EPR Properties (NYSE:EPR), a REIT specializing in "experiential" properties like movie theaters, ski resorts, and entertainment venues, recently delivered their Q1 2024 earnings call. On the surface, things appeared positive. The company touted its "resilient" portfolio, solid investment spending, and even a dividend increase. But buried within the optimistic rhetoric lies a subtle shift in strategy, a barely perceptible tremor that could signal an impending earthquake for EPR's future.

EPR has long emphasized its commitment to "relationship agreements" with tenants. These agreements, more than just simple leases, grant EPR the right of first refusal on future deals as their tenant partners expand. It's a smart strategy, fostering long-term growth through loyal partnerships. However, the Q1 2024 call reveals a new layer to this approach, one that could unlock massive, untapped potential.

EPR's executives highlighted a deliberate effort to forge these relationship agreements with new tenants in burgeoning experiential categories. Specifically, the acquisition of Enchanted Forest - Water Safari, a four-season Adirondack resort, and the two new build-to-suit Andretti Karting locations are presented not simply as individual deals, but as strategic inroads into lucrative, expanding markets. This represents a notable departure from their prior focus on solidifying existing relationships.

Why is this significant? It suggests that EPR is quietly, but deliberately, positioning itself to capitalize on an impending wave of experiential real estate growth. The company's executives repeatedly stated that investment opportunities currently "exceed available capital," implying a sense of restraint. They are actively cultivating a diverse, high-yielding pipeline, ensuring they're primed to unleash a torrent of capital deployment when the time is right.

EPR Properties Investment Spending: Potential Upside

Here's where the numbers get really interesting. EPR is guiding for $200 million to $300 million in investment spending for 2024. However, they also revealed a staggering $220 million already committed to development and redevelopment projects to be deployed over the next two years. Of that, $111 million is slated for 2024 alone, already placing them near the low end of their guidance range.

This suggests a potential for significant upside to their investment spending, particularly if EPR can accelerate dispositions, currently guided at $50 million to $75 million for 2024. Recall that in Q4 2023, EPR sold two Titanic museums for $45 million at a 6% cap rate, showcasing their ability to unlock value from existing assets.

What could trigger this potential explosion? Improving capital markets would be the obvious catalyst. EPR's equity, despite strong fundamentals, remains undervalued. If sentiment shifts and EPR can access capital at a more favorable cost, they are positioned to unleash a torrent of investment spending.

Consider this: EPR's executives are confident that 2025 will be a "significant improvement" over 2024 in terms of box office revenues. This anticipated surge, coupled with the ongoing strength of their non-theatre portfolio and a fortified pipeline, creates a compelling narrative for a REIT poised for rapid growth.

EPR Properties may appear quiet now, but the ground beneath them is shifting. This REIT, with its laser focus on experiential real estate and its shrewd, relationship-driven strategy, could be a sleeping giant, ready to awaken and deliver explosive returns for those who recognize the hidden signal.

"Fun Fact: The term "REIT" was coined in 1960 by U.S. President Dwight D. Eisenhower. This innovative legislation enabled individual investors to invest in large-scale, income-producing real estate, democratizing access to a previously exclusive asset class."