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EPR Properties (EPR) Reports In-Line Q1 FFO: Will Stock Rise?

EPR Properties EPR reported first-quarter 2016 adjusted funds from operations (“FFO”) per share of $1.18, in line with the Zacks Consensus Estimate and 14.6% ahead of the prior-year quarter tally of $1.03. We expect the earnings release to lead to stock movement.

Rental revenue was $93.8 million, reflecting a 22.2% rise from the year-ago quarter. The Zacks Consensus Estimate was $94 million.

Quarter in Detail

EPR Properties’ combined owned portfolio comprised 18.4 million square feet and was 99% leased. Its portfolio of owned entertainment properties spanned 11.9 million square feet and was 98% leased, including fully leased megaplex theatres.

The company’s owned education properties portfolio consisted of 4.3 million square feet and was 100% leased. Further, its recreation division included investments in 11 metro ski parks, five waterparks and 19 golf entertainment complexes. Notably, the company’s portfolio of owned recreation properties was entirely leased.

EPR Properties had a total of around $266.6 million invested in properties under development as of Mar 31, 2016.

During the quarter, investment spending amounted to $145.1 million. For the quarter, this included $47.7 million in Entertainment, $45.8 million in Education, $51.4 million in Recreation and $0.2 million in Other business.

Balance Sheet

As of Mar 31, 2016, EPR Properties had $11.0 million of unrestricted cash on hand and $217 million outstanding under its $650 million unsecured revolving credit facility. Its net debt to adjusted EBITDA ratio was 4.8x as of the same date.

Notably, in Jan 2016, the company raised net proceeds of $125.0 million from the issuance of 2.25 million common shares in a registered public offering. The company used the proceeds to lower outstanding balance on its unsecured revolving credit facility.

Outlook

EPR Properties has confirmed its 2016 adjusted FFO per share outlook in the range of $4.70–$4.80. It has also confirmed its 2016 investment spending guidance within $600–$650 million. The Zacks Consensus Estimate for 2016 FFO per share is presently pegged at $4.78.

In Conclusion

We expect this specialty REIT, which targets investment in properties across three primary market segments – Entertainment, Recreation and Education – to grow on the back of strong portfolio performance. The company has a diversified tenant base that is expected to drive its improvement. Amid modest supply, we expect the company to gain substantially from its investments and pipelines, and leverage the repeatable growth platform, going forward. Yet, competition remains a concern while any rise in interest rate can add to its woes.

EPR Properties currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like The Macerich Company MAC, Realty Income Corporation O and STORE Capital Corporation STOR. Each of these stocks holds a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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