EPR Properties — Q2 2021 Form 10-Q
Business context and reporting period
EPR Properties is an experiential net-lease REIT with properties in the United States and Canada, organized into Experiential and Education segments. This filing covers the quarter and six months ended June 30, 2021. At quarter-end, the owned portfolio totaled 20.7 million square feet and was 95.4% leased; 99% of theatre locations and 98% of non-theatre locations were open, excluding normal seasonal closures.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $125.4 million | $106.4 million | $237.1 million | $257.4 million |
| Net income (loss) available to common shareholders | $12.5 million | ($69.0 million) | $9.9 million | ($37.9 million) |
| Diluted EPS | $0.17 | ($0.90) | $0.13 | ($0.49) |
| FFOAA per diluted share | $0.68 | $0.41 | $1.15 | $1.39 |
| Operating cash flow | Not provided by quarter in the filing text | Not provided by quarter in the filing text | $140.8 million | $57.4 million |
Q2 revenue increased about 18% year over year, while six-month revenue declined about 8%. Six-month rental revenue was $218.5 million, down from $232.6 million. The company reported a six-month credit-loss benefit of $5.6 million, compared with $4.7 million of credit-loss expense in 2020. FFOAA is a non-GAAP measure; six-month FFOAA per share fell about 17% year over year.
At June 30, 2021, total assets were $6.14 billion, cash and cash equivalents were $509.8 million, and debt was $3.08 billion. Debt was 99% unsecured; the $1.0 billion revolving credit facility had no balance outstanding. Net debt to gross assets was 39%. The company reported no scheduled debt maturities until 2023. Cash and cash equivalents had been $1.03 billion at December 31, 2020, reflecting substantial debt repayment during the first half.
Six-month investing cash use was $26.8 million and financing cash use was $628.6 million, including $613.8 million of debt principal payments. The company paid off the $590 million revolving-credit balance and repaid about $23.8 million of private-placement notes. It spent $68.6 million on investments, including an eat-and-play acquisition, development and redevelopment, and financing investments; property sales generated $28.6 million.
Material changes versus the prior comparable period
- Q2 revenue recovered from the prior-year quarter, chiefly as collections and rent on existing properties improved. For the first half, minimum rent remained lower, reflecting pandemic-related restructurings, cash-basis recognition, rent abatements, dispositions and vacant properties.
- Prior-year results included $51.3 million of property and right-of-use asset impairments and $3.2 million of joint-venture impairments; no such charges were recorded in the first half of 2021.
- Operating cash flow rose to $140.8 million from $57.4 million. The filing attributes cash-flow movements in part to working-capital changes, including receivables and deferred rent and interest collections.
- At June 30, approximately $50.0 million of tenant amounts and $1.9 million of borrower amounts were deferred and recorded as receivables. The company collected $45.9 million of deferred rent and interest from accrual-basis tenants and borrowers in the first half.
Outlook, management commentary and risks
- After quarter-end, EPR elected to end its COVID-related Covenant Relief Period early, effective July 13, 2021. It submitted June-quarter compliance certificates stating it was in compliance with its covenants and would have been compliant even absent the relief period. Debt pricing returned to lower contractual levels, and restrictions on investment, capital spending, borrowing and dividends were lifted.
- On July 13, 2021, the company declared a monthly common dividend of $0.25 per share, payable August 16. Common dividends had been suspended after the May 2020 payment; preferred dividends continued.
- Management said cash on hand, operating cash flow, revolver availability and asset-disposition proceeds were expected to provide adequate liquidity for the next 12 months, including debt service and shareholder distributions. It also said it expected its focus to return to growth as customer operations improved. No formal financial guidance was provided in the filing text.
- COVID-19 remained a material uncertainty, including the possibility of resurgence or variants, consumer spending weakness and tenants’ ability to recover and service elevated debt. AMC, Topgolf and Regal accounted for 20.1%, 17.7% and 5.0% of first-half revenue, respectively; revenue from AMC and Regal was recognized on a cash basis.
- Other exposures include tenant and borrower defaults, reliance on a concentrated experiential-property portfolio, refinancing and interest-rate risk, covenant requirements, and development commitments. The company had $78.6 million of commitments across 17 development projects, $24.3 million of potential mortgage- and other-note funding commitments, and $33.3 million of surety bonds outstanding.
- The company guaranteed completion of renovations for its lodging joint ventures, with approximately $10.3 million remaining to fund at quarter-end. The ventures also had an $85 million secured mortgage due April 2022, subject to extension conditions.
Important facts for investors to verify
- Whether deferred rents and amounts not recognized as receivables are ultimately collected, and how cash-basis tenant accounting affects reported revenue.
- Whether the July 2021 covenant compliance and reduced borrowing costs are sustained, and how the resumed common dividend is funded.
- Tenant recovery, particularly at AMC, Topgolf and Regal, and the effect of any renewed pandemic restrictions on collections and occupancy.
- Liquidity and refinancing capacity against development, lending and joint-venture commitments, including the 2022 joint-venture mortgage maturity.
- Trends in FFOAA, cash flow and debt leverage; FFOAA is non-GAAP and is not equivalent to cash available for distributions.