EPR PROPERTIES
For the period ended Jun 30, 2024. Filed Aug 1, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 1, 2024
EPR$59.51-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-02.
0001045450-24-000036
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-01.
0001045450-24-000059
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 109 previous paragraphs and 116 current paragraphs.
77 unchanged; 29 reworded; 9 added; 2 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 10 previous and 11 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
•161 theatre properties;
Current report
Impairment Charges
Current report
During the six months ended June 30, 2024, we reassessed the holding period of one of our theatre properties that is operated through a third-party management agreement. We determined that the carrying value of the theatre did not exceed the sum of the undiscounted cash flows and estimated the fair value of the real estate investments of this property using an independent appraisal. Accordingly, we recognized impairment charges totaling $11.8 million for the six months ended June 30, 2024.
Current report
Three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023
Current report
During the six months ended June 30, 2024, we renewed ten lease agreements on approximately 295 thousand square feet and experienced a decrease of approximately 0.5% in rental rates and paid no leasing commissions with respect to these lease renewals.
Current report
(2) The decrease in general and administrative expense for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 related primarily to a decrease in payroll and benefit costs, a decrease in franchise taxes due to a state legislative change that went into effect during the second quarter of 2024 as well as a decrease in professional fees, including those related to the comprehensive restructuring agreement with Regal in 2023.
Current report
(4) Impairment charges recognized during the three and six months ended June 30, 2024 related to one theatre property that is operated through a third-party management agreement and impairment charges recognized during the three and six months ended June 30, 2023 primarily related to eight properties surrendered by Regal not included in the new master lease.
Current report
(5) The decrease in depreciation and amortization expense for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 resulted primarily from property dispositions that occurred during 2024 and 2023. This was partially offset by acquisitions and developments completed in 2024 and 2023.
Current report
Subsequent to quarter-end, on July 3, 2024, we amended our Third Consolidated Credit Agreement, which governs our unsecured revolving credit facility, to incorporate the Canadian Overnight Repo Rate Average (CORRA) as a replacement index rate benchmark with respect to loans denominated in Canadian Dollars (CAD) as the Canadian Dollar Offered Rate (CDOR) has been phased out.
Removed paragraphs (2)
Previous report
•165 theatre properties;
Previous report
(2) Retirement and severance expense for the three months ended March 31, 2024 related primarily to the retirement of our former Executive Vice President, General Counsel and Secretary. There was no retirement and severance expense for the three months ended March 31, 2023.
Reworded paragraphs (29)
Previous wording
Historically, our primary challenges had been locating suitable properties, negotiating favorable lease or financing terms (on new or existing properties), and managing our portfolio as we continued to grow. We believe our management’s knowledge and industry relationships have facilitated opportunities for us to acquire, finance and lease properties. More recently, and as further discussed below, the challenging economic environment and a theatre tenant's bankruptcy have increased our cost of capital, which has negatively impacted our ability to make investments in the near-term. Our business is subject to a number of risks and uncertainties, including those described in Item 1A - “Risk Factors” in our 2023 Annual Report.
Current wording
Historically, our primary challenges had been locating suitable properties, negotiating favorable lease or financing terms (on new or existing properties), and managing our portfolio as we continued to grow. We believe our management’s knowledge and industry relationships have facilitated opportunities for us to acquire, finance and lease properties. More recently, and as further discussed below, the challenging economic environment has increased our cost of capital, which has negatively impacted our ability to make investments in the near-term. Our business is subject to a number of risks and uncertainties, including those described in Item 1A - “Risk Factors” in our 2023 Annual Report.
Previous wording
As of March 31, 2024, our total assets were approximately $5.7 billion (after accumulated depreciation of approximately $1.5 billion) with properties located in 44 states, Ontario and Quebec, Canada. Our total investments (a non-GAAP financial measure) were approximately $6.9 billion at March 31, 2024. See "Non-GAAP Financial Measures" for the reconciliation of "Total assets" in the consolidated balance sheet to total investments at March 31, 2024 and December 31, 2023. We group our investments into two reportable segments, Experiential and Education. As of March 31, 2024, our Experiential investments comprised $6.4 billion, or 93%, and our Education investments comprised $0.5 billion, or 7%, of our total investments.
