EPR Properties: A High-Yielding Option for Real Estate Investors with Limited Funds
Investing in real estate can be a lucrative venture, but the high upfront costs associated with buying a rental property can be a significant barrier for many individuals. However, there are lower-cost alternatives available to those looking to enter the real estate market. Real estate investment trusts (REITs) are one such option that allows individuals to start earning passive income from real estate with relatively small investments. EPR Properties, a specialty REIT, is an attractive choice for budding real estate investors due to its unique offerings and high potential for passive income.
EPR Properties stands out from traditional REITs due to its focus on owning experiential real estate. With a portfolio of 363 properties across the United States and Canada, the company is involved in various sectors such as theaters, eat & play venues, attractions, ski resorts, fitness and wellness centers, experiential lodging, gaming facilities, and cultural properties. In addition, EPR Properties also has investments in the education sector, primarily early childhood education and private schools. By leasing these properties back to operating companies under long-term net leases, EPR Properties ensures stable rental income as the tenants cover variable costs like building insurance, maintenance, and real estate taxes. This setup provides the company with predictable cash flow, a significant portion of which is distributed to shareholders in the form of dividends.
Currently, EPR Properties offers a monthly dividend of $0.275 per share, resulting in an annualized dividend of $3.30. This dividend is easily covered by the company’s funds from operations (FFO) of $5.05-$5.15 per share projected for 2023. With a dividend yield of 7.7% at the recent share price, EPR Properties outshines most other REITs that average a dividend yield of 4.5%, as well as other stocks in the S&P 500 with a dividend yield of 1.5%. Simply put, every $100 invested in EPR Properties would generate approximately $7.70 in annual dividend income.
In addition to its attractive dividend yield, EPR Properties also boasts significant growth potential. The company has already invested over $6.7 billion to develop a diversified portfolio of experiential real estate. However, EPR Properties believes there is much more to explore, estimating a massive $100 billion market opportunity to acquire experiential real estate outside of the theater industry through sale-leaseback transactions and build-to-suit development or redevelopment projects. To capitalize on this potential, the company plans to invest $200 million to $300 million this year alone to expand its portfolio. It has already made strategic investments, including a fitness and wellness property acquisition for $46.7 million and various experimental build-to-suit development and redevelopment projects. EPR Properties is committed to further growing its rental income and diversifying its portfolio away from theaters. The investments will be funded through post-dividend free cash flow and the company’s strong investment-grade balance sheet. With $99.7 million in cash and no borrowings on its $1 billion credit facility, EPR Properties has ample financial flexibility to support new investments.
Furthermore, EPR Properties’ existing portfolio also offers promising growth prospects. Recently, the company finalized a restructuring agreement with Regal, one of its largest theater operators and tenants. The new lease agreement includes a fixed $65 million annual rental payment, increasing by 10% every five years. Additionally, Regal will pay a percentage rent based on gross sales at its leased locations exceeding $220 million. This arrangement allows EPR Properties to benefit from lucrative box office years, further boosting rental income.
The potential for rent growth from new acquisitions and existing properties positions EPR Properties to increase its already attractive dividend. While the company paused dividend payments during the pandemic, it reinstated dividends at a more sustainable rate in 2021. EPR Properties has already started raising the reset dividend, providing investors with a 10% increase last year. This demonstrates the company’s commitment to enhancing shareholder value through dividend growth.
One of the most appealing aspects of EPR Properties as a real estate investment option is its affordability. Currently priced below $45 per share, the company offers a low-cost entry point for investors. Coupled with its high dividend yield and growth potential, EPR Properties presents an appealing opportunity for individuals looking to collect passive income from real estate.
In conclusion, real estate investment trusts like EPR Properties provide a viable and low-cost entry into the real estate market. With its focus on experiential real estate, EPR Properties stands out among its peers. The company’s diversified portfolio, stable rental income, and significant growth potential make it an attractive choice for both novice and experienced real estate investors. By investing in EPR Properties, individuals can start earning passive income from real estate without the need for large upfront capital.