Ultra-High-Yield Stock EPR Properties: A Closer Look at Its Plan and Dividend Potential

EPR Properties (NYSE: EPR) has been making headlines with its generous dividend yield of 7.6%, but investors may be hesitant to jump in due to the company's past dividend cuts and the ongoing challenges in the movie theater industry. This article takes a closer look at EPR Properties' plan to address these issues and assesses the potential of its dividend.

EPR Properties' portfolio diversification strategy has evolved over time, with a focus on reducing exposure to movie theaters and increasing investments in fitness, wellness, and attractions. In 2019, movie theaters accounted for 45% of its business, but by the end of 2023, this had decreased to 36%. Meanwhile, fitness and wellness jumped from 0.9% to 8%, and attractions rose from 6% to 12%. This shift has helped EPR Properties maintain a solid occupancy rate of 99% and achieve FFO growth of 116% in 2021, 52% in 2022, and 10% in 2023. The company expects FFO to rise 3% in 2024 and 3%-4% annually.



Interest rates play a significant role in EPR Properties' ability to maintain and grow its dividend. As a real estate investment trust (REIT), EPR is required to distribute at least 90% of its taxable income as dividends. Higher interest rates increase EPR's cost of capital, making it more expensive to fund new investments or refinance existing debt. This can put pressure on EPR's cash flow, potentially impacting its ability to maintain or grow its dividend. Conversely, lower interest rates can reduce EPR's borrowing costs, allowing it to invest more in its portfolio and potentially increase its dividend. As the Federal Reserve has started cutting interest rates, this could provide a tailwind for EPR Properties' dividend growth.

EPR Properties' management team is actively addressing the challenges in the movie theater industry by reducing their exposure to stand-alone theaters. In Q3 2024, theaters made up 36% of the business, down from 45% pre-pandemic. They plan to further prune this portfolio while growing other segments. The company's portfolio shows progress in this regard, with fitness and wellness jumping from 0.9% to 8% of the business, and attractions rising from 6% to 12%. Management has a clear plan and is executing on it, which is what shareholders should want to see.



EPR Properties' recent acquisitions and dispositions have significantly improved its portfolio quality and dividend sustainability. The REIT has been actively pruning its exposure to stand-alone theaters, which made up around 45% of its business before the pandemic. By the end of the third quarter of 2024, theaters accounted for only 36% of the business, indicating progress in diversifying its portfolio. Additionally, EPR Properties has been growing other segments, such as fitness and wellness (up from 0.9% to 8% of the business) and attractions (up from 6% to 12%). These strategic moves have enhanced the REIT's long-term outlook and dividend sustainability, as evidenced by its solid adjusted funds from operations (FFO) payout ratio of 66% in the third quarter of 2024.

In conclusion, EPR Properties' plan to diversify its portfolio and address the challenges in the movie theater industry appears to be on track. The company's FFO growth and solid FFO payout ratio suggest that its dividend is on a more stable footing. However, investors should continue to monitor EPR Properties' fundamentals and the broader economic environment to assess the potential impact of future rate changes on the company's dividend policy. While the high dividend yield is attractive, it's essential to consider the risks and the company's ability to maintain and grow its dividend in the long term.