There are countless ways to start collecting passive income. One great option is to invest in EPR Properties (EPR 1.67%). The real estate investment trust (REIT) pays a monthly dividend that currently yields 6.5%. At that rate, a $1,000 investment would generate about $65 of dividend income each year.
That passive income stream should rise in the future as the REIT grows its portfolio and increases its monthly dividend. It recently gave investors a 3.5% raise. With more portfolio growth in the forecast, EPR Properties should be able to continue producing a rising stream of passive income.
NYSE: EPR
Key Data Points
An exciting portfolio
EPR Properties is a specialty REIT focused on experiential real estate. It owns a diversified portfolio of movie theaters, eat & play properties, attractions, fitness and wellness properties, and other experiences leased to tenants that operate the properties. The REIT also has a small portfolio of educational properties. Those leases provide it with relatively steady rental income that it uses to pay its monthly dividend.
Last year, EPR Properties generated $4.87 per share of funds from operations (FFO) as adjusted. It paid out a total of $3.40 per share in dividends. That gave it a dividend payout ratio of around 70%.
The REIT used the cash it retained (about $110 million) to help fund new investments in experiential properties. Overall, it invested $264 million last year, with the balance covered by asset sales (it sold $74.4 million of non-core theater and educational properties for a net gain of $16.1 million) and its balance sheet capacity. It's investing in several development and redevelopment projects, including building new Andretti Karting locations and an extensive expansion of The Springs Resort. It also invested in mortgage financing for Iron Mountain Hot Springs and acquired Enchanted Forest Water Safari in a sale-leaseback transaction.
Those new investments will grow the REIT's sources of stable income. They also align with its strategy of reducing its exposure to theater and educational properties while growing its rental income from other experiential property types.
More growth ahead
EPR Properties expects to generate between $4.94 and $5.14 per share of FFO as adjusted this year. That's a 3.5% increase at the midpoint from last year's level, driven by rising rents across its existing portfolio and new investments made last year. That outlook for growing rental income gave the REIT the confidence to increase its dividend by another 3.5% for this year, pushing the payment to $0.295 per share each month ($3.54 annualized).
The REIT expects to invest another $200 million to $300 million into new experiential real estate this year. It has already lined up $150 million of development and redevelopment projects that it anticipates funding over the next two years. The remaining will come from additional property acquisitions, mortgage investments, and new development/redevelopment projects.
EPR Properties can fund that investment level internally via post-dividend free cash flow, additional asset sales, and its balance sheet. The REIT currently plans to sell between $25 million and $75 million of non-core assets. It has already agreed to sell four more theater properties. In addition, it is looking to unwind several underperforming joint ventures that hold experiential lodging properties.
The REIT is currently capping its investment volume to a level it can internally fund until its cost of capital improves. However, with interest rates starting to fall and the REIT's stock price on the rise (it's up nearly 20% this year), its cost of capital is getting better. That could enable EPR Properties to ramp up its investment volume by selling stock and issuing new debt to fund additional deals, which could support higher FFO and dividend growth rates in the future.
An attractive and growing monthly income stream
EPR Properties provides investors with a lucrative stream of passive income backed by a high-quality portfolio of experiential properties. The REIT has enough funding from internal sources to grow its portfolio, cash flow, and dividend at a decent rate. Meanwhile, with market conditions improving, it could start ramping up its investment volume to grow even faster. Because of that, it's an exciting stock to buy for income and upside potential.
