EPR Properties — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. EPR is a specialty REIT investing in entertainment, education and recreation properties across the United States and Canada.
Financial performance and key metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $101.3 million | $91.8 million | $200.7 million | $181.6 million |
| Net income available to common shareholders | $42.8 million | $34.8 million | $79.7 million | $72.4 million |
| Diluted GAAP EPS | $0.75 | $0.65 | $1.39 | $1.36 |
| Diluted FFOAA per share | $1.08 | $0.97 | $2.11 | $1.91 |
| Dividends per common share | $0.908 | $0.855 | $1.815 | $1.710 |
- At June 30, total assets were $3.99 billion, debt was $1.95 billion, and total equity was $1.90 billion. Debt to gross assets was 43%, within management’s stated 35%–45% target range.
- Cash and cash equivalents were $6.1 million, plus $15.3 million of restricted cash. The company had $550 million of revolver availability at quarter-end.
- Six-month operating cash flow was $120.4 million; investing cash outflow was $286.9 million; financing cash inflow was $169.8 million. Dividends paid were $114.6 million.
- The owned portfolio comprised 16.6 million square feet and was 99% leased. Education and recreation properties were 100% leased; megaplex theatres were 100% leased.
Changes versus prior comparable periods
- Revenue rose 10% in Q2 and 11% for the first six months, mainly reflecting acquisitions and completed developments. Q2 common earnings increased 23%; six-month common earnings increased 10%.
- Six-month diluted FFOAA per share increased 10%. Growth benefited from investment spending and lower financing rates; the 2015 comparison also includes a $23.9 million property-sale gain and a $7.5 million Q2 tax benefit from reversal of a Canadian tax liability.
- Six-month results included $18.6 million of CEO retirement severance expense and $6.0 million of transaction costs, versus a $1.0 million transaction-cost benefit in the comparable 2014 period. Depreciation and amortization rose to $41.2 million from $31.3 million.
- Debt increased from $1.65 billion at December 31, 2014, alongside substantial development investment. The company issued $300 million of 4.50% senior notes due 2025 and amended and expanded its revolving and term facilities.
Outlook, management commentary and risks
- Management expects cash on hand, operating cash flow and available credit to fund operations, debt service, shareholder distributions and existing commitments. No specific earnings or FFO guidance is provided in the filing.
- Development funding commitments were approximately $218 million, with about $127.8 million expected to be funded in 2015. Separate mortgage-note commitments totaled $62.8 million, of which $36.0 million was expected to be funded in 2015. Debt balloon payments of $65.4 million were due in the remainder of 2015.
- Adelaar casino and resort development remains dependent on licensing, financing, litigation and other contingencies. EPR reported $199.6 million invested in Adelaar land and development at June 30; the potential combined project investment could exceed $1 billion.
- Tenant and portfolio concentration is material: AMC and its parent accounted for approximately 21% of six-month revenue. Four Canadian entertainment retail centers contributed approximately 9% of revenue, with currency exposure partly hedged.
- Litigation involving the Cappelli Group includes a Westchester County claim seeking at least $800 million and a separate antitrust case seeking up to $1.5 billion, among other relief. EPR said losses were not determined probable and it could not estimate a reasonably possible loss range. A favorable Sullivan County ruling was affirmed on appeal on July 30, 2015, after quarter-end; other proceedings remained pending.
- Interest-rate, refinancing, tenant-default, development, REIT qualification and real-estate market risks remain relevant. The company reported compliance with debt covenants at June 30.
Important facts for investors to verify
- How recurring operating performance compares with GAAP earnings, given the tax-liability reversal, property-sale gain, severance and transaction costs; review the company’s FFOAA and AFFO reconciliations.
- Whether Adelaar secures required gaming approvals, project financing and infrastructure funding, and how pending litigation affects timing, cost and recoverability.
- AMC tenant credit and concentration exposure, along with the performance of charter-school and recreation tenants.
- Funding and completion of development commitments, 2015 maturities, borrowing availability and leverage relative to management’s target.
- Post-quarter financing and equity activity: the company borrowed the remaining $65 million term-loan capacity and issued 580,251 common shares for $32.4 million, using proceeds to repay revolver borrowings.