Good luck with EPR...
PendragonY profile picture
Its been pretty good to me so far. Hopefully we will both do well with it.
Steve Rasher profile picture
FWIW, figured out how to buy a final additional 25% tranche. Hopefully, we all will do well. Steve
T
Would love to add more but I am at my top level for reits in my portfolio, having a stake in O and WPC along with EPR. 3 hour wait to get a bay at Top Golf this weekend outside Chicago for those interested.
The Fortune Teller profile picture
3D
Discipline is a virtue so if you've reached the maximum allocation you've set for eREITs and you stick to it - I salute you.
RoseNose profile picture
This is one entertaining suggestion.
Monthly dividend is nice and the yield is terrific and in the historic range.
Gotta like the BBB- credit rating too.
I hope it is a good "Purim- Halloween" pick.
and becomes a treat for us all....hope your day was FUN ! and happy with family.
I started a new position and hope to remain Long.
Best and Happy Investing :)) Rose
The Fortune Teller profile picture
Long and strong with the Rose song!
Beyond Saving profile picture
I agree completely TFT except for the concentration in movies. Movie theaters have historically been ridiculously safe for landlords and EPR in particular. Consistently carrying 99-100% occupancy, you simply can't beat that. In the recession, it was their vineyards and a large outdoor recreation development that went south, the movies kept humming along and paying rent.

The bankruptcy was unfortunate and I guess the big question is whether or not it indicates fundamental pressures on education centers. I believe that it does not, and that this is a single operator issue, but there is not a lot of public data available to verify that belief. In my mind, their education portfolio still falls squarely in the experimental pile. Fortunately, the rest of their portfolio is plenty strong enough to support a few failures and maintain a healthy monthly dividend.
The Fortune Teller profile picture
BS
Well said. No BS here!
Have a lovely weekend
BudgetInvestor profile picture
I'd advise anyone considering a long position to look at the chart history for EPR. They went from $67 in 2007/2008 Pre-housing crisis. To a stunning $12 after the recession hit.
From $67 to $12, that would be a hard pill to swallow. Worth considering before thinking today's prices seem cheap. History may not repeat itself, but it does tend to rhyme.

With 3-4 interest rate hikes on the table for 2018, and continued sector pressure on REIT's, it seems that EPR could very well drop below 50. That being said, the management team seems competent, and there are fair growth prospects comparable to peers, but the risk of certain exposure to cinema's and other niche entertainment plays could prove to be unsustainable longterm. Sure 7% growth rate in dividends sounds attractive, but given that we were in near zero interest rates with ridiculously low cost of capital, doubt it's anything to model the future on. Next decade or so should paint a different picture when returning to historical averages rate wise.
Trapping Value profile picture
Very few stocks did not fall during the GFC. Modeling investments on a once in 100 year crisis will likely not be the best strategy.
BudgetInvestor profile picture
Very valid point, personally, I don't think we'll see that sort of drop here again to the same extent. However I consider it to be a worthwhile reminder, if nothing else.

The circumstances may be different, and the damage not so severe, but it's sobering to consider just how far this could fall. I think it would be prudent to scale into a position at these levels, rather than fully allocate after the big sell-off just because this REIT looks "cheap"

Nonetheless, I found your analysis helpful and well-written. The only aspect I'm left wondering is, where the pain ends for REITS. I've always read that there is interest rate correlation initially, but that this pressure eventually subsides, and some REITs / income vehicles can actually rise in unison with rates.

