EPR Properties — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. EPR is a REIT focused on experiential real estate, primarily under long-term net leases, with a smaller legacy Education portfolio. Figures below are in U.S. dollars unless stated otherwise.
Business context and portfolio
- At year-end, total investments were approximately $6.69 billion: $6.2 billion in Experiential (92%) and $0.5 billion in Education (8%). Management intends to focus growth on Experiential properties and gradually dispose of Education assets.
- The owned portfolio comprised 336 properties and approximately 21.5 million square feet, 97.4% leased. Experiential properties were 97.2% leased; Education properties were 100% leased.
- Theatres remain a major exposure: 172 theatre properties, and AMC, Topgolf and Regal generated 14.4%, 14.3% and 13.8% of 2022 total revenue, respectively.
Financial and operating performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $658.0 million | $531.7 million | +24% |
| Net income | $176.2 million | $98.6 million | +79% |
| Net income available to common shareholders | $152.1 million; $2.03 diluted/share | $74.5 million; $1.00 diluted/share | +104% per share |
| FFOAA, diluted | $4.69/share | $3.09/share | +52% |
| Cash provided by operating activities | $441.7 million | $306.9 million | +$134.8 million |
| Interest expense, net | $131.2 million | $148.1 million | -$16.9 million |
Rental revenue rose to $575.6 million from $478.9 million, principally reflecting improved collections and higher contractual rent recognized from existing properties. Other income increased to $47.4 million, including $9.1 million of sale-participation payments and higher operating income. FFOAA and other FFO measures are non-GAAP; they are not substitutes for GAAP earnings or cash flow.
Operating cash flow was $441.7 million; investing activities used $351.6 million and financing activities used $269.4 million. Cash and cash equivalents were $107.9 million at year-end, down from $288.8 million. The filing does not provide a stated operating margin guidance figure. As a simple derived measure, net income was 26.8% of revenue in 2022, versus 18.5% in 2021.
Debt, liquidity and distributions
- Debt carrying value was $2.81 billion (approximately $2.84 billion principal); 99% was unsecured. Net debt to Adjusted EBITDAre was 5.0x, versus 5.2x in 2021. The company reported compliance with debt covenants at December 31, 2022.
- The $1.0 billion unsecured revolving credit facility had no borrowings outstanding at year-end and matures in October 2025, with two six-month extension options. Cash, operating cash flow, revolver availability and asset-sale proceeds were expected to support liquidity needs.
- No scheduled debt principal payment was due in 2023; maturities include $136.6 million in 2024, $300 million in 2025, and $629.6 million in 2026. Management said it expects to repay, extend, refinance or otherwise settle maturities, but cautioned that financing availability and terms are uncertain.
- Common dividends were $3.25 per share in 2022, versus $1.50 in 2021. Preferred share dividend rates are 5.75% for Series C, 9.00% for Series E and 5.75% for Series G. Future common dividends remain subject to Board decisions, operating performance, liquidity and debt covenants.
Material changes, outlook and key risks
- Recovery and investment: Non-theatre properties showed a strong recovery, with overall rent coverage above 2019 levels. U.S. box office revenue increased about 64% from 2021 but remained approximately 35% below 2019. Investment spending rose to $402.5 million from $133.5 million in 2021, concentrated in experiential assets.
- Regal bankruptcy: Cineworld and Regal filed for Chapter 11 in September 2022. Regal leases 57 EPR theatres. Regal resumed rent and deferral payments for all leases from October 2022 through February 2023, but EPR was negotiating which properties Regal would retain and lease terms. At year-end, Regal owed approximately $87.3 million under an unsecured deferred-rent promissory note and $6.5 million for September rent; these amounts were not recorded as assets because revenue is recognized on a cash basis. Recovery is uncertain.
- Concentration and collections: AMC and Regal revenue also continued to be recognized on a cash basis. EPR disclosed approximately $116.6 million of customer amounts not recorded as receivables because full collection was not considered probable; the amounts remain customer obligations and are recognized when received. The filing describes repayment timing as varying by customer.
- Unusual items and credit: EPR recorded $27.3 million of impairment charges, including impairments tied to five early education properties with expected lease terminations, a vacant property and two Regal theatres. It also recorded $10.8 million of credit-loss expense, including reserves on a mortgage note and two notes receivable. These items partly offset improved revenue and lower interest expense.
- Near-term outlook: Management expects lower investment spending and a more selective approach because higher rates, inflation, market conditions and Regal’s bankruptcy increased its cost of capital. Near-term investments are expected to be funded mainly from operating cash flow and revolver availability. The filing provides no numerical earnings or FFOAA forecast.
- Other risks: Key exposures include discretionary consumer spending, tenant defaults, inflation and interest rates, refinancing and balloon maturities, development commitments, REIT qualification, property-level operating risks, and weather, climate, environmental and regulatory matters. The company had $205.1 million committed to 15 development projects and $85.4 million of potential mortgage-note funding commitments at year-end.
Most important facts for investors to verify
- Developments in Regal’s Chapter 11 case, lease assumptions or rejections, ongoing rent payments and potential recovery on the unsecured $87.3 million promissory note.
- Whether AMC, Topgolf and Regal maintain payment capacity, given their combined 42.5% share of 2022 revenue and EPR’s cash-basis revenue recognition for certain theatre tenants.
- Collection progress on deferred customer obligations, including the approximately $116.6 million not recorded as receivables, and any additional credit-loss provisions or impairments.
- Liquidity and refinancing plans as $1.07 billion of principal matures in 2024–2026, alongside interest-rate, covenant and cost-of-capital developments.
- Execution of the theatre-diversification strategy, the planned reduction of Education exposure, development funding commitments and the sustainability of common dividends.