We hope that you can join us on Friday, December 30th @ 10:00 AM ET for our Black Book presentation on new Active Short EPR Properties (EPR), which we added to our position monitor on 12.22.22. EPR is a unique, ~$2.8 billion equity market cap "experiential" triple-net REIT with exposure to theaters, eat/play, ski resorts and other out-of-home attractions that is highly levered to the U.S. consumer and levels of/changes in discretionary spending. Investors by this point should be very familiar with Hedgeye's Macro call for a deepening, consumer-led Quad 4 recession heading into FY23, and it is difficult to find a REIT more specialized or directly exposed to the downside in such a Macro regime.
EPR's largest tenants include Topgolf, AMC Theaters (which will be a big focus of our deck), Regal Cinemas (whose parent just recently filed for Chapter 11 protection), Cinemark, Vail Resorts, Camelback Mountain and Six Flags. Theaters collectively represent over >40% of EPR's adj. EBITDA exposure and >30% of total revenue. A major advantage here is that several of EPR's tenants are publicly-traded and therefore offer opportunities for un-obfuscated analysis. We believe that the stock is STILL mispricing the potential for and degree of likely rent reductions at certain tenants, which when combined with warranted double-digit cap rates gets us to a -30% to -35% reduction in the stock price from where we added. Leverage is manageable but still higher than we would like for this type of underlying credit exposure. And then, most importantly, the stock is signaling bearish TRADE and TREND.
In the presentation we will discuss, among other things:
- The Macro backdrop
- EPR's idiosyncrasies
- The real estate portfolio and underlying tenant credit exposure
- The RoC, vis-a-vis potential rent cuts and the supporting math
- A deep dive on AMC's credit profile and capital structure, updated for the recent recap transaction
- Theater industry operating metrics and fundamental drivers
- Our EPR earnings model
- Frameworks for thinking about EPR's valuation
- Q&A
NOTE: To be clear, similar to SBAC this is not an existential short call.
EVENT LINK: TO FOLLOW NEXT WEEK
Please e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
