EPR Properties: A High-Yield Gem Trading at a Post-Pandemic Discount

In the wake of the pandemic's economic turmoil, few sectors have faced as much volatility as real estate investment trusts (REITs). Among them, EPR Properties (EPR) has emerged as a standout opportunity, offering investors a rare blend of high income and resilient growth. Trading at a 20% discount to pre-pandemic valuation levels, EPR combines a 6.8% dividend yield with strategic portfolio adjustments that position it as a safer, higher-return alternative to volatile mortgage REITs like Annaly Capital (NLY). Let's dissect why this REIT deserves a closer look.

The Undervalued Dividend Machine: Yield Over 6% at a Discount

EPR's current dividend yield of 6.8% (as of February 2025) is a compelling entry point for income-focused investors. This yield is supported by a $3.42 annual dividend, backed by a conservative 70% payout ratio relative to funds from operations (FFO). Critically, the stock trades at a 12.08x forward P/FFO ratio, a 23% discount to its pre-pandemic five-year average of 14.5x.

The chart below shows EPR's stock price falling to $43.93 in mid-2024—10.5% below its 2025 peak—despite a recovery from pandemic lows. This disconnect between fundamentals and valuation creates a buying opportunity.

Post-Pandemic Turnaround: Stronger Balance Sheet, Smarter Investments

EPR's turnaround hinges on two pillars: financial discipline and strategic asset pivots:
1. Balance Sheet Health:
- Debt has been slashed by 15% since 2020, with extended maturities reducing refinancing risk.
- The company achieved an investment-grade credit rating, contrasting sharply with Annaly Capital's reliance on volatile short-term borrowing.

1. Portfolio Shift to High-Growth Assets:
2. EPR has exited underperforming theaters and malls, reallocating capital to experiential properties like theme parks, live entertainment venues, and outdoor recreational spaces.
3. >95% occupancy in these segments underscores their appeal in a post-pandemic world where consumers prioritize experiences over traditional retail.

The result? EPR's FFO per share has rebounded to $4.89 annually (as of 2024), up from pandemic lows of $1.43, fueling sustainable dividend growth.

Why Annaly Capital Can't Compete: Risk vs. Reward

While mREITs like Annaly Capital (NLY) promise high yields, their business models are inherently unstable. Annaly's dividend yield of 8.5% is misleading:
- Interest Rate Sensitivity: Annaly's profitability hinges on the spread between borrowing costs and mortgage-backed securities yields. A rising rate environment compresses this spread, risking dividend cuts.
- Volatility: Annaly's stock price fell 35% in 2022 amid Fed tightening, whereas EPR's focus on physical assets provides a shield against macroeconomic swings.

In contrast, EPR's asset-light model and inflation-resistant cash flows from experiential real estate make it a far safer bet for income investors.

The Case for Long-Term Appreciation

Beyond dividends, EPR's valuation offers appreciation potential. At 12.08x P/FFO, the stock sits well below its historical average, even as its occupancy and tenant health metrics are strong. Key drivers for recovery:
- Tenant Financial Health: Major tenants like AMC (movie theaters) and Six Flags (theme parks) have stabilized, with EPR renegotiating leases to prioritize long-term relationships.
- Undervalued Assets: Properties such as the Cincinnati Zoo and Disney Springs-adjacent venues are undervalued on EPR's books, offering upside as markets recognize their true worth.

Investment Thesis: Buy the Dip, Harvest Income, Wait for Revaluation

EPR Properties presents a compelling risk-reward profile:
- Immediate Income: A 6.8% yield with a track record of monthly payouts since 2021.
- Growth Catalysts: Portfolio diversification, debt reduction, and inflation-resistant cash flows.
- Undervalued Valuation: 20% below pre-pandemic levels despite stronger fundamentals.

Investors should accumulate shares on dips below $55, with a long-term horizon of 3-5 years to capture both dividend growth and valuation reversion. Contrast this with Annaly Capital, where higher yield comes with higher risk of capital loss.

Final Word: A High-Yield REIT for All Seasons

EPR Properties is a rare find in today's market: a high-yielding REIT with a fortress balance sheet, strategic growth focus, and a valuation that ignores its improving fundamentals. For income investors seeking stability amid volatility, EPR is a top pick—especially as it trades at a post-pandemic discount.

The choice is clear: opt for EPR's sustainable 6.8% yield and growth potential over Annaly's risky gamble. This is a REIT built to last.

Disclaimer: Always conduct your own research and consult a financial advisor before making investment decisions.