EPR Properties: The Simon Property Group Effect

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EPR Properties remains a buy due to its attractive valuation, solid fundamentals, and focus on experiential assets despite recent share price declines.EPR's strategic shift from theaters to ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nEPR Properties: The Simon Property Group Effect\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-21 21:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738472-epr-properties-the-simon-property-group-effect><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>EPR Properties remains a buy due to its attractive valuation, solid fundamentals, and focus on experiential assets despite recent share price declines.EPR's strategic shift from theaters to ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738472-epr-properties-the-simon-property-group-effect\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"EPR","symbol_name":"EPR不动产","start_time":0,"source_url":"https://seekingalpha.com/article/4738472-epr-properties-the-simon-property-group-effect","article_id":"2485463491","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/163296547/image_163296547.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485463491","pubTimestamp":1732194120,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"For me personally, I rate stocks within a sector in tiers. Again, this is my opinion and something I've always done to justify valuations. For REITs, Agree Realty , VICI Properties , and Realty Income","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"EPR":"EPR不动产","BK4084":"特种房地产投资信托","BK4234":"特殊用途房地产信托"},"translate_title":"EPR属性：西蒙属性组效应","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"EPR":0.9},"content_text":"EPR Properties remains a buy due to its attractive valuation, solid fundamentals, and focus on experiential assets despite recent share price declines.EPR's strategic shift from theaters to experiential real estate, including hot springs and resorts, strengthens its portfolio amid market mispricing.Despite recent financial declines, EPR's strong balance sheet, conservative payout ratio, and declining interest rates support long-term investment potential.Continued volatility and economic uncertainty pose risks, but EPR's attractive dividend yield and valuation below peers justify a buy rating.   Flashpop  Introduction The REIT sector has faced its fair share of headwinds over the past two years thanks to higher for longer interest rates. And even with them now on the decline as the FED has already cut interest rates by 75 basis points and are expected to cut an additional 25 next month, REITs have seen their share prices pull back recently. This is due to uncertainty surrounding whether inflation will reaccelerate and cause further increases & volatility in the 10-year treasury. And as a REIT enthusiast, I've been waiting for some to hit my buy zone. One REIT in particular that has seen an unjust sell-off since my last thesis is EPR Properties (NYSE:EPR). Even though Simon Property Group (SPG) has seen its share price rally recently, both companies have suffered the same effect. The death of movie theaters and shopping malls, which has higher price volatility and caused both to trade at attractive valuations in my opinion. In this article, I discuss EPR's latest earnings, fundamentals, and why I'm re-iterating my buy rating as the share price remains attractive over the long term. Previous Thesis I last covered the experiential REIT this past September in an article titled: Poised To Benefit From Lower Interest Rates And Changing Consumer Habits. During their then second quarter earnings, EPR had been further strengthening their portfolio by disposing of non-core assets like theaters and focusing more on experiential real estate. As you can see, I've consistently rated them a buy due to the market mispricing the REIT due to its theater exposure. Over the first half of the year, EPR offloaded $56.5 million of assets including four theaters in Q2 while investing $132.7 million over the same period. But even with strengthening their portfolio and focusing on experience, the market has not been fond of EPR as the stock is down over 7% while the S&P is up 4.52%. FFO & AFFO of $1.22 and $1.20 were solid, giving the REIT a conservative payout ratio of 71%. I had an end of 2025 price target of $62.65, which I still think the company can see should interest rates continue on their downward trajectory. Seeking Alpha Why Doesn't Mr. Market Like EPR? For me personally, I rate stocks within a sector in tiers. Again, this is my opinion and something I've always done to justify valuations. For REITs, Agree Realty (ADC), VICI Properties (VICI), and Realty Income (O) are tier 1 REITs, the highest level. For BDCs, I consider Ares Capital (ARCC), Blackstone Secured Lending (BXSL), and Main Street Capital (MAIN) as the top tier BDCs. I'm not saying these are the only companies worthy to be top tier; these are the ones that first come to mind. So, in my opinion, they deserve to trade at a higher valuation in comparison to peers. For me, EPR Properties and Simon Property Group fall into the tier 2 category, not because of their fundamentals, but more so due to their tenants who highly susceptible to economic volatility. Shopping