When a REIT stock pays dividends for 18 consecutive years, it certainly deserves the attention of dividend investors. If it happens to be a REIT that is focused on movies and entertainment, then it is even more eye catching. EPR Properties operates in an industry where consumer spending is far more discretionary. Although movie theater attendance has historically trended downwards, the company’s management team has been able to successfully build a dividend record based on their strong portfolio. If you are an investor that prefers to diversify your REIT portfolio, from an industry-based perspective, then this stock is certainly worth considering.
EPR has never once interrupted their dividend payments. This fact is quite impressive especially when their funds from operations fell significantly during the last recession. As a matter of fact, the company has raised dividends every year except in 2009/10. At that time, the decreased their dividend payout by 23 percent, and kept the rate flat in 2010. On average, EPR has increased dividends by approximately 16 percent, and distributed them every quarter from 1997 to 2013. Then, they shifted into a monthly payment program.
Traditional REIT investors certainly have a plethora of concerns when it comes to specialty stocks like EPR. Movie theater operators, in particular, must deal with multiple other idiosyncrasies. One does not need to patronize their local movie theater in order to figure out that the success of their operations is based on several factors such as the popularity of the movie selections, the window in which the movies are exhibited, and the eagerness of consumers to spend their hard earned money outside of their homes.
That being said, box office revenues actually grew last year, achieving record revenues of $11 billion in 2015. In addition, the more sophisticated theaters grew in revenues due to a higher participation in food and beverage sales. EPR controls 272 properties, of which 147 are megaplex theaters and entertainment centers.
Even Standard & Poor’s acknowledged that EPR’s strength lies in their portfolio, which holds long-term, triple-net leases. The company has one hundred percent of their theaters leased across the country. In addition, their tenants have stronger rent coverage than the market average. However, a major concern is their tenant concentration with a significant amount of revenues tied to a movie theater operator (AMC).
Based on the perils of the movie theater industry, and their tenant concentration, the management team has wisely decided to diversify and seek new revenue streams from other industries. Since 2007, EPR have been increasing their investment in both recreation and education, which now accounts for 40 percent of their investments. The company’s recreational properties include ski parks, water parks, and golf entertainment complexes. Education investments include public charter schools, private schools, and early childhood education centers.
However, the recent diversification of their portfolio has not been enough for the S&P to assign them a corporate investment grade rating. That being stated, EPR’s senior notes have been assigned investment grades by three main credit agencies including S&P, Fitch’s, and Moody’s. The debt to adjusted EBITDA, a main debt metric, has remained below 6x, which is a positive sign of strength.
Regarding the company’s valuation there are no direct peers in which to compare it to. Looking back though, the AFFO multiple of 14x has been slightly higher than the historic average.
In summary, EPR Properties is certainly not perfect; however, having a higher than average dividend yield of 6 percent makes the stock far more attractive. The company’s dividend payout ratio of 82 percent, and AFFO per share is expected to increase by seven percent in 2016. There is not much to worry about EPR’s ability to uphold its dividend payment record.
Source: EPR Properties(NYSE:EPR),the-numbers.com/market/
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