EPR Properties — Q1 2023 Form 10-Q
Business context and reporting period
EPR Properties is a U.S. and Canadian experiential and education real estate investment trust. This unaudited report covers the three months ended March 31, 2023, compared with the same quarter of 2022. At quarter-end, the owned portfolio was 98% leased; experiential investments represented 92% of total investments and education 8%.
Financial highlights
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $171.4 million | $157.5 million; up 9% |
| Net income | $57.7 million | $42.2 million |
| Net income available to common shareholders per diluted share | $0.69 | $0.48; up 44% |
| FFOAA per diluted share (non-GAAP) | $1.26 | $1.10; up 15% |
| Cash from operating activities | $121.5 million | $128.1 million |
| Cash used in investing activities | $61.5 million | $25.0 million |
| Cash used in financing activities | $71.5 million | $66.3 million |
Revenue growth mainly reflected higher minimum rent, including improved collections from cash-basis tenants and contributions from acquisitions and developments, plus higher mortgage and financing income. Percentage rent declined. Net income benefited from lower transaction costs and no comparable prior-year impairment charge, partly offset by higher joint-venture losses and credit-loss expense. Net interest expense decreased to $31.7 million from $33.3 million.
At March 31, 2023, total assets were $5.76 billion, debt was $2.81 billion and cash and cash equivalents were $96.4 million. Debt was 99% unsecured; the $1.0 billion revolving facility had no outstanding borrowings. The company reported a 49% debt-to-total-assets ratio, 5.0x net debt to annualized Adjusted EBITDAre, and a 39% net-debt-to-gross-assets ratio. These leverage measures are non-GAAP or management-defined metrics. Common dividends declared were $0.825 per share, versus $0.775 a year earlier.
Material changes, outlook and risks
- Management expects near-term investment spending to be lower and investments to be more selective because of elevated capital costs and economic uncertainty. It expects to fund near-term investments primarily from operating cash flow and available revolver capacity. The filing provides no specific full-year earnings or investment-spending guidance.
- Regal, which leases 57 theatres, remains in Chapter 11. Regal continued rent and deferral payments through April 2023, but lease negotiations and the outcome of potential lease assumptions or rejections remain uncertain. Regal owed approximately $82.4 million under a pandemic-related promissory note and $4.5 million for September 2022 rent at quarter-end; these amounts were not recorded as assets because revenue is recognized on a cash basis and recovery is uncertain.
- Approximately $110.1 million of amounts due from customers were not recorded as receivables because collection was not considered probable. The company collected $6.5 million in deferred rent from cash-basis customers and customers whose deferred payments had not previously been recognized as revenue during Q1.
- Three tenants—Regal, AMC and Topgolf—generated 16.8%, 13.9% and 13.8% of Q1 revenue, respectively. Theatre recovery, tenant credit, discretionary consumer spending, inflation, interest rates, capital-market access and real estate operating conditions are significant risks.
- The company had 15 development projects with approximately $200.5 million of funding commitments, including approximately $86.6 million expected in 2023, and four mortgage notes with approximately $84.0 million of potential funding commitments, including $44.9 million expected in 2023. No scheduled debt payments were due until 2024; management expects available liquidity to meet commitments, but cautions that future financing may not be available on acceptable terms.
- A mortgage-note modification included forgiveness of approximately $7.8 million of principal that had been fully reserved at year-end; the remaining note balance was $10.8 million and income from the borrower is recognized on a cash basis. The company also reported $1.985 million of equity-method losses from joint ventures, versus $0.106 million a year earlier.
Key facts for investors to verify
- Regal’s restructuring outcome, which leases it assumes or rejects, and potential recovery of deferred rent and promissory-note amounts.
- Whether cash collections and tenant credit quality support the $110.1 million of unrecorded customer amounts and the reported receivables.
- Progress, funding needs and expected returns for development and loan commitments, alongside management’s reduced near-term investment plans.
- Debt maturities beginning in 2024, floating-rate exposure, covenant compliance and continued access to the revolver or capital markets.
- How recurring cash generation compares with dividends and investment requirements; FFOAA is a non-GAAP measure and is not equivalent to operating cash flow.