Up to date on September thirteenth, 2024 by Felix Martinez
Actual property and dividend shares are two of the preferred autos for creating passive retirement revenue.
The draw back to proudly owning rental properties is that it isn’t actually passive. Any landlord who has needed to name a plumber or an electrician in the course of the midnight can attest to this.
For traders trying to seize the returns of the true property sector whereas benefiting from the hands-off method of dividend shares, actual property funding trusts – or REITs – are a really enticing funding automobile.
EPR Properties (EPR) is without doubt one of the most well-known REITs. EPR reinstated its month-to-month dividend within the second half of 2021, after suspending it for over a yr because of the coronavirus pandemic.
Meaning EPR rejoined the checklist of month-to-month dividend shares. We’ve compiled an inventory of 78 month-to-month dividend shares, together with essential monetary metrics like dividend yields and payout ratios, which you’ll be able to view by clicking on the hyperlink beneath:
This text will analyze the funding prospects of EPR Properties intimately.
Enterprise Overview
EPR Properties is a triple internet lease actual property funding belief specializing in leisure, recreation, and schooling properties.
Triple internet lease signifies that the tenant is chargeable for paying the three foremost prices related to actual property: taxes, insurance coverage, and upkeep. Working as a triple internet lease REIT reduces the working bills of EPR Properties.
EPR has recognized leisure, recreation, and schooling because the three massive buckets it invests in. It has then recognized enticing sub-segments of these bigger segments together with film theaters, ski resorts, and constitution faculties, as examples.
The portfolio consists of greater than $6.8 billion in investments throughout 363 areas in 44 states and Canada, together with over 200 tenants.
Supply: Investor Presentation
EPR is concentrated in quite a lot of completely different metropolitan areas all through the US and elements of Canada, so it’s extremely diversified with not solely its tenants, however geographically as effectively.
EPR reported its second-quarter earnings on July 31, 2024, with outcomes aligning with expectations. The true property funding belief (REIT) posted adjusted funds from operations (AFFO) of $1.20 per share, whereas income remained flat at $173 million in comparison with the identical interval final yr.
Administration highlighted sturdy demand throughout all tenant classes. Complete working bills rose to $95 million from $87 million in Q1, however have been considerably decrease than the $126 million reported in Q2 2023.
Funding spending for the quarter reached $47 million, bringing the year-to-date whole to $133 million. Moreover, the REIT has $180 million dedicated for future experiential growth and redevelopment initiatives, anticipated to be accomplished throughout the subsequent two years.
After these Q2 outcomes, we undertaking AFFO of $4.85 for 2024, barely beneath the whole for 2023.
Progress Prospects
Previous to 2020, EPR had maintained a monitor file of regular progress. From 2010 to 2019, EPR compounded its adjusted FFO-per-share by virtually 8% per yr. The coronavirus pandemic upended nearly all REITs and prompted EPR’s FFO-per-share to say no from $5.44 in 2019 to $1.43 in 2020.
Though the corporate confronted main challenges in the course of the pandemic, which confirmed within the firm’s monetary outcomes, EPR continues to get better strongly. EPR nonetheless has many alternatives to drive its progress. The corporate’s concentrate on experiential properties protects the corporate in opposition to e-commerce threats. EPR believes that customers will nonetheless need these experiences and thus its properties will generate sturdy visitors.
The corporate believes there’s a robust future progress potential in location-based leisure. And nonetheless, that there are a number of underpenetrated experiential segments in experiential actual property. The corporate believes there’s a $100 billion+ addressable market alternative there.
EPR has diminished its schooling portfolio whereas rising most of its property sorts in its experiential portfolio. EPR will concentrate on rising all property sorts in its experiential portfolio, apart from theatres. The corporate desires to scale back its dependence on theatres, which account for 37% of annualized adjusted EBITD Are throughout 161 properties with 17 operators.
Supply: Investor Presentation
We count on 3% annual FFO-per-share progress over the subsequent 5 years. EPR’s progress shall be fueled by its aggressive benefits, primarily its portfolio of specialised properties. By means of years of expertise, EPR has methodically recognized probably the most worthwhile properties and focuses its investments in these areas.
Aggressive Benefit & Recession Efficiency
The corporate’s concentrate on experiential properties provides it a aggressive benefit by defending it in opposition to e-commerce threats. EPR believes that its properties will nonetheless generate sturdy visitors, as shoppers will nonetheless need these experiences.
The corporate definitely isn’t proof against recessions, however we see EPR as one of many better-run REITs in our protection universe attributable to its enterprise mannequin and benefits. A return to progress ought to permit the corporate to slowly elevate the dividend over time.
Dividend Evaluation
EPR’s dividend historical past was spectacular heading into 2020. The corporate had elevated its annual per-share dividend by roughly 6% per yr from 2010-2019. After all, the pandemic pressured the corporate to droop its dividend for many of 2020.
Luckily, EPR administration expects its restoration to proceed. This expectation gave administration the arrogance to extend the month-to-month dividend 4% from a fee of $0.275 per share in March 2024 to $0.285. This equals an annual dividend of $3.40.
On an annualized foundation, the $3.40 per share dividend remains to be beneath the pre-COVID payout of $4.59 per share. Nonetheless, at a degree of $3.40 per share, EPR inventory yields 7.1%. Subsequently, EPR inventory remains to be enticing for revenue traders as a excessive dividend inventory.
EPR has a fairly leveraged capital construction that affords it some flexibility. It has labored to restore its steadiness sheet within the wake of the pandemic, to additional enhance its dividend security and progress potential.
Supply: Investor Presentation
EPR’s debt totals about $2.8 billion, with a weighted common debt maturity of 4.0 years and a weighted common rate of interest of 4.3%. It has a $1 billion credit score revolver that now has a zero steadiness, giving EPR loads of liquidity.
All of this helps EPR’s progress plans and by extension, its skill to not solely pay its dividend, but in addition to hopefully elevate it over time.
EPR’s dividend seems to be safe, and it’s seemingly the belief will proceed to lift it at significant charges over time if its FFO continues to get better again to pre-COVID ranges. This makes the inventory enticing for these in search of present revenue and dividend progress.
Last Ideas
EPR Properties appears to be performing very effectively following the pandemic and continues to get better strongly into 2024.
The REIT has a dominant place within the possession of film theaters, leisure amenities, and academic properties.
These are comparatively small sub-segments of the true property trade and provides EPR the good thing about being ‘a giant fish in a small pond.’
EPR Properties inventory has an 7.1% dividend yield and has resumed its month-to-month dividend funds. In consequence, it’s as soon as once more an interesting inventory for revenue traders searching for excessive yields and month-to-month payouts.
After all, that is depending on the continued restoration in EPR’s portfolio metrics and monetary outcomes. Primarily based on all these components, EPR Properties seems to be a good selection for revenue traders, or traders which might be searching for some publicity to high-yield REITs.
Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.
And see the assets beneath for extra compelling funding concepts for dividend progress shares and/or high-yield funding securities.
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