EPR Properties — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. EPR is a specialty REIT that owns, develops, leases, and finances properties in entertainment, education, and recreation, primarily in the U.S. and Canada. Its owned portfolio was 99% leased at quarter-end.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / prior period |
|---|---|---|
| Total revenue | $89.9 million | $83.0 million; up 8% |
| Net income available to common shareholders | $37.6 million | $35.3 million; up 7% |
| Diluted GAAP EPS | $0.71 | $0.75 |
| FFO per diluted share | $1.00 | $1.03 |
| FFOAA per diluted share | $0.94 | $0.94 |
| Common dividend per share | $0.86 | $0.79 |
| Net cash from operating activities | $41.5 million | $40.2 million |
At March 31, total assets were $3.34 billion, debt was $1.483 billion, and total equity was $1.761 billion. Cash and cash equivalents were $20.4 million; restricted cash was $19.6 million. The company reported $535 million of availability under its revolving credit facility and no balance outstanding on that facility. Its debt-to-gross-assets ratio was 39%, within its stated target range of 35%–45%.
Cash used in investing activities was $62.8 million, primarily reflecting $50.6 million of development spending. Cash provided by financing activities was $33.9 million, including $79.6 million of net common-share proceeds and $49.6 million of dividends paid.
Changes versus the prior comparable period
- Revenue growth mainly reflected acquisitions and development investments, plus increased lending activity. Rental revenue rose to $66.4 million from $60.4 million; mortgage and other financing income increased to $18.7 million from $17.8 million.
- Net income available to common shareholders increased, but diluted EPS declined as the weighted-average diluted share count increased to 52.7 million from 47.0 million.
- Q1 2014 results included a $3.4 million benefit from reversing a liability associated with the Toronto Dundas Square acquisition and a $0.3 million land-sale gain. Q1 2013 included a $4.5 million gain on early debt extinguishment and a $0.6 million gain on a winery and vineyard sale. These items affect comparisons of reported earnings.
- FFOAA per diluted share was unchanged at $0.94, while the common dividend per share increased from $0.79 to $0.86.
- Investment spending increased to $68.5 million from $38.7 million, led by education and recreation projects.
Outlook, risks, and notable items
- Management expects cash on hand, operating cash flow, and revolver availability to be adequate for operations, debt service, distributions, and planned commitments. It reported no consolidated debt balloon payments due for the remainder of 2014, while noting that future financing availability and terms are not assured.
- At quarter-end, development funding commitments were approximately $309.1 million across entertainment, education, and recreation projects; about $192.2 million was expected to be funded in 2014. Mortgage-note funding commitments totaled approximately $227.0 million, of which $80.4 million was expected to be funded in 2014.
- After quarter-end, EPR sold four Florida charter-school properties for net proceeds of $46.1 million, with an expected $0.2 million gain in Q2. It also acquired 11 theatre properties for approximately $117.7 million, assuming a $90.3 million mortgage loan; the properties were leased to a Regal Cinemas subsidiary under a triple-net master lease.
- Tenant concentration is material: AMC and its parent guarantor accounted for approximately 24% of Q1 revenue. EPR also disclosed exposure to charter-school funding and operator risks, theatre industry and lease-renewal risks, development execution, leverage and refinancing, interest rates, and Canadian-dollar movements.
- A lawsuit concerning the planned Sullivan County resort development remained subject to reconsideration and appeal after federal antitrust claims were dismissed. Plaintiffs sought $500 million in damages, potentially trebled under antitrust law, plus other relief. EPR said a loss was not considered probable and that it could not estimate a reasonably possible loss range.
- The company reported compliance with debt covenants and effective disclosure controls. It cautioned that quarterly results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the $3.4 million liability reversal and other unusual items distort comparisons of recurring earnings; assess GAAP results alongside FFO and FFOAA, which are non-GAAP measures.
- AMC’s capacity to meet lease obligations and the effect of the disclosed 24% revenue concentration.
- Progress, funding needs, and expected lease economics for the development pipeline and mortgage commitments.
- Debt maturities, covenant headroom, refinancing access, and the effect of interest-rate or foreign-exchange movements.
- The status and potential financial consequences of the Cappelli Group litigation and the Sullivan County development.