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EPR Properties (EPR) Disposes Charter School Assets for $454M

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EPR Properties (EPR - Free Report) recently sold substantially all the assets of its charter school portfolio consisting of 47 charter school-related properties for gross cash consideration of $454 million to a fund sponsored by Rosemawr Management, LLC. With this sale, the company aims at strategic migration from charter school assets to experiential real estate.

Notably, in the fourth quarter, EPR Properties sold three charter schools for proceeds of $21.6 million and expects to sell another remaining property in the ongoing quarter. Nonetheless, the company has no present plans to sell its private school and early childhood education assets (included in the Education portfolio) but might consider dispositions if an opportunity arises.

Proceeds from the charter school disposition will be redeployed to fund investments in experiential real estate including casino resort investments.

The sale of the charter school assets removes less predictable pre-payments associated with the portfolio. Additionally, the company’s overall rent coverage will improve as it moves from 1.89x to 1.94x following the sale of the charter school portfolio.

Management cited competitive financing alternatives, which induced increasing earnings volatility of the charter school portfolio as the primary reason to sell it.  Additionally, the sell-off will improve overall rent coverage from 1.89x to 1.94x.  

Management also acknowledges strong consumer demand for location-based experiences and hence, is focused on creating a singularly-focused organization committed to own real estate relating to experiential activities and lifestyles. Moreover, experiential real estate projects a $100-billion worth market opportunity and EPR Properties’ effort to gain traction from the same is a strategic fit.

Moreover, ???the company’s vast experience, solid relationships, intellectual capital and institutional knowledge bode well.

EPR Properties enjoyed decent unlevered internal rate of return over the life cycle of the charter school investments of 10.5%. However, including the previous disposition in the current quarter, the sale incurred a loss of $19 million. This includes write-off of non-cash straight line rent and effective interest receivables aggregating $26 million.

Accordingly, the company lowered its outlook for 2019 funds from operations as adjusted (FFOAA) per share to $5.42-$5.46 from the prior estimate of $5.44-$5.52. Further, it raised 2019 disposition guidance to $875-$900 million from the past forecast of $400-$475 million.

Although this strategic migration from charter school assets to experiential real estate is expected to cause near-term earnings dilution, focus on high-growth assets positions the company for long-term growth.

Shares of this Zacks Rank #3 (Hold) company have inched up 1.7%, underperforming the industry’s growth of 20.1% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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