EPR Properties Faces A Summertime Boom In Moviegoing

Summary

• EPR Properties is set to benefit from a summer of fun for moviegoing as long-delayed movies are set for release.
• The strong box office performance of recent releases proves the theatre business model is not dead.
• EPR Properties is likely to report a rise in rent collections and theatre locations open during its fiscal 2021 first quarter earnings call.

Photo by RgStudio/E+ via Getty Images

EPR Properties (NYSE:NYSE:EPR) fiscal 2021 first quarter earnings call is set for May 6th. This is likely to be the penultimate quarterly earnings that overlap with significant restrictions on cinema opening capacity and lockdowns. The American vaccination campaign has been a success with 1 in 2 American adults having received at least one dose of the vaccine. Further, cases have once again started to fall after flatlining for some months.

Daily Change In US Covid Cases (Source)

This is important to mention as it means a continuation of the reopening momentum that will see government-mandated cinema closures a thing of history. New York, Connecticut, and New Jersey have also just recently accelerated their reopening with almost all their pandemic restrictions to be lifted by May 19th. This will set the consumer background for an extremely strong summer movie slate with 25 movies set to be released, and comes on the back of a pandemic record theatrical performance for Godzilla vs. Kong which crossed a $415 million global haul despite key markets in Europe still under lockdown.

The performance of recent movies provides a definitive answer to the question posed as to the survivability of theatres post-pandemic. Despite these movies being available through streaming platforms, they have been able to pull in strong box office hauls. With the UK set to reopen cinemas within weeks after a 5-month lockdown, EPR's largest tenant AMC Entertainment (NYSE:AMC) should see its financial standing dramatically improve after the company raised record amounts of cash earlier this year.

Rising Cash Collections On The Back Of Theatre Reopenings

EPR saw rent collections for the first two months of its 2021 first quarter come in at 66% and 64% consecutively. This was up from 46% collected during its fiscal 2020 fourth quarter. I'd expect March rent collections to be at or just over 68% with post-period end collections in April likely close to or above 74%. This would be mainly driven by theatre reopenings from Regal Theatres and AMC which ramped up during these months. Regal for example has been reopening across the USA after 6 months of shutting down all its theatre locations.

This should see both total revenue and net income continue their upward recovery. The former was at $93.41 million as at the end of the last reported quarter, and I would expect it to be up at least 30% for Q1 2021 to $121 million with cash collections already up more than 2000 basis points from their Q4 figure.

Data by YCharts

I would also expect the company to record positive net income for the first time since the pandemic hit last year March. Further, as EPR held a cash balance of $1.03 billion at the end of its last earnings period, moving net income back into the black puts them in a good position to communicate when their monthly dividend will be reinstated. Cutting this was prudent as the pandemic introduced material uncertainty on the future of theatres. But the strong performance on the currently released movies, the company's likely move back into profitability, and the acceleration of reopenings place EPR in a position where this should be reinstated later this year. Hence, EPR management during their next earnings call should provide this clarity to its current long-term shareholders.

Theatres Are Not Dead

Theatres were held back not killed and arguments from shorts ascribing permanency to the pandemic-induced collapse have been stupendously wrong. Not only has there been pent-up demand against still material capacity constraints, this has been against a pandemic yet to end but facing an irrelevancy brought about by a successful vaccine rollout. I wrote my first article on EPR more than a year ago amidst the chaos and uncertainty brought about by the virus; EPR Properties, Wrecked By COVID-19, Is A Strong Buy. The sentiment expressed in this still holds true.

EPR remains a buy as theatres continue to open across the USA and the vaccination effort peels away the restrictions on pent-up demand for moviegoing. This is set to explode as we enter a summer of fun, a culmination of more than a year of lockdown and an undelayed blockbuster movie slate. Admittedly, the bears still have a few points to hold on to. EPR is yet to provide clarity as to the reinstatement of its monthly dividend and a resurgent third wave across some parts of the world has created a level of uncertainty unwelcome as America approaches the light at the end of the tunnel.

It likely would not be difficult to characterize the national zeitgeist when the embers of the coming summer mornings trickle through bedroom windows in homes across America. Jubilant, near-euphoric, free. EPR faces this summertime boom with social bonds once again nurtured by our physical experiences. I remain long with the shares likely to break above the $50 mark in the near future.

Analyst’s Disclosure: I am/we are long EPR. 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.