Current wording
As of June 30, 2024, our total assets were approximately $5.6 billion (after accumulated depreciation of approximately $1.5 billion) with properties located in 44 states, Ontario and Quebec, Canada. Our total investments (a non-GAAP financial measure) were approximately $6.9 billion at June 30, 2024. See "Non-GAAP Financial Measures" for the reconciliation of "Total assets" in the consolidated balance sheet to total investments at June 30, 2024 and December 31, 2023. We group our investments into two reportable segments, Experiential and Education. As of June 30, 2024, our Experiential investments comprised $6.4 billion, or 93%, and our Education investments comprised $0.5 billion, or 7%, of our total investments.
Previous wording
As of March 31, 2024, our owned Experiential real estate portfolio consisted of approximately 19.7 million square feet, which includes 0.5 million square feet of properties we intend to sell. The Experiential portfolio, excluding the properties we intend to sell, was 99% leased and included $36.1 million in property under development and $20.2 million in undeveloped land inventory.
Current wording
As of June 30, 2024, our owned Experiential real estate portfolio consisted of approximately 19.6 million square feet, which includes 0.4 million square feet of properties we intend to sell. The Experiential portfolio, excluding the properties we intend to sell, was 99% leased and included $59.1 million in property under development and $20.2 million in undeveloped land inventory.
Previous wording
The combined owned portfolio consisted of 21.0 million square feet and was 99% leased excluding the 0.5 million square feet of properties we intend to sell.
Current wording
The combined owned portfolio consisted of 20.9 million square feet and was 99% leased excluding the 0.4 million square feet of properties we intend to sell.
Previous wording
REITs are generally experiencing heightened risks and uncertainties resulting from current challenging economic conditions, including significant volatility and negative pressure in financial and capital markets, higher cost of capital, high inflation and other risks and uncertainties associated with the current economic environment. Our business has been more acutely affected by these risks and uncertainties because of the bankruptcy of Regal Cinemas ("Regal"), a subsidiary of Cineworld Group. Although we intend to continue making future investments, we expect our 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 our unsecured revolving credit facility, subject to maintaining our leverage levels consistent with past practice. As a result, we intend to continue to be more selective in making future investments and acquisitions until such time as economic conditions improve and our cost of capital improves.
Current wording
REITs are generally experiencing heightened risks and uncertainties resulting from current challenging economic conditions, including significant volatility and negative pressure in financial and capital markets, higher cost of capital, high inflation and other risks and uncertainties associated with the current economic environment. Although we intend to continue making future investments, we expect our 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 our unsecured revolving credit facility, subject to maintaining our leverage levels consistent with past practice. As a result, we intend to continue to be more selective in making future investments and acquisitions until such time as economic conditions improve and our cost of capital improves.
Previous wording
As of March 31, 2024, as a result of the COVID-19 pandemic, we continue 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. We 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, we collected $0.6 million and $6.5 million, respect ively, in deferred rent and interest from cash basis customers and from customers for which the deferred payments were not previously recognized as revenue.
Current wording
As of June 30, 2024, as a result of the COVID-19 pandemic, we continue 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. We collected all deferred receivables from accrual basis tenants that were deferred due to the COVID-19 pandemic. During the six months ended June 30, 2024 and 2023, we collected $0.6 million and $13.8 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.
Previous wording
Our total revenue, net income available to common shareholders per diluted share and Funds From Operations As Adjusted ("FFOAA") per diluted share (a non-GAAP financial measure) are detailed below for the three months ended March 31, 2024 and 2023 (in millions, except per share information):
Current wording
Our total revenue, net income available to common shareholders per diluted share and Funds From Operations As Adjusted ("FFOAA") per diluted share (a non-GAAP financial measure) are detailed below for the three and six months ended June 30, 2024 and 2023 (in millions, except per share information):
Previous wording
The major factors impacting our results for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023 were as follows:
Current wording
The major factors impacting our results for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023 were as follows:
Previous wording
•The increase in gain on sale of real estate, provision (benefit) for credit losses, net, and equity in loss from joint ventures.
