Buy Opportunities Look Great in Hindsight

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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)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author is long FCH.

Diversify your REIT Portfolio with this Long Paying Dividend Stock

chart03When 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.

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Movie Industry

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.

chart01That 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).

chart02Based 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.

chart04Regarding 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/

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Top Yield REITs – Net Lease (21 May 15)

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Below we have selected a group of real estate investment trusts (REITs) classified as net lease. The list has been ranked by dividend yield, from highest to lowest (#Div Yield).

  • Reference date: 21 May 2015
  • Price to FFO: Using Company’s FFO
  • 2015 AFFO per share growth percent change: 2015 (guidance) vs. 2014 AFFO per share percent change (In case of AFFO was lacking, we used Company FFO instead)

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# Div Yield Company Ticker Year to date share price change Div. Yield Group’s Median Div. Yield   Price to FFO Group’s Median Price-to-FFO   2015 AFFO per share growth
1 Select Income REIT SIR (3.2) 8.5 6.0 8.4 13.7 1.8
2 Lexington Realty Trust LXP (14.2) 7.2 6.0 9.1 13.7 (7.2)
3 EPR Properties EPR 2.2 6.2 6.0 14.3 13.7 6.3
4 Spirit Realty Capital, Inc. SRC (6.6) 6.1 6.0 13.9 13.7 3.7
5 W.P. Carey Inc. WPC (9.7) 6.0 6.0 13.0 13.7 1.7
6 Getty Realty Corp. GTY (6.5) 5.2 6.0 13.7 13.7 (2.8)
7 Realty Income Corporation O (1.5) 4.8 6.0 17.3 13.7 4.5
8 National Retail Properties, Inc. NNN (3.0) 4.4 6.0 17.7 13.7 4.5
9 American Realty Capital Properties, Inc. Class A ARCP 1.8 6.0 11.0 13.7 (2.2)

Notes from the author: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best choice for your portfolio. The purpose of this ranking is to shorten your stock analysis by enabling comparison of stock and sector performance. This is a snapshot of information available on 21 May 2015. Please perform your own due diligence before acting. The equity REITs are constituent companies of the FTSE NAREIT All REITs Index as of 30 April 2015.

Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​

EPR Properties – Steadily Growing

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EPR Properties (NYSE: EPR) is a net lease REIT that invests in a diverse group of industries including Entertainment (megaplex theaters), Recreation (metropolitan ski areas), and Education (public charter schools). EPR Properties was originally named Entertainment Properties Trust and, true to its name, the majority of their investments are in the Entertainment sector. Of their entire portfolio, 58 percent of their investments are in the Entertainment sector.

Management has recognized that sector and tenant concentration are issues to be addressed. Since 2007, EPR Properties began steadily investing in sectors outside of megaplex theater properties. The balance of the portfolio is evenly distributed between the Recreation and Education sectors. The company also maintains holdings in specialty properties including vineyards and wineries. These holdings make up a small percent of the overall portfolio.

One of EPR Properties’ largest tenants is American Multi-Cinema, AMC, which accounts for 25 percent of their megaplex theater rental properties. As the company portfolio grows with new properties and tenants, the concentration of AMC in the portfolio is expected to decrease. This is already evident as in 2007, AMC accounted for 51 percent of the megaplex theater properties held by EPR Properties.

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The company holds more than 230 properties located in 39 states, Washington, DC, and Canada. With over 250 tenants, EPR Properties can boast a diversified and specialized portfolio. Management has been successful operating this diverse portfolio and investors have been rewarded. Since 2010, annual distributions have steadily grown in average 7 percent per year and they are expected to increase 6 percent for 2015. On the operational side, revenues and net operating income have grown by double digits in the first quarter of 2015.

EPR Properties’ management has maintained steady and prudent growth. Over the past 5 years, the company has been shrewd with expansion and has avoided any significant dilutions in a short period of time. EPR Properties’ debt-to-total capitalization ratio is expected to remain in the low thirties as it has historically been. The company’s senior debt is investment grade.

The one unexpected event was that co-founder and CEO David Brain left the company after 18 years, 16 of which as CEO. Mr. Brain’s severance package of US $19 million decreased Q1 2015 FFO per share by 44 percent when compared with Q1 2014.

From a valuation standpoint, EPR Properties’ price-to-FFO ratio (about 14.2) is slightly lower than its peers. The company has been paying dividends at a healthy 6.3 percent yield offering a good opportunity for both income and capital appreciation. These figures are as of 14 May 2015.

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The positive points include:

  • The company is increasingly diversifying the portfolio
  • Management chooses to grow in a steady and prudent fashion
  • EPR Properties has a high yield and is slightly undervalued relative to its peers

The drawbacks include:

  • There is still a degree of tenant concentration
  • The tenured CEO of 16 years has left the company

These points should be carefully weighted when investing in EPR Properties.

See comparison between EPR properties and its net lease peers.

Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​