EPR Properties is the leading diversified experiential net lease real estate investment trust (REIT), specializing in select enduring experiential properties in the real estate industry. EPR Properties' principal business objective is to enhance shareholder value by achieving predictable and increasing Funds From Operations As Adjusted (FFOAA) and dividends per share.
Business Overview
EPR Properties' investment portfolio includes ownership of and long-term mortgages on Experiential and Education properties. Substantially all of EPR Properties' owned single-tenant properties are leased pursuant to long-term, triple-net leases, under which the tenants typically pay all operating expenses of the property. Tenants at EPR Properties' owned multi-tenant properties are typically required to pay common area maintenance charges to reimburse EPR Properties for their pro-rata portion of these costs.
As of March 31, 2024, EPR Properties had total assets of approximately $5.7 billion (after accumulated depreciation of approximately $1.4 billion) across 44 states. EPR Properties' total investments were approximately $6.9 billion at March 31, 2024. EPR Properties' Experiential investments comprised $6.4 billion, or 93%, and its Education investments comprised $0.5 billion, or 7%, of its total investments.
Experiential Portfolio
EPR Properties' Experiential portfolio (excluding property under development and undeveloped land inventory) consisted of 165 theatre properties, 58 eat & play properties (including seven theatres located in entertainment districts), 24 attraction properties, 11 ski properties, seven experiential lodging properties, 21 fitness & wellness properties, one gaming property, and one cultural property as of March 31, 2024. The company's owned Experiential real estate portfolio consisted of approximately 19.7 million square feet, which includes 0.5 million square feet of properties it intends to sell. The Experiential portfolio, excluding the properties it intends to sell, was 99% leased and included $36.1 million in property under development and $20.2 million in undeveloped land inventory.
Education Portfolio
EPR Properties' Education portfolio consisted of 61 early childhood education center properties and nine private school properties as of March 31, 2024. The company's owned Education real estate portfolio consisted of approximately 1.3 million square feet, which includes 39 thousand square feet of properties it intends to sell. The Education portfolio, excluding the properties it intends to sell, was 100% leased.
Financials
For the full year 2023, EPR Properties reported annual net income of $173,046,000, annual revenue of $705,668,000, annual operating cash flow of $447,094,000, and annual free cash flow of $451,953,000. In the first quarter of 2024, the company reported net income of $62,709,000 and total revenue of $167,232,000.
Risks and Challenges
EPR Properties' business has been more acutely affected by the current challenging economic environment, including significant volatility and negative pressure in financial and capital markets, higher cost of capital, high inflation and other risks and uncertainties, due to the bankruptcy of Regal Cinemas, a subsidiary of Cineworld Group. Although the company intends to continue making future investments, it expects its levels of investment spending to be reduced in the near-term due to elevated costs of capital, and near-term investments will be funded primarily from cash on hand, excess cash flow, disposition proceeds and borrowing availability under its unsecured revolving credit facility, subject to maintaining its leverage levels consistent with past practice.
As of March 31, 2024, as a result of the COVID-19 pandemic, EPR Properties continues to recognize revenue on a cash basis for AMC and two other tenants, one of which has deferred rent from this period that is not booked as a receivable of approximately $11.5 million. The company collected all deferred receivables from accrual basis tenants that were deferred due to the COVID-19 pandemic. During the three months ended March 31, 2024 and 2023, EPR Properties collected $0.6 million and $6.5 million, respectively, in deferred rent and interest from cash basis customers and from customers for which the deferred payments were not previously recognized as revenue.
Recent Developments
For the three months ended March 31, 2024, EPR Properties reported Funds From Operations As Adjusted (FFOAA) of $1.13 per share, compared to $1.26 per share in the prior year period. The decrease was primarily due to a reduction in out-of-period deferral collections from cash basis customers, as well as a reduction in rental revenue related to the Regal restructuring, partially offset by the positive impact of net investment spending. Adjusted Funds From Operations (AFFO) for the quarter was $1.12 per share, compared to $1.30 per share in the prior year period.
Liquidity
EPR Properties' balance sheet remains in great shape, with consolidated debt of $2.8 billion, all of which is either fixed-rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.3%. The company had $59.5 million of cash on hand at March 31, 2024 and no balance drawn on its $1 billion unsecured revolving credit facility, positioning it well given the continued difficult backdrop of the capital markets.
Outlook
The company is confirming its previously announced 2024 FFOAA per share guidance of $4.76 to $4.96, and investment spending guidance of $200 million to $300 million. EPR Properties is also confirming the guidance it previously provided for certain other categories, including that approximately 75% to 80% of its total anticipated percentage rent is expected to be recognized in the back half of the year.
Conclusion
In summary, EPR Properties continues to demonstrate the resilience of consumer demand for its value-oriented experiential assets, despite the challenging economic environment. The company's diversified portfolio, strong balance sheet, and well-covered dividend position it well for sustainable growth going forward.