EPR Properties — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. EPR is a specialty REIT investing in entertainment, education and recreation properties in the U.S. and Canada. Its owned portfolio totaled 16.3 million square feet and was 99% leased.
Financial results and key metrics
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Total revenue | $99.4 million | $89.9 million |
| Net income attributable to EPR | $42.8 million | $43.5 million |
| Net income available to common shareholders | $36.9 million; diluted EPS $0.64 | $37.6 million; diluted EPS $0.71 |
| FFO per diluted share | $0.56 | $1.00 |
| FFOAA per diluted share | $1.03 | $0.94 |
| AFFO available to common shareholders | $55.6 million | $49.7 million |
| Cash from operating activities | $57.5 million | $41.5 million |
| Cash and cash equivalents at quarter-end | $102.2 million | $3.3 million at Dec. 31, 2014 |
| Total debt at quarter-end | $1.85 billion | $1.65 billion at Dec. 31, 2014 |
Revenue grew 11%, primarily reflecting recent acquisitions and developments. Common net income fell 2%; results included a $23.9 million real-estate sale gain and an $18.6 million CEO retirement charge. FFOAA increased 10% per diluted share, but is a non-GAAP measure and includes specified adjustments. GAAP operating margin is not separately presented in the filing.
Net cash used in investing was $93.2 million, including $69.2 million of development additions; financing provided $135.0 million. Common dividends were $0.908 per share. At March 31, the company reported a 42% debt-to-gross-assets ratio and $535 million available under its revolving facility; it was in compliance with debt covenants.
Material changes and unusual items
- Investment spending was $136.4 million, versus $68.5 million a year earlier, concentrated in recreation ($68.8 million) and education ($47.8 million).
- The January sale of a Los Angeles theatre generated $42.7 million net proceeds and a $23.7 million gain. Total real-estate gains were $23.9 million.
- The former CEO retired effective March 31. The $18.6 million severance expense included an expected $11.8 million cash payment and accelerated equity compensation.
- Income-tax expense rose to $8.4 million from $0.9 million, including a $7.9 million liability/asset adjustment arising from a Canadian tax examination.
- On March 16, EPR issued $300 million of 4.50% senior notes due 2025 and prepaid a $30.4 million mortgage. On April 24, after quarter-end, it expanded and extended its revolving and term loan facilities; the revolver increased to $650 million and matures in 2019, and the term loan increased to $350 million and matures in 2020.
Outlook, risks and contingencies
No specific full-year earnings or FFO guidance is provided. Management expects cash on hand, operating cash flow and revolver availability to cover operations, debt service, distributions and existing commitments. It targets debt to gross assets of 35%–45%. The company identified $65.4 million of debt balloon payments due during the remainder of 2015.
- Development funding commitments totaled approximately $245.2 million, with about $192.5 million expected to be funded in 2015. Separate mortgage-loan funding commitments totaled $143.9 million, including $25.8 million expected in 2015.
- Adelaar casino and resort development depends on licensing, financing and other contingencies. EPR reported $196.6 million invested in the project and a potential overall project investment exceeding $1 billion; it also disclosed ongoing litigation related to the development.
- AMC accounted for approximately 21% of Q1 revenue. The filing highlights tenant concentration, tenant performance, financing access, interest-rate and Canadian currency exposure as risks.
- The Cappelli Group litigation includes a claim seeking at least $800 million in damages and separate litigation seeking $500 million, potentially trebled to $1.5 billion. EPR said losses were not determined probable and that it could not estimate a reasonably possible loss range.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether FFOAA growth translates into durable operating cash flow and supports the $0.908 quarterly common dividend.
- Progress, remaining funding needs, licensing and litigation outcomes for the Adelaar project.
- Execution and tenant performance across the substantial development pipeline, including the expected funding schedule.
- Debt maturities, borrowing costs, covenant headroom and availability under the amended credit facilities.
- Exposure to AMC and the resolution or future impact of the Canadian tax examination.