EPR Properties — Q1 2022 Form 10-Q
Business context and period. EPR Properties is an experiential-focused REIT with Experiential and Education segments. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021. At quarter-end, its owned portfolio was 96.3% leased; Experiential represented 91% of total investments and Education 9%.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $157.5 million | $111.8 million; up 41% |
| Net income | $42.2 million | $3.4 million |
| Net income (loss) available to common shareholders | $36.2 million; $0.48 diluted EPS | $(2.7) million; $(0.04) diluted EPS |
| FFOAA, diluted per share | $1.10 | $0.48; up 129% |
| Cash from operating activities | $128.1 million | $78.3 million |
| Cash used in investing activities | $(25.0) million | $(29.9) million |
| Cash used in financing activities | $(66.3) million | $(532.4) million |
| Cash and cash equivalents | $323.8 million at March 31 | $288.8 million at December 31, 2021 |
| Total debt | $2.806 billion | $2.804 billion at December 31, 2021 |
Rental revenue was $139.6 million, up $37.0 million year over year. Management reported segment net operating income before unallocated items of $135.4 million, versus $93.9 million. The filing does not provide a directly comparable consolidated operating-margin measure. Q1 net income included a $4.4 million real-estate impairment charge; FFOAA is a non-GAAP measure and is not a substitute for cash flow.
Debt was 99% unsecured; there was no balance on the $1.0 billion unsecured revolving credit facility, which matures in October 2025. Management reported net debt to adjusted EBITDAre of 5.1x and net debt to gross assets of 38%. No scheduled debt payments were due until 2024. The company reported compliance with debt covenants at quarter-end.
Material changes and management commentary
- Revenue growth chiefly reflected improved contractual rent collections, including from tenants previously on cash-basis accounting or receiving abatements, and the reopening of the Kartrite Resort. Acquisitions and developments also contributed; dispositions partly offset rent growth.
- Interest expense declined $5.9 million to $33.3 million, primarily due to lower average borrowings and a lower weighted-average interest rate. Other income rose to $9.3 million, mainly reflecting operated-property income after the Kartrite reopened and an insurance recovery.
- FFOAA was $83.2 million, compared with $35.6 million in Q1 2021. Common dividends declared were $0.775 per share for the quarter. Cash dividends paid to shareholders totaled $62.2 million.
- Investment spending was $24.4 million, down from $52.1 million a year earlier, and included a $19.9 million fitness and wellness property acquisition. The company had 15 development projects with about $105.2 million of funding commitments, of which about $47.4 million was expected to be funded in 2022.
Outlook, risks and unusual items
- Management said cash on hand, operating cash flow, revolver availability and asset-sale proceeds were expected to provide adequate liquidity for operations, debt service, shareholder distributions and commitments. This is an expectation, not a guarantee; the filing gives no numerical earnings or FFO guidance.
- COVID-19 remained a source of uncertainty despite no properties being closed due to restrictions at March 31. The company continued cash-basis revenue recognition for certain tenants, including AMC and Regal. About $17.4 million of deferred tenant amounts were recorded as receivables; additional amounts were not recorded because collection was not considered probable. During Q1, it collected $1.6 million of certain deferred rents and $10.2 million of deferred rent and interest from accrual-basis tenants and borrowers.
- AMC, Topgolf and Regal generated 14.9%, 14.2% and 13.5% of Q1 revenue, respectively. This concentration exposes results to tenant performance and collection risk.
- A recently vacated property was written down by $4.4 million following a purchase offer and reassessment of expected cash flows. The company also reported a fully reserved $8.6 million borrower note and ordinary-course legal claims that management did not expect to have a material aggregate effect.
- A joint venture’s $85 million mortgage, due April 1, 2022, had been temporarily extended to July 1, 2022. The company also had a completion guarantee for about $8.7 million of renovations at a Wisconsin joint venture, with $6.6 million remaining to fund at quarter-end.
- Subsequent to quarter-end, the company entered into additional Canadian-dollar hedges and settled existing cross-currency swaps for $3.8 million. Risks cited include inflation, consumer discretionary spending, interest rates, tenant defaults, refinancing and access to capital.
Important facts for investors to verify
- Whether AMC, Regal and other cash-basis tenants continue to improve collections and repay deferred amounts, and how much unrecorded deferred rent remains.
- Tenant concentration and operating performance, particularly for the three tenants contributing 42.6% of Q1 revenue combined.
- Debt covenant headroom, refinancing conditions and maturities beginning in 2024; also monitor the joint venture mortgage extension and repayment.
- Funding timing and expected returns on development commitments, mortgage commitments and the Wisconsin joint-venture completion guarantee.
- Dividend sustainability relative to recurring cash generation and capital needs; FFOAA and AFFO are non-GAAP measures and do not equal cash available for distribution.