EPR Properties — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. EPR is a diversified experiential net lease REIT operating in the U.S. and Canada. Its portfolio is concentrated in experiential properties, including theatres, eat-and-play venues, attractions, ski properties, lodging, fitness and wellness, and education properties. The combined owned portfolio was 99% leased, excluding properties intended for sale.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Total revenue | $167.2 million | $171.4 million; down 2% |
| Net income | $62.7 million | $57.7 million |
| Net income available to common shareholders | $56.7 million; $0.75 per diluted share | $51.6 million; $0.69 per diluted share |
| FFOAA per diluted share | $1.13 | $1.26; down 10% |
| Net cash from operating activities | $99.5 million | $121.5 million |
| Cash and cash equivalents | $59.5 million at March 31, 2024 | $78.1 million at December 31, 2023 |
| Total debt | $2.82 billion; 99% unsecured | $2.82 billion at December 31, 2023 |
| Net debt / annualized Adjusted EBITDAre | 5.5x | 5.0x |
Rental revenue declined to $142.3 million from $151.6 million. Minimum rent fell $10.6 million, partly offset by higher straight-line rent, other income and mortgage and financing income. Management reported net operating income before unallocated items of $139.3 million, versus $148.3 million a year earlier. The filing does not provide a clear consolidated operating-margin measure.
Interest expense, net, was $31.7 million, broadly unchanged. The common dividend declared was $0.835 per share, compared with $0.825 in Q1 2023. Cash from operations was below dividends paid to shareholders of $68.2 million, before investing and other financing activity.
Material changes and unusual items
- Net income rose despite lower revenue, in part because EPR recorded a $17.9 million gain on sales of two cultural properties and one vacant theatre; the prior-year quarter recorded a $0.6 million loss on sales.
- FFOAA per diluted share declined 10%. Management cited the Regal restructuring, lower deferred rent collections from cash-basis tenants, property sales and acquisitions, and higher operating expenses, credit-loss provisions and joint-venture losses.
- Q1 investment spending was $85.7 million, versus $66.5 million. It included a $33.4 million attraction acquisition in New York and spending on development and redevelopment. Sale proceeds were $46.2 million.
- Credit-loss provision was $2.7 million, versus $0.6 million. Two notes receivable remained fully reserved, with allowances of $7.6 million and $1.9 million.
- Retirement and severance expense was $1.8 million, including $1.6 million of accelerated share vesting, following the retirement of the General Counsel and another employee.
Liquidity, debt, outlook and risks
- EPR had no borrowings outstanding on its $1.0 billion unsecured revolver at quarter-end. The facility matures in October 2025, subject to two six-month extension options.
- Debt included $2.5 billion of unsecured senior notes and $316.2 million of private placement notes. A $136.6 million maturity is due in August 2024. EPR said it expects to repay, extend, refinance or otherwise settle maturities, but noted financing may not be available on acceptable terms. It was in compliance with debt covenants at March 31.
- Management expects cash, operating cash flow, revolver availability and disposition proceeds to meet liquidity needs. Because of elevated capital costs and challenging economic conditions, EPR expects lower near-term investment spending and says it will be selective in acquisitions.
- Funding commitments included $158.6 million for 13 development projects, with about $59.4 million expected to be funded during the rest of 2024, and $99.9 million across five mortgage notes, with about $49.2 million expected to be funded during the rest of 2024.
- Topgolf, AMC and Regal generated 14.8%, 14.0% and 11.2% of Q1 revenue, respectively. EPR continues cash-basis revenue recognition for AMC and two other tenants; approximately $11.5 million of deferred rent for one tenant was not recorded as a receivable.
- Key disclosed risks include tenant defaults and concentration, theatre-sector exposure and the effects of film production or release disruptions, inflation and consumer discretionary spending, higher interest rates and capital costs, refinancing and leverage, development execution, and foreign-exchange exposure. EPR uses derivatives to hedge interest-rate and Canadian-dollar exposures.
- EPR paid $5.9 million under protest in a Kansas City tax dispute and intends to seek court review; it believes the payment will be refunded. Management said ordinary-course claims and lawsuits are not expected to have a material adverse effect in aggregate. No material risk-factor changes were reported.
Guidance: The provided filing text does not state numeric full-year earnings or FFOAA guidance.
Investor verification priorities
- Review the August 2024 $136.6 million maturity and the company’s refinancing or repayment plan, including cost and availability of capital.
- Track Regal’s post-restructuring rent and operating performance, and the credit and rent-collection status of AMC and other cash-basis tenants, including the unrecorded $11.5 million deferred rent.
- Assess whether operating cash flow and recurring property income support dividends, development commitments and debt service, particularly as leverage rose to 5.5x net debt to annualized Adjusted EBITDAre.
- Monitor credit losses and repayment prospects for mortgage and other notes, as well as funding requests under the $99.9 million mortgage commitments.
- Evaluate development spending, lease-up and returns, and the impact of property dispositions and one-time sale gains on reported net income versus recurring FFOAA.
- Follow the Kansas City tax dispute and material tenant, joint-venture, refinancing, or development developments.