EPR Properties: Can Experiential Real Estate Overcome Legacy Theater Exposure?

EPR Properties (NYSE: EPR) has long been a bellwether for the evolution of experiential real estate, but its journey has not been without turbulence. Once synonymous with movie theaters—accounting for 60% of its portfolio in 2020—the REIT has embarked on a strategic reinvention to reduce its reliance on volatile, cyclical assets. By 2025, theater exposure had plummeted to just 16% of its $6.8 billion portfolio, with the company now allocating 94% to experiential properties such as Topgolf, fitness centers, attractions, and wellness resorts. This transformation raises a critical question: Can EPR's pivot to experiential real estate fully offset its legacy theater risks and deliver sustainable value in a post-pandemic world?

The Theater Conundrum: A Legacy in Transition

EPR's theater portfolio, while historically a revenue driver, has faced existential challenges. The 2024 Hollywood strikes disrupted film production and distribution, temporarily dents theater coverage ratios to 1.5x. However, the sector is showing signs of recovery, with 44% of EPR's adjusted EBITDAre still tied to theaters. The company's management anticipates a rebound as the film slate normalizes, but this optimism hinges on macroeconomic stability and consumer spending on entertainment.

To mitigate risks, EPR has sold 27 theaters over four years, generating $78.9 million in net proceeds. These funds have been reinvested into high-growth experiential assets, including a $250 million commitment to Topgolf's global expansion. The latter now contributes 14.4% of EPR's total revenue and has proven more profitable than traditional theaters. Yet, the theater segment remains a drag on long-term growth, with occupancy rates and lease terms less favorable than experiential counterparts.

The Experiential Renaissance: Diversification as a Shield

EPR's experiential portfolio now spans 154 theaters (including Topgolf), 58 “eat & play” properties, 25 attractions, and 11 ski resorts, among others. These assets are characterized by long-term leases (15–20 years), embedded rent escalators, and recurring cash flows. For instance, wellness and fitness properties, which account for 22 of EPR's holdings, offer 99% occupancy and weighted-average lease terms exceeding 12 years. Such metrics provide insulation against short-term economic shocks.

The Topgolf acquisition exemplifies EPR's high-conviction bets. With 100+ locations in the expansion pipeline, the brand's blend of gaming, dining, and socializing aligns with the “experience economy.” EPR's $250 million financing commitment underscores its confidence in the asset's scalability. Similarly, investments in hot springs resorts and construction-themed waterparks—both with 15–20 year leases—position the company to benefit from wellness tourism and family entertainment trends.

Financial Resilience and Capital Discipline

EPR's balance sheet remains robust, with $20.6 million in unrestricted cash and a $1 billion unsecured credit facility. Its net debt-to-adjusted EBITDAre of 5.3x is conservative, and fixed-rate debt (96% hedged) provides stability in a high-interest-rate environment. The company's capital recycling strategy—selling non-core assets like early childhood education centers—has funded a $148 million pipeline of experiential developments, enabling a “buy, fix, and flip” approach.

EPR's financial discipline is reflected in its strong AFFO growth. In Q1 2025, adjusted funds from operations (AFFO) rose 8.4% year-over-year to $92.9 million, with 2025 guidance raising the FFO per share range to $5.00–$5.16. This 8.5% year-over-year increase is driven by lease escalators and asset-level performance. The dividend yield of 7.8% (one of the highest in the REIT sector) further enhances its appeal, supported by a payout ratio of 72.2%, down from 83% in 2019.

Market Sentiment and Risks to Monitor

While EPR's strategy has garnered analyst praise, risks persist. Climate-related disruptions—such as wildfires threatening ski resorts or hurricanes impacting coastal attractions—could strain cash flows. Additionally, rising insurance costs in high-risk geographies may erode margins. EPR's theater segment, though smaller, remains vulnerable to shifting consumer habits and streaming competition.

The broader real estate market is also in flux. The RCLCO Real Estate Market Index (RMI) indicates a recovery, with the index rising to 64.8 in 2024 and projected to reach 82.08 by 2026. However, this optimism is tempered by concerns over refinancing challenges and geopolitical uncertainties. EPR's experiential assets, while less cyclical, are not immune to macroeconomic headwinds.

Investment Thesis: A High-Yield, Undervalued Play

EPR's current valuation presents an attractive entry point. Trading at a 20% discount to its pre-pandemic P/FFO of 14.5x (now 6.3x–6.5x), the stock offers both income and growth potential. Its focus on experiential real estate—aligned with secular trends in wellness, leisure, and social engagement—positions it to outperform traditional REITs.

However, investors should prioritize the company's capital recycling and asset-level performance. EPR's ability to redeploy theater proceeds into high-margin experiential assets will determine its long-term success. A key metric to watch is the conversion of vacant theaters into Topgolf locations or wellness properties, which could further diversify revenue streams.

Conclusion: Experiential Real Estate as a Strategic Hedge

EPR Properties' pivot to experiential real estate has mitigated—but not entirely erased—the risks of its legacy theater exposure. While the sector's recovery is uncertain, the company's diversified portfolio, strong balance sheet, and alignment with secular trends make it a compelling long-term investment. For income-focused investors, EPR's 7.8% yield and disciplined payout ratio offer stability, while its undervaluation and growth pipeline provide upside.

The critical question remains: Can EPR's experiential assets grow fast enough to offset theater volatility? The answer lies in its ability to execute its capital recycling strategy and capitalize on the experience economy. For now, the data suggests that EPR is well-positioned to deliver value—but vigilance is warranted as macroeconomic and climate-related risks evolve.