Box Office Recovery And TopGolf Expansion Expected To Diversify Future Earnings

Key Takeaways

• Box office recovery and strategic experiential investments are driving revenue growth and earnings through diversified streams and enhanced margins.
  
• Strong balance sheet and increased dividends enhance financial flexibility for opportunistic investments, supporting long-term growth.
  
• Significant exposure to theater and high-cost properties, coupled with economic pressures, may constrain EPR's growth and impact rental revenues and earnings stability.

Catalysts

EPR Properties (NYSE:EPR) is the leading diversified experiential net lease real estate investment trust (REIT), specializing in select enduring experiential properties in the real estate industry.

• Increased Box Office releases in 2025, anticipated to recover post-writers and actors strikes, are expected to drive higher percentage rents under the Regal master lease, impacting revenue growth.
  
• Expansion in the Eat & Play sector, with resilient performance from TopGolf and new projects such as Andretti Karting locations, is set to enhance earnings through diversified revenue streams.
  
• Improved performance in the ski season, benefiting from better weather conditions, is projected to boost revenue and earnings within the experiential portfolio.
  
• Strategic recycling of capital from non-core theater and education investments into high-quality experiential assets is likely to enhance net margins and earnings stability.
  
• Strong balance sheet management and an increase in the monthly dividend reflect financial health, providing flexibility for opportunistic investments, thereby supporting long-term earnings growth.

EPR Properties Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EPR Properties's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.7% today to 34.5% in 3 years time.
• Analysts expect earnings to reach $249.3 million (and earnings per share of $3.0) by about March 2028, up from $121.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $275.8 million in earnings, and the most bearish expecting $222.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2028 earnings, down from 32.3x today. This future PE is lower than the current PE for the US Specialized REITs industry at 27.9x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

EPR Properties Future Earnings Per Share Growth

Risks

• Despite growth initiatives, there's significant exposure to the theater segment which is still recovering from past strikes, impacting overall portfolio coverage and potentially leading to fluctuations in rental revenues.
  
• Operating properties like the Kartrite Hotel & Indoor Waterpark face high volatility and expense pressures, particularly from insurance costs, which could negatively affect net margins.
  
• Decisions to exit underperforming joint ventures, such as the RV park in Louisiana, highlight assets requiring capital infusions with low returns, affecting overall earnings from investments.
  
• Reductions in investment spending are necessary due to cost of capital considerations, suggesting potential constraints on future revenue growth from new asset acquisitions or developments.
  
• Economic pressures on tenants, notably increased operating expenses, might reduce their ability to pay rent or lead to increased credit losses, impacting EPR's revenues and net earnings.

Valuation

• The analysts have a consensus price target of $51.727 for EPR Properties based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $58.0, and the most bearish reporting a price target of just $43.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $722.8 million, earnings will come to $249.3 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 7.4%.
• Given the current share price of $51.85, the analyst price target of $51.73 is 0.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.