The EPR Properties I Knew

Summary

• EPR Properties' fiscal 2021 second-quarter earnings were a beat on both revenue and FFO.
• This quarter underscores the company's recovery from the pandemic and supports the decision to reinstate the monthly dividend.
• I have closed my EPR position on the back of a wholesale shift away from income investing to growth.

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When the pandemic hit EPR Properties (NYSE:NYSE:EPR) last year the company quickly found its business model unravelling and its stock price collapsing precipitously towards zero. In essence, now removed stay at home orders and lockdowns shut down the experiential world in which EPR Properties had used to create shareholder value for years. Set against this new reality beset by a virus on one hand and by the rising tide of digitization which threatened to upend consumer consumption habits on the other, EPR became a divisive battleground stock.

Data by YCharts

And while more than 16 months later the stock has still not recovered to its pre-Covid peak, it is up more than 145% since my first article on the company. So much has happened since this article as chronicled in my running coverage of the company since March 2020. Most notably would be the quashing of the pertinent threat of the bankruptcy of EPR's largest tenant. AMC would be rescued from the clutches of bankruptcy by a number of factors that included what fast became a historic short squeeze sparked by an obscure online board. This allowed AMC to reduce debt by raising new capital from a series of share offerings.

EPR now faces new risk from a once again resurgent virus as the Delta variant has led to a material surge in cases.

US Covid-19 Cases (From Google)

And while Fauci has allayed fears on widespread new lockdowns to control the spread of the Delta variant, a resurgent virus could still negatively affect consumer confidence and lead to a softening of demand for moviegoing.

Financial Prospects Has Strengthened As Bearish Risks Dampen

EPR's fiscal 2021 second-quarter results saw the company realize total revenue of $125.4 million, up 18% year-over-year. While this was still below revenue of $162 million recorded in the pre-pandemic 2019 second quarter, it was a $12.74 million beat.

Data by YCharts

Q2 FFO at $0.71 was also a beat by $0.11 and came on the back of cash collections rising to 85% of contractual cash revenue. During the period 99% of the company's theatre and 100% of its non-theatre locations were open. This was a period that also saw strong box office performance from movies like A Quiet Place 2 and Fast & Furious 9. This strong theatrical movie performance has continued post period end with Disney's Black Widow becoming the highest-grossing movie of the pandemic era with an opening weekend haul of $87 million.

As of the end of the second quarter, EPR had cash on hand of $509.8 million and no borrowings on its $1.0 billion unsecured revolving credit facility. This places the company in a good position to take advantage of any post-pandemic investment opportunities that materialize and to diversify beyond theatres.

Due to this significantly strengthened financial position, EPR Properties made the decision to terminate the covenant relief period early under certain of its credit facilities and reinstate a monthly dividend of $0.25 per common share. The means the company currently sports a yield of 5.96%. EPR expects 2021 adjusted FFO to come in at $2.76 - $2.86. This would place its price to forward AFFO at 18.22, slightly below the sector median of 21.51.

Komorebi

Japan has quite a few words with no direct English translations. Komorebi, sunlight that filters through the trees, is one such word that encapsulates the EPR story that has played out over the last year and five months. The effects of the pandemic were always going to be temporary. Indeed, writing in my first article I state this dark period in human history would eventually give way, not by its own accord but by human ingenuity and sacrifice. The impressive development of covid-19 vaccines by Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA), and AstraZeneca (NASDAQ:AZN) helped usher in this new period. The American vaccination campaign has saved tens of thousands of lives, prevented millions more from getting infected, and facilitated the reopening of the economy.

Surely this was always going to be the scenario that played out? Hence, initial bearish coverage on the company that painted a long position in its shares as a bet only braved by unhinged high-yield junkies was misplaced. And while I am fully out of my EPR position due to changes in my investment strategy away from income investing the company still has a bright future ahead. Current longs should welcome the reinstatement of the dividend but should also be cognizant of the risk the surging delta variant poses to what has been months of reopening led recovery. EPR would clearly be adversely impacted if states reimpose stay-at-home orders.

EPR Properties will forever represent this tumultuous investment period for me. The company lays at the core of active investing which is to clearly define your parameters for a long position and to stick to its in spite of volatility and poor but much-repeated bearish arguments.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.