EPR

Got Less Than $1,000? Here's a Brilliant Way to Earn Blockbuster Passive Income From Real Estate.

It takes money to make money. That's especially true in real estate investing, where the up-front cost to buy a rental property can be tens of thousands of dollars.

However, there are some lower-cost options. Real estate investment trusts (REITs) are a top choice for those with less than $1,000 to invest. They allow anyone to start earning passive income from real estate almost immediately.

EPR Properties (NYSE: EPR) is a REIT with blockbuster passive income potential. Here's why budding real estate moguls will want to consider buying shares.

A unique REIT

EPR Properties is a specialty REIT focused on owning experiential real estate. The company owns 363 properties across the U.S. and Canada, including theaters (40% of its portfolio), eat & play venues (24%), attractions (11%), ski (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 – early childhood education and private schools).

It leases these properties back to operating companies primarily under long-term net leases. Those agreements provide stable rental income because the tenants cover variable costs like building insurance, maintenance, and real estate taxes. That gives the company relatively predictable cash flow, the bulk of which it pays to shareholders in dividends.

EPR Properties currently pays a monthly dividend of $0.275 per share ($3.30 annualized, easily covered by its funds from operations of $5.05-$5.15 per share for 2023). That gives it a 7.7% dividend yield at the recent share price. Put another way, every $100 invested in the REIT would produce about $7.70 of annual dividend income. That's much higher than most other REITs (the sector's average yield is 4.5%) and most other stocks (the S&P 500's dividend yield is 1.5%).

Blockbuster growth potential

EPR Properties has invested over $6.7 billion to build a diversified experiential real estate portfolio. However, the company believes it's only scratching the surface of its potential. It estimates that there's a more than $100 billion addressable market opportunity to acquire experiential real estate outside of the theater industry through sale-leaseback transactions and build-to-suit development or redevelopment projects.

The company expects to invest $200 million to $300 million this year to expand its portfolio. Through the first half, it has spent $98.7 million to acquire a fitness and wellness property ($46.7 million) and on experimental build-to-suit development and redevelopment projects. The company had also committed to invest $224 million over the next two years in additional development and redevelopment projects. These investments will increase its rental income and further diversify its portfolio away from the theater industry. The company intends to fund those investments with post-dividend free cash flow and its 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 only had $136.6 million in debt maturing through the end of next year. That gives it lots of financial flexibility to fund 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 features a fixed $65 million annual rental payment that will escalate by 10% every five years. In addition, Regal will pay a percentage rent each year on gross sales at its leased locations above $220 million. That feature enables EPR to collect more rent during a blockbuster box office year.

Rent growth from new and existing properties could enable EPR Properties to increase its already attractive dividend. While EPR did suspend its dividend during the pandemic and reinstated a payout at a lower rate in 2021, its new level is more sustainable. It allows the REIT to fund new investments and maintain its financial strength. Meanwhile, it has already started increasing the reset dividend, giving investors a 10% raise last year.

A low-cost, high-yielding real estate investment

REITs are a very low-cost way to invest in real estate. Shares of EPR currently cost less than $45 apiece. Meanwhile, the company pays a very attractive dividend that could grow in the future. That makes it look like a smart way to start collecting passive income from real estate.

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Matthew DiLallo has 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.

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