EPR Properties Broadening Opportunities Under REIT’s New Leadership

Record box-office revenues, long waits at golf entertainment venues and growth in charter schools all point to higher earnings at EPR Properties (NYSE: EPR) this year, according to new president and CEO Greg Silvers.

Silvers succeeds David Brain, who co-founded the company and served as its president and CEO from 1999 until earlier this year. For his part, Silvers has held several positions since joining EPR in 1998, most recently as executive vice president and COO.

In an interview with REIT.com, Silvers explained that the introduction of an investment committee about two years ago has institutionalized EPR’s ability to identify, underwrite and acquire quality properties. “We’ve evolved from a personality-driven process, with David as our founder, to be a much more process-oriented company,” Silvers said.

On the credit front, EPR has received its third investment-grade rating from Standard & Poor’s and an upgrade from Moody’s. The company is moving toward a fully unsecured balance sheet while seeking to maintain an equity-to-debt ratio of 60 percent. The migration “will allow us to absorb shocks and take advantage of opportunities,” according to Silvers.

After posting a 12 percent increase in total revenues for 2014, Silvers expects EPR to post record revenues again in 2015.

Increased rigor within EPR’s underwriting and investment process and a fortress-like balance sheet have helped foster “great opportunities” in the company’s three core sectors of entertainment, recreation and education, according to Silvers.

2015 Box Office Returns Expected to Set Records

EPR is projecting that its original and largest business, entertainment real estate, will benefit in 2015 from solid returns at the box office after a lackluster performance in 2014. In fact, January and February both saw opening weekend ticket sale records, “so it bodes well for the balance of the year,” Silvers said.

Rich Moore, a managing director at RBC Capital Markets, expressed similar sentiments. “The movie calendar is absolutely amazing for 2015,” he said. Movie release dates are being brought forward to the spring to avoid excessive competition in the summer months, Moore noted.

EPR also continues to deploy higher amenity theaters, which are leased to theater operators. They are characterized by more comfortable seating, enhanced food and beverage options, digital and 3D projection, and satellite delivery of sporting events and live concerts.

Silvers noted that 35- to 55-year-olds, a previously underperforming demographic, are “really responding” to the enhancements.

Casino Project Making Headway

EPR will likely expand its entertainment business soon into a new property type: casinos.

EPR is currently partnering with Montreign Operating Company, a subsidiary of Empire Resorts, Inc., on developing Adelaar, a four-season destination resort in the Catskill Mountains of New York. In December, EPR announced that Montreign was unanimously selected to apply to the state’s gaming commission for a gaming facility license.

Montreign intends to spend in excess of $600 million to develop the casino. At the same time, EPR is seeking additional uses for the land, which the company has held since 2009, and has already signed an indoor waterpark hotel to be located on the site.

“We see this as a real positive step toward making an unproductive asset productive,” Silvers said.

TopGolf a Driving Force in Recreation

Meanwhile, a key driver in EPR’s recreation division has been the roll out of its TopGolf entertainment complexes. TopGolf entertainment complexes  “are an exciting way to approach what, for some people, has been the downward industry of traditional links golf,” according to Silvers.

TopGolf golf balls contain microchips that track each shot’s accuracy and distance. They also award points for hitting targets ranging from 20 yards to 240 yards away. TopGolf’s use of technology is making golf “far more approachable for everyone,” Silvers observed.

As a result, average weekend waits at TopGolf centers are about two to three hours, while revenues have “greatly exceeded” expectations, Silvers noted. Furthermore, EPR expects a strategic partnership with the Golf Channel for marketing and promotion to accelerate TopGolf’s brand awareness and customer acceptance, according to EPR.

Unique Opportunities in Private School Sector

Developments in EPR’s third core sector, education, underscore the company’s view that investments in educational infrastructure create a consistent and reliable investment platform.

EPR began its foray into education by focusing on charter schools, a segment that continues to grow. According to Silvers, the last four years have seen an average of 500 new charter school starts nationwide each year, along with double-digit percentage increases in annual enrollment.  In certain urban gateway markets, however, charter school operators are finding it difficult to work within the confines of the state reimbursement system, Silvers explained. In California, for example, the state reimburses a charter school student at a flat rate, regardless of location.

In those areas where the traditional charter school model doesn’t make economic sense, EPR is actively pursuing a new option, private schools with tuition rates well below the average level of existing private schools.

The company has partnered with BASIS Education Group to open a school in California’s Silicon Valley. A second school is slated to open next year in Brooklyn, N.Y. A facility is also under construction in Chicago.

Silvers sees little reason to believe that demand for private schools will diminish any time soon.

“The demographics continue to show that parents want to find and give their kids every competitive advantage they can. If our operating partners can continue to deliver on that academic promise, we see a significant amount of opportunity just in those major gateway cities,” he said.

Getting the Message Out

While EPR grows its core businesses under Silvers, the company’s unique mix of properties presents ongoing challenges in terms of educating investors.

“I don’t think investors understand [EPR] well enough,” Moore said. “That’s one of the things that makes the stock so attractive. Investors get hung up on the small nuances of EPR…and have, in many cases, missed the real stream behind the story, which is [its] theaters and education, more broadly.”

Silvers said the company will continue to work diligently to help investors understand everything that is going on at EPR.

“It’s always something that we have to be vigilant about, continuing to educate and talking to people about how our product types are evolving,” Silvers noted.