If rates continue to rise, will quality REITs like EPR, O, NNN, or WPC keep falling for the longer term, or does this reach a tipping point at say 3.5-4% interest rates, where further hikes no longer influence price to the same extent. I'd assume no one knows for certain how that would play out this time around, still curious to hear a few opinions though. Of course some people say it's as simple as a 300bp spread above the 10yr treasury, and to estimate a fair price / yield in that regard
Trapping Value profile picture
Budget,
The relationship is quite complex but a simple truth is that REITs are highly correlated with interest rates only when interest rates move very rapidly. Even there, their relationship is complex. For example when many feared a double dip recession after 2009 and till around 2012, higher interest rates were POSITIVELY correlated with REITs.
o
I thought it would be ok at 56 and then today AFTER HOURS AT 52
Yield is good monthly is great but high exposure theathers scares me.
Especially with China saying no any Chinese Billonaire could fall AMC.
The Fortune Teller profile picture
Agreed
I hope management will adders the high exposure to AMC soon
That should mainly be through growing and earn more revenues out of non AMC (ot top 3) tenants
Good luck and have a lovely weekend
snaimpally profile picture
Thanks for the article. I owned EPR for a while but sold it off last year. This past year, REITs have been (for the most part) severely beaten down. I am waiting for a bottom. Lots of good names, like IRM, have been beaten down.
The Fortune Teller profile picture
Agreed but when and how do we know where the bottom is!?
We rather search for the right valuation, not the perfect timing
IF we nail both - great, but it's risk/reward that directs us more than finding a bottom.
Have a lovely weekend
Guy at Work reading SA profile picture
I like EPR and WPC but I don't know if the bottom is in, certainly uncertain after -7.72%
The Fortune Teller profile picture
Either do I
However, I do know that the risk/reward is now compelling enough to make a move.
Good luck and have a lovely weekend
s
Even as interest rates are rising, at this price, the >7% dividend is still likely to be attractive. Been building a small position in increments on the way down since $63/share, adding another portion every time it drops another $1-2.
The Fortune Teller profile picture
Good luck and ave a lovely weekend Steven
Steve Rasher profile picture
TFT: Believe it or not, here is one we actually agree on. An ugly day for EPR today. Let the dust settle and time to pick up some more. Steve
The Fortune Teller profile picture
Hi Steve
You know how much I appreciate your knowledge and you are one of very non-authors that I follow.
We agree more than we don't. It's only that our holdings/executions are different...
CORR: We both rode this together. Total return for me here in about tow years is like 100%...
UNIT: You bought it straight. I saw risk... so sold $15 PUTs for a hefty premium... still 3 months to expiry...
Now EPR....and there are few more (which I haven't disclosed yet on the free section...)
I guess that where we differ are many retail/triple-net-lease (I'm still short O and ROIC).
All in all, we have more in common than you may think...
Thanks and have a lovely weekend
Steve Rasher profile picture
TFT: Thanks for the kind words. Yeah, I have to admit that we probably agree more than we disagree. My only regret with CORR is that I did not buy more when it was down. As to UNIT, it is getting attractive to add a bit more, particularly given that they just announced the next dividend. As to O, I just don't trade like you do and I view it as a steady income source. Having said that I am more inclined to add STOR and WPC over O at the moment; both have a high percentage of their leases with CPI escalators rather than fixed 1% or 2% escalators and WPC have minuscule retail exposure (I have to give credit to Hoya for pointing these facts out in his 2/28 article on NNN eREITs). By the way, if ADC ever gets below $40, for a yield slightly over 5%, I would add there as well; I believe Joey Agree is a top notch CEO and has put together a solid team. JMHO. Steve
The Fortune Teller profile picture
Steve
"I am more inclined to add STOR and WPC over O "
Here we go (agreeing) again...

CORR is quite a big position for us (relatively speaking) as we never sold a share and with over a 100% gain it did inflated. However, since we like the non-traditional operations (CORR, EPR....) we see no reason to let go. I only hope that they will expand (beyond their two tenants) and hopefully increase the divey at some point. While they are "positively boring" I'd like to see them getting out of the "let's deal with what is already on our plate" mode they adopted since 2016.

Cheers mate
l
EPR is disappointing, to say the least. A -7.7% one day drop is hard to swallow for a REIT like EPR. The question becomes what else do we not know at this time.

Wow! EPR is just about on every "recommendation" list on SA and otherwise.
T
Pretty Much.

the half dozen services i subscribe to all recomend it.
The Fortune Teller profile picture
Hi labman
We are first timers into EPR so please don't blame us for past calls of others...
Have a lovely weekend
The Fortune Teller profile picture
Mac
Half a dozen and the services and the wheel of fortune isn't one of those? I guess it's time for you to give us a try...
See our "March Madness" offer: https://seekingalpha.c...
Have a lovely weekend
BeaBaggage profile picture
chart says $51 on EPR, a little early.. how many more troubled clients are out there, we all know the risks in Sears, Toys r Us etc. but what about the rest of these education tenants? I can see why it is rated only barely IG BBB- despite the low debt which is a plus..

enjoy watching movies on my 55" "TV".. saving so much not subscribing to investment services I don't know what to do with all that extra cash.. maybe buy some CLNS..

understand both pro and con arguments on AMC and theaters or theatres..but closed theaters are a lot harder to repurpose than a closed big box store.. I guess they can put a data center in them or something... same thing on closed schools.. waiting and watching.. sub $51 may nibble.. Bea
The Fortune Teller profile picture
Hi Bea
1. BBB- for an eREIT isn't bad at all
2. Just like you, I prefer the house screen, however I do go to the cinemas. It's still a different experience (with less distractions....)
3. "I don't know what to do with all that extra cash". You know what I would say about this but since you are "not subscribing to investment services" I'll leave you with the cash...
4. "closed theaters are a lot harder to repurpose" >>> Not so sure about that. Theaters are usually placed in prime locations so even if the tenant move out - it seems to me as if the property may be in high demand (not necessarily for the same purpose). Putting it differently, I rather deal with a theater that is becoming vacant in the city center than a mall that is becoming vacant 20 miles away.
5. $51 would be great. 8% (at $54) = good enough in my book

Wishing you a lovely weekend
smurf profile picture
Timely article, Fortune Teller. Been watching this one for quite a while, but never bought because I thought it was wildly overpriced.

