EPR Properties — Q3 2023 Form 10-Q
Business context and period. EPR Properties is a diversified experiential net-lease REIT with Experiential and Education segments. This unaudited report covers the three and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. At quarter-end, the owned portfolio was 99% leased, excluding properties intended for sale. Experiential investments represented 92% of total investments and Education 8%.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $189.4 million | $161.4 million | $533.7 million | $479.3 million |
| Net income | $56.3 million | $50.8 million | $127.5 million | $133.9 million |
| Net income available to common shareholders, diluted per share | $0.66 | $0.60 | $1.45 | $1.54 |
| FFOAA, diluted per share (non-GAAP) | $1.47 | $1.16 | $4.00 | $3.44 |
| Cash provided by operating activities | — | $370.1 million | $349.7 million |
Q3 revenue rose 17% and nine-month revenue rose 11%. Nine-month common diluted EPS fell 6%, while diluted FFOAA per share increased 16%. Nine-month GAAP net income was reduced by $64.7 million of real estate impairment charges, compared with $4.4 million a year earlier. Q3 operating income was $87.3 million, or about 46% of revenue, versus $83.4 million, or about 52%, in Q3 2022; the difference reflects, in part, new impairment charges.
Nine-month investing cash outflow was $97.0 million, compared with $271.7 million in 2022, reflecting lower investment spending. Financing cash outflow was $207.7 million, including $204.1 million of shareholder dividends. Cash and cash equivalents were $173.0 million at September 30, 2023, up from $107.9 million at year-end 2022.
Debt was $2.814 billion; 99% was unsecured. The company had no balance outstanding on its $1.0 billion revolving credit facility, which matures in October 2025, and reported compliance with debt covenants. Net debt to adjusted EBITDAre was 4.4x and debt to total assets was 49%. Approximately $136.6 million of debt is due in 2024. The common dividend was $0.825 per share for Q3 and $2.475 for the first nine months.
Material developments and outlook
- Regal restructuring: Following Regal’s emergence from Chapter 11 on July 31, EPR placed 41 theatres under a new triple-net master lease with $65 million annual base rent, increasing 10% every five years, plus potential percentage rent. The average lease term is 13 years. EPR returned 16 other properties and plans to sell the remaining ten not already sold, redeploying proceeds into non-theatre experiential properties.
- Regal deferred rent: Of approximately $56.8 million associated with master-lease properties, $50.1 million is held in abeyance and may be forgiven if Regal has no uncured default before the lease’s 15th anniversary; it becomes due if an uncured default occurs. EPR expects no material recovery of about $19.5 million related to surrendered properties.
- Impairments and other unusual items: Nine-month impairment charges of $64.7 million covered 11 properties, including eight Regal surrendered properties. EPR also recognized $11.6 million of deferred rent from former Southern theatre operations after it was paid in full.
- Investment plans and commitments: Investment spending was $135.5 million for the first nine months, down from $321.3 million in 2022. EPR expects near-term spending to remain selective because of elevated capital costs. It had 16 development projects with $199.1 million of funding commitments and four mortgage-note commitments totaling $73.5 million.
- Risks and management commentary: Management expects cash, operating cash flow, revolver availability and asset-sale proceeds to cover liquidity needs, but cautions that financing may not be available on acceptable terms. Theatre performance remains exposed to film-release and production disruptions, including the writers’ and actors’ strikes, streaming alternatives and consumer spending. Regal, Topgolf and AMC together generated 42.7% of nine-month revenue. Inflation, rising rates, tenant credit, refinancing and discretionary-demand risks remain relevant.
The supplied filing text does not provide a clear quantified full-year earnings or FFOAA guidance figure.
Key facts for investors to verify
- Regal’s rent payment performance under the new lease, and the conditions governing the $50.1 million deferred-rent balance.
- Progress, timing and proceeds from planned sales of the remaining surrendered Regal properties and the intended reinvestment of proceeds.
- Whether tenant concentration and theatre-industry disruptions affect collections, occupancy or cash-basis revenue recognition.
- Funding needs for development and mortgage commitments, refinancing of 2024 maturities, and the effect of interest rates on capital costs.
- How recurring operating performance compares with GAAP results, given the material impairment charges and the company’s use of non-GAAP FFOAA.