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Investors looking to lock in a high yield with the goal of creating a lifetime of income may find EPR Properties (NYSE: EPR) of interest. Not only does it offer a huge 7.5% dividend yield, but the real estate investment trust's adjusted funds from operations (FFO) payout ratio was a solid 66% in the third quarter.

So, could buying EPR Properties today set you up for life?

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What does EPR Properties do?

EPR Properties is a property-owning real estate investment trust (REIT), but it has a very specific focus on experiential assets. The list of properties in its portfolio includes things like amusement parks, fitness centers, ski resorts, and movie theaters (more on theaters below). At a time when consumers are increasingly shifting online, which has been a headwind for some retail properties, bringing people together to enjoy experiences is an interesting niche for a landlord.

There are other REITs that are focusing on a similar approach, most notably in the casino sector. However, EPR Properties has a much more diversified portfolio. Meanwhile, many of the largest retail landlords are starting to move beyond simple retail (including bringing in experiential tenants) in an attempt to draw consumers to malls and other shopping locations. Given the developing dynamics with consumer-facing properties, EPR Properties looks like it has an attractive niche in the market.

As of the third quarter of 2024, meanwhile, the REIT was in a fairly strong financial position. It has just reworked a credit agreement, lowering its interest costs, extending its maturity profile, and removing restrictive debt covenants. The adjusted FFO payout ratio, as noted, was a solid 66% in the quarter. And portfolio level rental coverage is 2.1 times today versus 1.9 times in 2019.

The company has also been repositioning its portfolio, which is where investors need to step back and consider some very real risks.

EPR Properties is coming back from a painful blow

EPR Properties' focus on experiential assets was a huge negative during the early days of the coronavirus pandemic when people were asked to socially distance themselves and simply stay home if they could. That led the REIT to suspend its dividend in 2020. The dividend is back and growing again, but it is still below where it was prior to the pandemic. The key problem is that EPR Properties generates around 36% of its rents from movie theaters.

The pandemic was particularly hard on theaters, leading EPR Properties to work with theater operators to lower rents and adjust leases. The REIT has a collection of theaters that it plans to sell and has already sold many others as it works to reduce its reliance on this property type. Given the size of the theater business, this will likely be a long-term diversification effort. This means investors need to continue monitoring EPR Properties' theater business very closely.

That said, theaters are not going to go away. Compared to other experiential assets, movies are one of the largest markets in which to invest. And EPR Properties' theaters are highly productive, overall, with the REIT owning just 3% of North American theater locations and generating 8% of the box office. So EPR Properties is really pruning its portfolio more than attempting to exit the theater sector.

In addition to the theater repositioning, EPR Properties is also investing in several development projects. That involves execution risk as properties are built and/or updated -- another aspect of the company's business that investors need to monitor as it has proven to be an important part of the diversification effort. However, given the strong dividend coverage and improving balance sheet, there's every reason to remain positive.

Is EPR Properties right for you?

All in, EPR Properties looks like an attractive high-yield stock, but it comes with risks that should probably dissuade more conservative investors from buying it. However, if you can handle a little more uncertainty and are willing to closely monitor your portfolio, EPR Properties looks like it is getting back on track after a very difficult exogenous hit (the pandemic). Given the high yield, the risk/reward trade-off is probably attractive enough to make it a buy for risk-tolerant investors.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.

Could Buying EPR Properties Stock Today Set You Up for Life? was originally published by The Motley Fool