This REIT is a smash hit for those seeking passive income.
The movie industry is having a blockbuster year. Sales of theater tickets and related products such as popcorn and drinks are on track to top $10 billion this year. Theater revenue should grow over the next few years, driven by what looks like a strong slate of new movies.
The theater industry’s growing revenue could be your ticket to a big-time passive income stream. Many top theater operators lease their venues from landlords like EPR Properties (EPR 2.22%). That generates lucrative rental income for the real estate investment trust (REIT), much of which it pays to its investors via dividends each month.
An exciting portfolio
EPR Properties is a specialty REIT focused on experiential real estate. Theaters are the biggest percentage of its property portfolio (37% of its earnings). The REIT also owns eat-and-play venues (24%), attractions (11%), ski properties (8%), fitness-and-wellness locations (7%), experiential lodging (3%), gaming facilities (2%), and cultural properties (1%). It also has a small education portfolio (5% early childhood and 2% private schools).
The REIT primarily signs long-term, triple-net (NNN) leases with its tenants. Those leases increase rents by 1.5% to 2% annually or at a 7.5%-10% rate every five years. It gets paid a fixed annual rate for most leases. However, some of its theater and ski tenants pay percentage rent, meaning EPR Properties receives a share of their box office proceeds or lift ticket sales.
This year’s overall solid showing at the box office has EPR Properties on pace to generate $4.76 to $4.96 of funds from operations (FFO) as adjusted. That’s more than a 3% increase from last year at the midpoint.
EPR Properties currently pays $0.285 per share in dividends each month, or $3.42 annually, a 3.6% increase from 2023. With its share price below $50 apiece, the REIT has a roughly 7% dividend yield. That’s several times higher than the S&P 500’s sub-1.5% dividend yield. At that rate, it can turn every $1,000 invested into its stock into a $70 annual passive income stream. That compares to less than $15 annually for a similar investment in an S&P 500 index fund.
Building toward more income
EPR Properties is investing steadily to expand its portfolio and grow its rental income so that it can continue increasing its high-yielding dividend. The REIT invested $132.7 million into new properties during the first half of this year. It expects its investment spending to be between $200 million and $300 million for the year.
The REIT acquires properties in sale-leaseback transactions with the operator and funds development and redevelopment projects. It has agreed to invest about $180 million into development projects it expects to fund over the next two years. That includes three build-to-suit developments for Andretti Karting.
EPR Properties funds its expansion with post-dividend free cash flow, its strong investment-grade balance sheet, and capital recycling. It expects to sell $60 million to $75 million of properties this year. It sold $56.5 million of properties through the first half, including four vacant theaters for $10.3 million in the second quarter, a $1.5 million gain on those sales.
The REIT sees a lot of growth potential in the experiential real estate space. It estimates that the sector represents a total addressable market opportunity of more than $100 billion. That gives it a long growth runway, considering it has invested over $6.8 billion to build its more than 350 property portfolio. It can afford to be selective and focus on investing in properties with the best risk-adjusted return profiles to grow shareholder value, including its dividend, in the future.
Buy your ticket to a monthly income stream
EPR Properties’ growing portfolio of experiential properties produces steadily rising rental income. That enables the REIT to pay a lucrative monthly dividend that it aims to grow. With lots of growth ahead, this REIT could be your ticket to a blockbuster income stream.