Clearly, experience-based properties took a hit with the COVID-19 pandemic shutdowns, and most of EPR’s tenants were forced to temporarily close. However, EPR has made a strong recovery, with rent coverage at its non-theater properties now surpassing pre-pandemic levels.
Although EPR owns some very high-performing theaters, challenges remain, and the company is reducing its theater exposure. EPR’s strategy is to downsize its theater footprint and invest in eight target property types, including health and wellness assets, to meet increasing consumer demand.
That plan is fully underway. In the third quarter of 2024, theaters made up 36% of EPR’s portfolio, down from 45% pre-pandemic. Fitness and wellness increased from 0.9% to 8% of the business. EPR is also increasing its focus on attractions, which rose from 6% to 12%.
Greg Silvers, EPR chairman and CEO, sees demand only accelerating as consumers continue to prioritize their health and well-being. “Fitness and wellness can easily be 15% of our portfolio, so there’s a lot of growth opportunity,” he says.
EPR has a very intentional focus on investing in non-commodity areas in the fitness and wellness industry, including hot springs and climbing gyms. The company’s wellness portfolio includes 22 properties and nine operators.
“This isn’t your on-the-corner fitness facility with a bunch of machines,” Silvers explains. “These are curated experiences for which people are willing to pay a premium and there’s increased demand.”
EPR continues to build out its portfolio of investments of premier hot springs properties as more consumers are seeking the restorative benefits of luxury hot springs. EPR recently acquired Iron Mountain Hot Springs in Glenwood Springs, Colorado, and says it is among the top three hot springs attractions in the U.S. for attendance and EBITDA. It also owns The Springs Resort in Pagosa Springs, Colorado, and the recently opened Murrieta Hot Springs Resort in Murrieta, California.
“Because we’re playing in these little more niche areas, we don’t see a lot of competition,” Silvers says. “We have the ability to go out and find what we think are very strong cash flow assets that we have tested through COVID and seen their resilience, and we think there’s increasing demand.”
Another proven investment in wellness and fitness for EPR is climbing gyms. EPR owns three, including its latest acquisition of the VITAL Climbing Gym in Williamsburg, Brooklyn. The facility also features a rooftop wellness sanctuary with yoga and cycling spacesand a cafe. Silvers says it has 6,000 members.
He notes that many of these non-commodity fitness properties are fostering communities and that adds stickiness as an investment.
“The problem with your typical gym is every December, people say, ‘I’m eating too much. I need to work out,’” Silvers says. “But you really don’t see a community develop. Whereas in some of these little more esoteric ideas, whether it’s our climbing gyms or hot springs, it becomes a community. You see a lot of repeat visits and an affinity for the activity, and that builds a level of stickiness that’s functionally good for us to underwrite.”
EPR also has 11 ski properties representing 8% of its portfolio. The company finances regional ski resorts across the U.S. Multi-resort season pass networks and advanced snowmaking provide increased flexibility for consumers, with season passes accounting for more than 50% of skier visits.
Its ski areas also transition into year-round resorts with zip lines, mountain coasters, and mountain biking as popular off-season activities. “Demand has been very resilient,” Silvers notes.
When looking for new experiential concepts, EPR’s thesis is that it must be an activity that’s not only popular, but durable, Silvers explains. “We’re going to rent a property for 20 years to somebody, so we need it to be not only effective when we close the deal, but effective for a long period of time.”
EPR’s underwriting team spends a lot of time focusing on the drivers that make a concept successful. What does the customer look like? What’s the addressable market? “We’re not trying to be an operator,” Silvers says, “but we’re trying to understand what is key to their success, because their success becomes our success.”
Silvers notes that many concepts want EPR’s support to help them grow. “There’s a lot of frog kissing, meaning that you see a lot of things, but not everything resonates. But when you find something and you’re an early mover, the validation from the market comes when other people want to also be a participant or real estate provider.”