Successful stocks always look like great buy opportunities when you use hindsight. As they begin to perform well, market timers cannot resist the temptation of purchasing stocks that might generate an impressive return. The behavior of aggressive investors creates more fuel for the momentum of stocks that are performing well. Some net lease REITs such as Realty Income and National Retail Properties have recently benefited from this phenomenon. In June, investors became more aggressive with their search of profitable opportunities. Is this also the case of another net lease company, EPR Properties?
In May 2015, we conducted a close analysis of EPR Properties, a REIT that concentrates on the entertainment business. EPR Properties received favorable marks for an impressive FFO per share growth and dividend yield (please click here to see the post). Compared to four other popular net lease REITs (STAG Industrial, Spirit Realty, Lexington Realty, and National Retail), we gave it a third place ranking based upon its potential to perform well in the future. We gave National Retail the top ranked position. As time progressed, we found out that our rankings were fairly correct.
It is clear that EPR and National Retail have experienced similar success. Over the last twelve months, both stocks returned with an impressive 40% increase. National Retail is a diversified REIT in the free-standing retail category. EPR is a unique stock that that invests in education, entertainment, and recreation. EPR recently announced they have plans of entering into the casino industry. At this present time, there aren’t many REITs like EPR.
EPR, a net lease mid-cap, captures investor’s attention due to the strength of the entertainment industry. Its presence in 37 states and long debt maturity profile are two more factors that attract investors. It is important to point out that investors may not feel comfortable with AMC’s 20% tenant concentration, weak tenants’ credit quality, and the stern threat to movie theaters from digital technologies.
After CEO Greg Silvers’ appearance on Mad Money and release of the Q1 results, the stock’s performance improved dramatically. They made an earnest effort at drawing in more investors when they emphasized that millennials value experience over material things, something that strengthens entertainment fundamentals. They are now trading at around eighteen times AFFO versus thirteen times this time last year. Dividend yield is above the average equity REIT.
In short, it is difficult to tell if the stock will continue to rise. In this instance, we see this stock being more on the downside. However, it can be a great stock for investors interested in diversifying their REIT portfolio with a stock from an unusual sector.
Source: EPR Properties(NYSE:EPR)
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Disclosure: The author is long FCH.