Single Investment Motivation: Acquiring Shares of EPR Properties (EPR)
In the face of the COVID-19 pandemic, EPR Properties, a leading real estate investment trust (REIT) specialising in experiential properties, has experienced a significant impact. The pandemic led to a decrease in physical visits to EPR's properties, which include movie theaters, "eat and play" venues, waterparks, and ski resorts.
The pandemic's effects were not limited to reduced footfall. EPR was also affected by the elevated interest rates that put downward pressure on commercial property valuations. The main reason for EPR's low valuation is the persistently high-interest rate environment, as borrowing money to acquire properties becomes more expensive.
Despite these challenges, management at EPR sees a $100 billion investable market opportunity. As the cost of capital improves, it could create a stronger growth environment for this REIT.
Over the past five years, EPR has outperformed the total return of the S&P 500 by about 50 percentage points, demonstrating its resilience and adaptability. This impressive performance is despite one of EPR's largest tenants filing for bankruptcy protection during the pandemic. Fortunately, the bankruptcy matter was resolved in a favourable way for EPR.
EPR Properties currently trades for a low valuation of 10.8 times its full-year FFO, and it offers a 6.4% dividend yield that is paid in monthly installments. With such an attractive dividend, EPR Properties presents an appealing investment opportunity for income-focused investors.
Despite the ongoing challenges, EPR Properties' portfolio of more than 300 properties continues to offer a unique and diverse range of experiences. The recovery period for movie theaters, the longest of the experiential properties, is showing signs of improvement.
As we move forward, EPR Properties remains focused on navigating the market volatility and capitalising on the opportunities that arise. The REIT's resilience, adaptability, and strong performance make it an interesting investment prospect for those seeking exposure to the experiential property sector.
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