2018 was a successful year for EPR Properties, although not necessarily a typical one. Our performance validates the power of the platform that we have built throughout our more than 20-year history…
— from the 2018 Annual Report of EPR Properties, titled “Investing in Life’s Enduring Experiences”.
On Monday, April 13, Colorado Governor Jared Polis published “An Open Letter to Colorado’s Hotel and Motel Owners and Operators” which began:
First, I want to thank you, as business leaders in Colorado, for your efforts to date working in partnership with our state, your employees, local communities, and your customers on implementing protective and proactive measures during this unprecedented crisis…
Secondly, I want to clarify that the extended Shelter in Place Executive Order D 2020-024, which has been extended through April 26th, excludes all hotels and places of accommodation as critical infrastructure…
In other words, Thanks for all you do, and yes, you are a ‘critical business and are allowed to remain open… but we don’t expect you to see much in the way of lodgers, because everyone has been ordered to stay home.
But… could there be a silver lining? The governor seemed to think so.
As I addressed the public on April 6, in these dark times, we all have a light to shine. And now we are asking Colorado hotels and motels to shine their light and rise to the challenge by entering agreements to temporarily house one of our state’s most vulnerable populations. You have empty rooms and many of our cities have potential guests. A match made in heaven…
Perhaps “a match made in heaven” is stretching the metaphor a bit. But officially, Colorado does indeed reckon about 10,000 people experiencing homelessness on any given day, more than half of whom live in the Denver metro area. If these homeless residents are housed in ordinary emergency shelters — where people are packed close together — the governor’s goal of “social distancing” will be difficult to achieve, in such a situation.
But all these empty hotel rooms? And who knows how long they will remain vacant, even if ‘Shelter in Place’ orders are rescinded within the next month or so?
Will anyone be taking a vacation this summer?
Many people are eager to see America get back to ‘business as usual’ — to put the cornonavirus behind us, and re-start our mass-consumption economy in which the top 1% of families hold 40 percent of the nation’s wealth. Many others are viewing the current crisis as an opportunity to ‘re-set’ the US economy in line with a more equitable, sustainable model.
Here in Pagosa Springs, a new “more equitable, sustainable” model might include less tourism rather than more. Our tourism industry is notorious for low-paying, part-time jobs offering little in the way of short- or long-term benefits. It’s an industry primarily designed to serve non-residents, rather than locals.
One particular local motel has been reinventing itself over the past 30 years, to become the flagship of Pagosa’s tourism industry. In 1991, the modest and struggling ‘Spring Inn’ on Hot Springs Boulevard was purchased by Bill Dawson and Matt Mees for $45,000 — if I am reading the County Assessor data correctly. After considerable creative investment in a slew of “naturally therapeutic bathing pools” overlooking the San Juan River, and after arranging for some generous government subsidies from the Town of Pagosa Springs, Mr. Dawson and Mr. Mees sold the re-named ‘Springs Resort & Spa’ to the Whittington family for $2.5 million.
In 2018, the Whittingtons sold the resort to Kansas City-based EPR Properties for $42.5 million (according to Assessor records.) The timing of the EPR purchase may not have entirely auspicious.
EPR has been investing, over the past 20 years, in ‘entertainment properties’ like the Springs Resort, as well as…
…megaplex theaters; entertainment retail centers (centers typically anchored by an entertainment component such as a megaplex theater and containing other entertainment-related or retail properties); family entertainment centers and other retail parcels; recreation properties, which includes ski properties; attractions; golf entertainment complexes and other recreation facilities…
… that is, the type of properties perfectly suited to crash financially, during a nationwide pandemic lock-down.
Things looked relatively bright for EPR Properties in their 2018 Annual Report (which you can download here.) Not so bright at the end of last month, when a Daily Post reader sent me a link to a Dividend.com web page, that reported:
…EPR invests in real estate in amusement parks, theaters, and cinemas across 44 states in the US, and is going to be hit as its tenants are forced to close due to the COVID-19 pandemic.
Shares in EPR have lost 70% over the past 30 days and at some point were down as much as 80%. Investor pessimism was connected to the company’s $3.3 billion in debt and its ability to repay it. The company’s current market capitalization is just half of its debt. As a result, its dividend yield spiked to more than 20% as the company pays out 167% of its net income to shareholders.
To soothe investor concerns, EPR came out with a press release and made it clear that it has a strong balance sheet and liquidity position. It has cash of $1.25 billion, and half of that was borrowed under a revolving credit facility, with no debt maturing until 2023. To support its stock price, EPR announced a share repurchase program worth $150 million, at a time when many companies scrap share repurchases to repurpose that cash toward operations…
The Dividend.com story also included the following chart, showing the performance of EPR stock. The stock price appears have hovered above $70 a share for most of 2019, but apparently fell to about $15 in mid-March, before bouncing back to $21 on March 26. (The little “D” symbols indicate dividend distributions.)
Bill Hudson began sharing his opinions in the Pagosa Daily Post in 2004 and can’t seem to break the habit. He claims that, in Pagosa Springs, opinions are like pickup trucks: everybody has one.