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EPR's Notes Rated 'BBB-' by Fitch

Zacks Equity Research

Specialty real estate investment trust (:REIT) – EPR Properties’ (EPR) recently issued $275 million 5.25% senior unsecured notes due 2023, which have been assigned a 'BBB-' credit rating by Fitch Ratings.

Priced at 99.546% of par to yield 5.308% to maturity or 312.5 basis points over the benchmark rate, the notes issuance would help the company generate capital for paying off its outstanding debts.
As a matter of fact, EPR currently enjoys Issuer Default Rating (:IDR) 'BBB-' with a “Stable” outlook. The rating view is backed by EPR’s steady cash flows from its triple-net leased megaplex movie theatres as well as other investments in the Entertainment, Education and Recreation sectors. This has aided the company to generate favorable leverage and coverage metrics. Moreover, EPR enjoys solid rent coverage across its portfolio.

However, tenant concentration and its investments in asset classes that could be less liquid or financeable during any future period of financial crisis remain the rating agency’s concerns.  

Notably, some of EPR's subsidiaries will guarantee the senior notes. J.P. Morgan Securities LLC of JPMorgan Chase & Co. (JPM), Citigroup Global Markets Inc. of Citigroup Inc. (C) and RBC Capital Markets, LLC served as joint book-running managers for the notes offering.

The notes offering would help the company attain financial flexibility and poise it well to pursue investment opportunities and acquisitions, which will go a long way in enhancing its top line. We also believe that the rating outlook well justifies the creditworthiness of the company.

According to Fitch Ratings – Definitions of Ratings and Other Forms of Opinion – May 2013, IDR of ‘BBB’ indicates that expectations of default risk are currently low. Usually, ratings of “BBB-” and higher are considered secure and a better rating boosts investors’ confidence in the stock.

EPR has interests in assets in select market segments, with Entertainment, Recreation and Education being the primary ones. Its investment in these segments totals over $3.2 billion.

Currently, EPR carries a Zacks Rank #3 (Hold). The other well performing REIT includes Acadia Realty Trust (AKR), which has a Zacks Rank #2 (Buy).

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