EPR Properties — Q2 2014 Form 10-Q
Business context and reporting period
EPR Properties is a specialty REIT focused on entertainment, education and recreation properties and related financing. This report covers the quarter and six months ended June 30, 2014; comparisons are with the corresponding 2013 periods. At quarter-end, its owned portfolio comprised 15.1 million square feet and was 99% leased. The company reported investments in 39 states, the District of Columbia and Ontario, Canada.
Key financial metrics
| Metric | Q2 2014 | Six months 2014 |
|---|---|---|
| Total revenue | $91.8 million, up 11% | $181.6 million, up 9% |
| Net income available to common shareholders | $34.8 million, up 31% | $72.4 million, up 17% |
| Diluted EPS | $0.65, versus $0.56 | $1.36, versus $1.31 |
| FFOAA per diluted share (non-GAAP) | $0.97, versus $0.98 | $1.91, versus $1.92 |
| Dividends per common share | $0.86 | $1.71 |
For the first six months, net cash from operations was $114.4 million, investing used $166.6 million, and financing provided $57.9 million. Cash and cash equivalents were $13.6 million at June 30; restricted cash was an additional $17.6 million. Total assets were $3.53 billion, debt was $1.66 billion, and equity was $1.75 billion. The debt-to-gross-assets ratio was 42%, within management’s stated target range of 35%–45%. The $535 million revolving facility had $79 million drawn and $456 million available.
Material changes versus prior comparable periods
- Revenue growth primarily reflected acquisitions and development completed in 2013 and 2014. Rental revenue rose to $69.9 million in Q2 and $136.3 million for the first half.
- Q2 common earnings increased, while FFOAA per diluted share was slightly lower. Management attributed per-share results in part to lower leverage than in the prior period and an increased share count.
- Six-month common earnings included a $3.4 million reversal of a liability related to the previously sold Toronto Dundas Square property. The filing also reports $0.3 million of land-sale gain and $0.2 million from the sale of direct-financing-lease investments.
- Compared with 2013, 2014 had no $5.9 million loan-refinancing charge or $4.5 million gain on early debt extinguishment. 2013 results also included a $0.6 million winery-property sale gain.
- Total investment spending increased to $319.7 million from $122.7 million in the first half of 2013. Common shares issued through the Dividend Reinvestment and Direct Share Purchase Plan generated approximately $79.5 million net proceeds.
Outlook, risks and unusual items
- Management said cash on hand, operating cash flow and revolver availability were expected to cover operations, debt service, shareholder distributions and existing commitments. It reported no consolidated debt balloon payments due in the remainder of 2014. No numerical full-year earnings or FFO guidance is provided in the filing text.
- At June 30, the company had development funding commitments of approximately $319.0 million and potential mortgage-note funding commitments of approximately $217.0 million. Management expected approximately $166.1 million of development commitments and $69.8 million of mortgage commitments to be funded in 2014.
- The planned Adelaar/Montreign casino and resort project is contingent on Empire Resorts obtaining a New York Class III gaming license. The license process was competitive, with eight other applications in the designated zone. Management noted that failure to obtain a license could materially adversely affect the investment; the project could involve more than $1 billion in combined investment if advanced.
- AMC generated approximately 24% of first-half revenue, creating significant tenant concentration. The company also disclosed a $183.5 million recorded exposure to unconsolidated VIE SVVI, limited to its mortgage note and related accrued interest.
- Litigation concerning the Sullivan County resort development received favorable June 30 court rulings for EPR, including recognition of EPR as master developer, but appeals remained possible. The company could not estimate a reasonably possible loss range.
- Interest-rate and Canadian currency exposures are partly hedged. The filing also identifies tenant defaults, financing and refinancing access, development execution, REIT qualification and real-estate market conditions as risks.
Important facts for investors to verify
- Whether AMC and other major tenants continue meeting lease obligations, and how tenant concentration evolves.
- Progress on the New York gaming-license decision, related appeals and the funding plan for Adelaar/Montreign.
- Actual timing and funding of development and mortgage commitments, and availability of capital on acceptable terms.
- Debt maturities, covenant compliance and floating-rate exposure; the company reported covenant compliance at June 30, 2014.
- How much of earnings growth is recurring: first-half results included the liability reversal and property-sale gains, while FFOAA per diluted share declined slightly year over year.