We are moving our Black Book on new Active Short EPR Properties (EPR) back to Thursday, January 5th @ 12:30 PM ET. Please click on the updated calendar invite below. Whatever bug is going around Fairfield County, CT has invaded the Simone household - we're crushed right now. Will rally in the coming days.
Note that we will publish a couple of initial slides this Tuesday morning, given the amount of time that has elapsed since we first added.
A couple of updated thoughts:
- We are taking this one in steps, similar to how we addressed MPW the second time around (again, EPR is not a donut). Conclusion: Under a now higher cost of capital, EPR is priced nowhere near where investors should be willing to buy into these lease economics.
- Step 1: EPR is significantly overvalued today if you compare its lease/loan cash economics to the cost of capital; this is before any rent reductions, and we will walk through that math.
- Step 2: Cineworld/Regal Chapter 11 filing, and the impact of a related potential rent reduction.
- Step 3: The AMC situation, which is ugly and warrants significant attention given EPR's exposure.
- With theater tenant rent reductions potentially forthcoming, it is important to consider that EPR trading near a ~10% cash cap rate / ~6x leverage may really equate to an ~8% cap / ~7x leverage on our math. Debt as a % of gross assets and/or total market cap would be significantly north of ~50%.
- With a broken cost of capital EPR essentially cannot grow externally in an accretive fashion and so therefore must rely on internal growth driven by +1.5% to +2% rent escalators. This results in a sub-optimal forward RoC profile. Any rent reductions would obviously "break" forward estimates and result in estimate cuts while more diversified triple-nets with better underlying tenant credit continue to grow well-above the rest of the subsector (think ADC, NNN, O & NTST).
EVENT LINK: TO FOLLOW NEXT WEEK
Please e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
