It takes money to make money. This is especially true in real estate investing, where the upfront costs of purchasing a rental property can be tens of thousands of dollars.
However, there are some cheaper options. Real estate investment trusts (REITs) are a top choice for those with less than $1,000 to invest. They ensure that everyone can start earning passive income from real estate almost immediately.
EPR properties (NYSE: EPR) is a REIT with blockbuster passive income potential. This is why aspiring real estate moguls will consider buying stocks.
A unique REIT
EPR Properties is a specialist REIT focused on owning experiential properties. The company owns 363 properties in the US and Canada, including theaters (40% of the portfolio), dining and gaming venues (24%), attractions (11%), ski facilities (8%), fitness and wellness (4%), experiential lodging (3%), gaming (2%) and cultural (1%) properties. The REIT also has a small education portfolio (7% of the total – pre-school education and private schools).
It mainly rents these properties back to operating companies on a long-term basis net leases. These agreements provide stable rental income because the tenants cover variable costs such as building insurance, maintenance and property taxes. That gives the company a relatively predictable cash flow, most of which is paid out to shareholders in the form of dividends.
EPR Properties currently pays a monthly dividend of $0.275 per share ($3.30 annually, which can easily be covered by the stock price). money from operations from $5.05-$5.15 per share for 2023). This yields a percentage of 7.7%. dividend yield at the recent share price. In other words, every $100 invested in the REIT would return approximately $7.70 annually dividend income. That’s much higher than most other REITs (the average return in the sector is 4.5%) and most other stocks (the S&P500The dividend yield is 1.5%.
Blockbuster growth potential
EPR Properties has invested more than $6.7 billion to build a diversified experiential real estate portfolio. However, the company believes it is just the beginning of its potential. It estimates that there is a market opportunity of more than $100 billion to acquire experiential real estate outside the theater industry through sale-leaseback transactions and tailor-made development or redevelopment projects.
The company expects to invest $200 to $300 million this year to expand its portfolio. During the first half, it spent $98.7 million on the purchase of a fitness and wellness property ($46.7 million) and on experimental custom development and redevelopment projects. The company had also committed to investing $224 million in additional development and redevelopment projects over the next two years. These investments will increase rental income and further diversify the portfolio away from the theater industry. The company plans to finance these investments with post-dividend free cash flow and a strong investment-grade balance sheet. EPR had $99.7 million in cash and no borrowings on its $1 billion credit facility at the end of the second quarter. It also had just $136.6 million in debt maturing until the end of next year. This gives the country a lot of financial flexibility to finance new investments.
Meanwhile, the company’s existing portfolio offers growth potential. EPR recently completed a comprehensive restructuring agreement with theater operator Regal, one of its largest tenants. The new lease includes a fixed annual rental payment of $65 million, which will increase by 10% every five years. In addition, Regal will pay a percentage of rent each year on gross sales at its leased locations in excess of $220 million. This feature allows EPR to collect more rent during a blockbuster box office year.
Rental growth from new and existing properties could enable EPR Properties to increase its already attractive dividend. Although EPR suspended its dividend during the pandemic and introduced a lower payout in 2021, the new level is more sustainable. It enables the REIT to finance new investments and maintain its financial strength. Meanwhile, it has already started increasing the reset dividend, giving investors a 10% increase last year.
A cheap, high-yield real estate investment
REITs are a very cheap way to invest in real estate. Shares of EPR currently cost less than $45 each. Meanwhile, the company pays a very attractive dividend that could grow in the future. That makes it a smart way to start collecting passive real estate income.
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Matthew DiLallo holds positions in EPR Properties. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.