malls and movie theaters aren't going anywhere, but they have faced headwinds since the pandemic in 2020. People are seeking more experience now. So, just going to a regular old mall or movie theater isn't going to cut it. And both companies know this. And that's why EPR has been disposing some of its theaters and focusing on experiential assets like hot springs, resorts, spas, and climbing gyms, etc. SPG has been conducting upgrades at its malls to focus more on crowds gathering, particularly Gen Z. Malls have also been focusing on the generation by bringing in the popular / trendy retailers that resonate with the age group. And this is likely why Simon Property Group saw their occupancy increase year-over-year by 1% to 96.2%. Below is how they compare to some of their more popular peers: Agree Realty: 18.40x Realty Income: 13.36x Essential Properties Realty Trust (EPRT): 18.96x VICI Properties: 13.82x EPR Properties: 9.18x Simon Property Group: 14.1x. Agree Realty has the highest multiple among the group, likely due to their recession-resistant and investment-grade tenant exposure. EPR's valuation multiple is the lowest among the group for obvious reasons. Another likely reason for EPR & SPG's lower multiples is their dividend cuts during COVID-19. But the latter has quickly gotten back to dividend growth, with multiple increases since then. Quarterly Activity Another reason for the price decline is management narrowed their investment and AFFO guidance for the full-year during their most recent earnings. Additionally, their top and bottom lines saw declines year-over-year as well. EPR now expects AFFO in a range of $4.80 - $4.92, down from $4.76 - $4.96 while investment guidance was narrowed to $225 million to $275 million, down from $200 million to $300 million prior. FFO came in during Q3 at $1.30 while AFFO was $1.29 for the quarter. Both were down from $1.47 year-over-year. Revenue was also down from the previous year. This came in at $180.5 million, down from $189.4 million the year prior.   Q3’24 Q3’23   $180.5M $189.4M   $1.30 $1.47   $1.29 $1.47   Click to enlarge However, their dividend coverage was still solid despite the decline with an AFFO payout ratio of 66.3% for the quarter. EPR's financials were impacted from higher expenses, up $1.7 million from the previous year. They also suffered from weather issues from Hurricane Helene, which forced the REIT to shut down two properties in Florida. They saw an impairment charge during the quarter of $12.1 million and out of period deferral collections in the third quarter. Moreover, as EPR continues to dispose of non-core assets and focus on experiential real estate, their share price will likely continue to see volatility. And until the macro environmental picture becomes more clear, likely once interest rates are much lower. Through 3 quarters, EPR Properties has spent $214.6 million on investments while continuing to offload theaters. They sold two vacant ones from Regal's and one school for proceeds of $8.7 million. They also sold an additional theater after quarter's end. In total, proceeds were $65.1 million through the first 9 months from dispositions. Balance Sheet Remains Solid EPR's leverage managed to tick down slightly to 5.0x from 5.2x the previous year. They also had a healthy 3.4x fixed-charge coverage ratio, up from 3.2x in Q2. Total debt stood at $2.9 billion, with only $160 million drawn on their $1 billion credit facility. Additionally, they had $35.3 million in cash and only $300 million in debt due in 2025. This was in comparison to VICI Properties, whose total debt stood at $17.1 billion, with nearly $2 billion in debt due next year. Their net debt to EBITDA was also solid at 5.4x. OUTFRONT Media (OUT) has no debt maturing until 2026 with $400 million due and a similar leverage ratio of 5.0x. EPR investor presentation Downside Risks EPR Properties is sort of in a turnaround phase as they continue to dispose of non-core assets like theaters and schools. Theaters, who remain a sizable portion of EPR's portfolio at 159 properties, saw softer coverage at 1.5x. Box office numbers dipped to $8.1 billion due to the impact of the writer's and actor's strike, which the REIT previously anticipated. And despite them expecting a recovery and raising box-office guidance during the quarter, unexpected volatility within the economy and the direction of interest rates could further impact this going forward. Moreover, this could further impact their top and bottom lines as seen in their most recent quarter, which could cause further downside. Investor Takeaway With a single-digit P/AFFO multiple, EPR Properties' solid fundamentals and focus on experiential assets makes them attractive for the long term. And despite the decline in their top and bottom lines, their monthly dividend remains attractive, with a conservative payout ratio of 66.2% during Q3.  As interest rates are likely to continue declining, box office numbers should increase as well as foot traffic at their experiential properties. Although I suspect some headwinds to persist for the near to medium-term, EPR's attractive dividend yield, valuation well-below peers, strong balance sheet, and keen focus on acquiring experiential real estate re-iterates my previous buy rating.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485463491"}