EPR Properties — Q1 2021 Form 10-Q
Business context and reporting period
EPR Properties is an experiential and education-focused REIT. This filing covers the three months ended March 31, 2021, compared with the same period in 2020. Its portfolio was 91% experiential and 9% education by total investments; owned properties were 93.3% leased overall.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $111.8 million | $151.0 million; down 26% |
| Net income | $3.4 million | $37.1 million |
| Net income available to common shareholders | Loss of $2.7 million; $(0.04) per diluted share | Income of $31.1 million; $0.40 per diluted share |
| FFOAA per diluted share (non-GAAP) | $0.48 | $0.97; down 51% |
| Operating cash flow | $78.3 million | $89.0 million |
| Cash and cash equivalents | $538.1 million at March 31 | $1,025.6 million at December 31, 2020 |
| Total debt | $3.17 billion at March 31 | $3.69 billion at December 31, 2020 |
| Net debt to gross assets | 39% | 38% at March 31, 2020 |
Net cash used in investing was $29.9 million; financing activities used $532.4 million, chiefly reflecting $523.8 million of debt principal payments. Interest expense rose to $39.2 million from $34.8 million. Segment net operating income before unallocated items was $93.9 million, versus $128.4 million. A conventional operating margin is not clearly presented in the filing.
Material changes versus the prior period
- Rental revenue fell $32.4 million, principally due to pandemic-related rent restructuring, cash-basis accounting for certain tenants, unrecognized deferred rent, abatements, property dispositions and vacancies.
- Q1 2020 included $12.5 million of straight-line receivable write-offs; no comparable write-offs occurred in Q1 2021.
- Revenue from Regal was $0.6 million versus $21.4 million; AMC revenue was $23.8 million versus $20.1 million. AMC, Topgolf and Regal together represented 40.2% of Q1 2021 revenue, highlighting tenant concentration.
- The company paid down $500 million on its revolving credit facility and about $23.8 million on private placement notes during the quarter. It used cash to repay the remaining $90 million revolver balance on April 9, 2021.
- Common dividends remained suspended. Preferred dividends continued, totaling $6.0 million for the quarter.
Outlook, risks and unusual items
- No formal earnings or FFOAA guidance is provided. Management said cash on hand, operating cash flow and asset-sale proceeds were expected to meet financial commitments for the next 12 months, while noting uncertainty around the pandemic and access to future financing.
- About 96% of non-theatre locations and 71% of theatre locations were open on April 30, 2021. Management expected approximately 98% of theatres to be open by May 21, based on announced reopening plans.
- Tenants and borrowers paid approximately 72% of contractual cash revenue during Q1. The company had deferred about $57.0 million due from tenants and $2.1 million due from borrowers and collected $29.5 million of deferred rent and interest from accrual-basis customers during the quarter.
- The company remained in covenant relief periods under its credit and private placement agreements, generally through December 31, 2021 and October 1, 2021, respectively; the latter may be extended under specified conditions. Relief entails higher borrowing costs and restrictions on investments, debt, capital spending, distributions and other actions. Common dividends are restricted, subject to limited exceptions.
- Management reported covenant compliance at March 31, 2021. The filing states there were no scheduled debt payments until 2022, but refinancing and capital availability remain uncertain. A further Moody’s downgrade could require pledging certain subsidiary equity.
- Commitments include $98.9 million for 18 development projects, with about $31.7 million expected to be funded in 2021, and $23.9 million of mortgage and other note funding commitments. EPR also guaranteed approximately $18.6 million of remaining renovation costs for a lodging joint venture.
- COVID-19, customer payment capacity, especially at theatre tenants, consumer spending, covenant restrictions, tenant concentration, and collection of deferred balances are significant risks. Management reported no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether tenant collections and deferred-rent repayments improve, and whether deferred amounts not recorded as receivables are ultimately collected.
- Actual theatre reopenings and operating recovery, particularly at AMC and Regal, and the effect on rent recognition and cash receipts.
- Compliance with liquidity and other debt requirements as covenant relief periods expire, including any changes to borrowing costs or restrictions.
- Whether common dividends can resume, and when; common dividends had been suspended since May 2020.
- Funding needs and completion risks for development projects and the lodging joint-venture renovation guarantee.
- FFOAA is a non-GAAP measure; compare it with GAAP results and review the company’s calculation when assessing performance.