There are few companies that rely on people being able and willing to go out an experience things than EPR Properties (NYSE:EPR). In this Fool Live clip, recorded on June 15, Millionacres real estate analyst Matt Frankel, CFP, and editor Deidre Woollard discuss why this experiential REIT could be one of the biggest winners of the return to normalcy in the United States.
Deidre Woollard: Let’s talk a little bit about EPR Properties because I find that one to be really interesting because it’s such a mix of experiential properties, and we’ve talked about experiential earlier. It’s got AMC, it’s got some ski resorts, it’s got a lot of Topgolf. It seems like all of that, not a great thing to have during the pandemic, a great thing to have right now when people are like, “Hey, what can I go do because I want to do something, anything.”
Matt Frankel: Yeah, it’s a really unique REIT. They focus on experiences. We mentioned earlier that top tenant is AMC. EPR’s executive team needs to get on that Reddit board and thank the Reddit traders for pumping up AMC stock. They need to go ahead and buy some shares themselves if they want. They need to say thank you. I’m not going by AMC stock, it’s a ridiculous valuation, things like that. They have made AMC to the point where they can emerge from the pandemic a stronger company that they were going into it. People forget, the movie theater business wasn’t exactly doing the best in its history right before the pandemic. I think ticket sales peaked, I want to say 2002, it was the peak year for movie ticket sales. Then streaming slowly ate into those. There’s a lot of underperforming movie theaters in the country. Those aren’t the ones EPR owns. They own the megaplex theaters, the ones that are always full in great locations. But AMC was almost bankrupt, it was pretty much assumed they were going to go bankrupt. We mentioned rent collection and deferred rent and things like that. It got so bad that EPR wrote off their AMC rent as uncollectable at one point. I think it was in the third quarter of last year, they said, “We’re not going to get any rent. Anything we get is a bonus.” Now, AMC has raised about $2 billion at elevated valuations. One year ago, AMC’s entire market cap was $600 million. Now they can raise $600 million and dilute shareholders by less than 2%.
Frankel: That’s an insane change. It’s allowed them to really raise capital they want to grow, they’re going to hopefully pay off a little bit of debt. Hopefully they’re going to repay EPR its rent. But now it’s just such a weight off investors shoulders in that stock, there’s literally no need to worry about AMC going bankrupt anymore. The CEO said it was off the table at the end of last year. Now it’s really off the table. Now they can probably buy a smaller competitor out if they wanted to. If Regal’s theaters are taking too much of their business, they could probably buy them right now if they wanted do. It’s a different world for AMC these days. Their stock price is going to come back down to earth, it just is. I’m not saying buy AMC stock, but it really gave EPR new life. They just mentioned that they are planning on reinstating their dividend sometime in the second half. They need to wait for cash flow to stabilize, which really what they were waiting on, is for their movie theaters to start paying rent. Pretty much all of their other tenants are doing fine in paying rent. Topgolf is a big tenant of theirs, Vail Resorts (NYSE:MTN) is a big tenant of there’s. They have a bunch of those indoor water parks. I went to wondering on new years with my kids, it was doing great. It was almost too full for comfort. But those were doing great, they’re paying rent. They’re really waiting for their cash flow to stabilize from their movie theaters before they can remove their debt covenant restrictions, which I don’t want to get in the weeds on that. But then they’re planning on reimplementing their dividend, and the, except they really want to get back to growth mode. They see a huge opportunity here, just like they did before the pandemic. They specifically mentioned things like cultural attractions, like museums and aquariums and things like that as a vertical they could go after. The golf attraction, Topgolf is growing like crazy. People want to go do things like that. The drivable ski resorts, like I mentioned, are really doing well. They mentioned gaming. They own one casino property right now. I could see that dramatically increasing. There’s a big trend toward legalized gaming in the U.S. right now, especially if you could pair it with some of the other things EPR already has in its portfolio. One of the casino in the mountains of North Carolina has one of those eat-and-play businesses attached to it that EPR already invested very heavily in. There’s a huge market for people who want to get out right now and EPR really wants to take advantage. They have $1.5 billion in liquidity, including a completely untapped $1 billion credit line. They paid off their credit lines during the pandemic and have over $500 million of cash. The whole company’s market cap is less than $4 billion. That’s a ton of liquidity for a company of that size. I always talk about Empire State as having a ton of liquidity. EPR actually might have a better liquidity situation than Empire State.
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