EPR Properties — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. EPR is an experiential and education-focused REIT with properties in the United States and Canada. Unless otherwise indicated, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2021 | Nine months 2021 | Comparable 2020 period |
|---|---|---|---|
| Total revenue | $139.6 million | $376.8 million | $63.9 million Q3; $321.2 million nine months |
| Net income (loss) available to common shareholders | $26.1 million; $0.35 diluted EPS | $35.9 million; $0.48 diluted EPS | Loss of $91.9 million; $(1.23) diluted EPS Q3, and loss of $129.9 million; $(1.70) diluted EPS nine months |
| FFOAA per diluted share (non-GAAP) | $0.86 | $2.01 | $(0.16) Q3; $1.25 nine months |
| Net cash from operating activities | Not stated separately | $236.4 million | $59.5 million nine months |
- Q3 revenue increased 118% year over year; nine-month revenue increased 17%. Rental revenue recovery, improved collections, and the Kartrite Resort’s reopening contributed. The prior-year comparison was affected by COVID-related rent and straight-line receivable write-offs.
- Nine-month net income included a $19.7 million credit-loss benefit, principally reflecting repayments and released funding commitments on a previously fully reserved borrower note, as well as revised recovery assumptions. EPR recorded $2.7 million of property impairments, compared with $62.8 million of real estate and lease-asset impairments in the 2020 period.
- At September 30, cash and cash equivalents were $144.4 million, restricted cash was $5.1 million, debt was $2.684 billion, and total assets were $5.721 billion. Debt was 99% unsecured; net debt to gross assets was 38%. EPR said its net debt to adjusted EBITDAre ratio was not meaningful given pandemic-related disruption and accounting effects.
- Nine-month cash used in investing was $39.5 million and cash used in financing was $1.075 billion, including $1.014 billion of debt principal payments. Cash and cash equivalents fell from $1.026 billion at year-end 2020, primarily in the context of debt repayments.
- Owned properties totaled 20.8 million square feet and were 96% leased: experiential properties were 95% leased and education properties 100% leased. EPR reported $6.458 billion of total investments, a non-GAAP measure.
Material changes and developments
- EPR ended its COVID-related Covenant Relief Period early, effective July 13, 2021. This restored prior debt pricing and removed certain investment, capital-spending, and dividend restrictions. The company repaid its $400 million unsecured term loan in September and had no balance drawn on its $1 billion revolver at quarter-end.
- Common dividends, suspended after the May 2020 payment, resumed in July 2021. EPR declared $0.75 per common share for Q3; the nine-month dividend total was also $0.75 per share. Preferred dividends continued.
- During October, S&P assigned an investment-grade rating to EPR’s unsecured debt; Moody’s changed its outlook to stable. Subsidiary guarantees were released under the applicable agreements.
- Subsequent to quarter-end, EPR entered a new $1 billion revolving credit facility maturing in October 2025, with an accordion feature allowing potential capacity up to $2 billion subject to lender consent. It also issued $400 million of 3.60% senior notes due 2031 and planned to redeem $275 million of 5.25% notes due 2023 on November 12, 2021. The estimated make-whole premium was approximately $20.1 million as of October 29; the final amount could differ.
- Nine-month investment spending was $107.9 million, including one eat-and-play acquisition and development, redevelopment, mortgage, and joint-venture investments. EPR sold properties for $30.8 million net proceeds during the period; after quarter-end, it sold two ski properties for $48.0 million net proceeds and reported an approximately $15.4 million gain.
Outlook, risks, and contingencies
- Management said cash on hand, operating cash flow, revolver availability, and asset-sale proceeds were expected to provide adequate liquidity for operations, debt service, distributions, and commitments. After the planned November 2021 redemption, management expected no scheduled debt payments until 2024. These are forward-looking statements, not assurances.
- Management said it expected to refocus on portfolio growth as operations improved and covenant restrictions ended. The filing provides no specific earnings or FFOAA guidance.
- COVID-19 remained a material uncertainty, including possible resurgence, changes in consumer activity, and tenants’ and borrowers’ ability to recover and service pandemic-related debt. No properties were closed due to COVID-19 restrictions at September 30. Q3 collections were approximately 90% of contractual cash revenue.
- EPR reduced rental revenue by $9.1 million for abatements in the first nine months. It reported approximately $39.2 million of deferred tenant amounts and $1.7 million of deferred borrower amounts booked as receivables; additional tenant obligations were not recorded as receivables because collection was not deemed probable.
- Revenue concentration remains important: for the first nine months, AMC represented 18.8% and Topgolf 16.8% of total revenue. EPR continued cash-basis revenue recognition for certain tenants, including AMC and Regal.
- Commitments included approximately $66.9 million for 15 development projects, $12.8 million of mortgage-note funding commitments, and $33.3 million of surety bonds. EPR also guaranteed approximately $0.2 million of remaining renovation costs for a joint venture whose $85 million mortgage matures in April 2022, subject to extension options.
- Management reported compliance with debt covenants at September 30. Risks include tenant defaults, consumer discretionary spending, debt and refinancing conditions, interest and foreign-exchange movements, property concentration, and the effects of the pandemic. Ordinary-course legal claims were not expected by management to have a material adverse effect.
Most important facts for investors to verify
- Whether rent and loan collections, deferred-payment repayments, and cash-basis tenant performance continue to improve, particularly for AMC and Regal.
- Whether the $39.2 million of booked deferred tenant receivables and additional unbooked tenant obligations are collected on expected terms.
- How the October credit facility, 2031 note issuance, and 2023 note redemption affect liquidity, interest expense, covenant headroom, and future maturities.
- Whether reported earnings and FFOAA gains are supported by recurring operating recovery, given the credit-loss benefit and large prior-year impairment and write-off effects.
- Whether development commitments, joint-venture obligations, and portfolio growth can be funded while sustaining resumed common dividends.