Might buy in <$50. DO like the monthly dividends. However, still not keen about the water park and urban ski area exposure.
The Fortune Teller profile picture
Hi smurf
It certainly can trade below $50 as much as anything can trade lower, especially eREITs.... However, it cal also become $60 in no time...
When you are analyzing things and assessing the risk/reward there's usually a point where you need to pull the trigger. Otherwise, you will keep analyzing till the end of days... For us, the time has come...

Thanks and have a lovely weekend
H
First things first. Warm congratulations to Trapping Value. And best wishes to The Fortune Teller. Or condolences. A sacrifice of twelve hamentaschen and a few rounds of wine are called for.

On EPR, I like others am surprised to see TFT falling to the dark side. The Force is strong in this one.

Seems to me that this REIT is a thematic investment with a financial or value overlay. It sure is concentrated in an unusual array of businesses. Reminds me of APTS which is reaching out to combine apartment rental and campus housing with shopping centers and office properties. Instead of calling themselves a conglomerate they are re-conceiving themselves as a living space developer. Likewise GEO is branching out from incarceration to halfway houses and rehab clinics.

EPR sounds like a wanna-be experience developer. How this all fits into the investing scene is for you to tell us. 🤓
The Fortune Teller profile picture
Thanks HW

"A sacrifice of twelve hamentaschen and a few rounds of wine are called for." >>> Admittedly, I'm not big on both...

"I like others am surprised to see TFT falling to the dark side. The Force is strong in this one." >>> Indeed... We are now holding about a dozen (!) eREITs (all but two have been bought recently straight or out of sold PUT options that been assigned to us)... We are still short two eREITs as well... we are mostly after those (like EPR) that have a unique niche and less traditional retail/triple-net leaser ones, although we now have few of those too...

Like the chart in the article suggests, EPR is somewhere between the specialization and the diversification.
I prefer this for an eREIT over the traditional ones that move (sometimes too much) into one side and, therefore, offering a less balanced/secured mix.

Thanks and have a lovely weekend
a
On the plus side we have minimal new leases to negotiate and a seasoned management team that have pretty straight shooters.

I like how they are handling the bankruptcy basically reserving for everything and sending a message that we can find replacements so don’t expect big rent reductions.

And yes this is an overreaction. A 2% drop in affo forecast, which is still a decent increase over prior year shouldn’t lead to a 7% selloff. Went long at 53 expecting a bump to 55 quickly and a good stock to hold for the longer term collecting an 8% dividend.
The Fortune Teller profile picture
Exactly!
Good luck and have a lovely weekend
Trapping Value profile picture
Hi TFT,
Considering their dialing down of investments, they really brought down that midpoint and bringing up their dispositions, guidance seems incredibly good. It might mean they are seeing some pretty good cap rates out there.
The Fortune Teller profile picture
Hey partner! .... :-)
Good to have you on-board, both here (EPR) and there (Wheel of FORTUNE)
We are privileged to have you wish us on the wheel
B
Oh boy...A eReit Buy recommendation from the Fortune Teller :-) That's rare...
B
And after you published the article the stock price recovered. Testimony to your following and quality articles. It could be a coincidence. But I think you are one of the best.
The Fortune Teller profile picture
Thanks Prat
"A eReit Buy recommendation from the Fortune Teller :-) That's rare..."
Almost scary, isn't it?.... :-)
Sometimes, I "break" too. I might write an article about eREITs. We own more than a handful now...
Good luck and have a lovely weekend
The Fortune Teller profile picture
Thanks much for this (second comment)
However, I doubt that ANY SA author - as great as he/she may be (sometimes in their own eyes...) - is able to move a stock with a market cap of $1B+
It's possible/easier to move small-caps but with all due respect to us (including yours truly) - we have a limited power.
Have a lovely weekend
So I likewise generally agree with the core thesis of this article, that EPR's quarter really was still fairly solid and the price drop appears to be an overreaction.

But that being said, one area of disagreement I have with your article/analysis is minimizing the CLA bankruptcy as just a one-off event. Yes I guess technically it is a one-off occurrence, though I would add that tenant credit health is a core function of REIT executive management responsibilities, so the fact that EPR had to a take a $9 MM hit due to this tenant bankruptcy is a material item of concern. But solid article nonetheless.
The Fortune Teller profile picture
Hi JBTC
When I say a "one off" I don't mean that such an event can't repeat itself - anything can happen, anytime - rather than this is not the normal course of business. Putting it differently, this is not something we expect to see regularly every quarter or even year
Good luck and have a lovely weekend
TraderJoeZ profile picture
"Entertaining" article! Thanks:)
The Fortune Teller profile picture
Always trying to...
Have a lovely weekend
T
Thanks for the great analysis.
The Fortune Teller profile picture
Thanks!
Have a lovely weekend
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