Current wording
•The increase in provision (benefit) for credit losses, net, and equity in loss from joint ventures offset by the decrease in impairment charges and general and administrative expense as well as an increase in gain on sale of real estate.
Previous wording
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, management has made its best estimates and assumptions that affect the reported assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of real estate, accounting for real estate acquisitions, assessing the collectibility of receivables and the credit loss related to mortgage and other notes receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. A summary of critical accounting policies and estimates is included in our 2023 Annual Report. For the three months ended March 31, 2024, there were no changes to critical accounting policies.
Current wording
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, management has made its best estimates and assumptions that affect the reported assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of real estate, accounting for real estate acquisitions, assessing the collectibility of receivables and the credit loss related to mortgage and other notes receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. A summary of critical accounting policies and estimates is included in our 2023 Annual Report. For the six months ended June 30, 2024, there were no changes to critical accounting policies.
Previous wording
Our investment spending during the three months ended March 31, 2024 and 2023 totaled $85.7 million and $66.5 million, respectively, and is detailed below (in thousands):
Current wording
Our investment spending during the six months ended June 30, 2024 and 2023 totaled $132.7 million and $98.7 million, respectively, and is detailed below (in thousands):
Previous wording
The above amounts include $1.0 million and $0.8 million in capitalized interest for the three months ended March 31, 2024 and 2023, respectively, and $60 thousand and $59 thousand in capitalized other general and administrative direct project costs for the three months ended March 31, 2024 and 2023, respectively. Excluded from the table above is approximately $1.4 million and $2.1 million of maintenance capital expenditures and other spending for the three months ended March 31, 2024 and 2023, respectively.
Current wording
The above amounts include $1.4 million and $1.6 million in capitalized interest for the six months ended June 30, 2024 and 2023, respectively, and $88 thousand and $103 thousand in capitalized other general and administrative direct project costs for the six months ended June 30, 2024 and 2023, respectively. Excluded from the table above is approximately $2.9 million and $5.6 million of maintenance capital expenditures and other spending for the six months ended June 30, 2024 and 2023, respectively.
Previous wording
During the three months ended March 31, 2024, we completed the sales of two cultural properties and one vacant theatre property for net proceeds totaling $46.2 million. In connection with these sales, we recognized a gain on sale totaling $17.9 million.
Current wording
During the six months ended June 30, 2024, we completed the sales of two cultural properties, four vacant theatre properties and one leased theatre property for net proceeds totaling $56.5 million. In connection with these sales, we recognized a gain on sale totaling $19.4 million.
Previous wording
(1) For the three months ended March 31, 2024 compared to the three months ended March 31, 2023, the decrease in minimum rent resulted from a decrease of $6.2 million related to the comprehensive restructuring agreement with Regal entered into on June 27, 2023, a $5.9 million decrease in deferred rental repayments from cash basis tenants, $1.4 million from property dispositions and $0.5 million in vacant properties. This decrease was partially offset by an increase in rental revenue of $2.2 million related to property acquisitions and developments completed in 2024 and 2023 and an increase in rental revenue on existing properties of $1.2 million.
Current wording
(1) For the three months ended June 30, 2024 compared to the three months ended June 30, 2023, the decrease in minimum rent resulted from a decrease of $5.2 million related to the comprehensive restructuring agreement with Regal entered into on June 27, 2023, a $7.3 million decrease in deferred rental repayments from cash basis tenants, a $1.8 million decrease from property dispositions and a $0.4 million decrease from vacant properties. This decrease was partially offset by an increase in rental revenue of $1.9 million related to property acquisitions and developments completed in 2024 and 2023 and an increase in rental revenue on existing properties of $1.8 million.
Previous wording
During the three months ended March 31, 2024, we renewed one lease agreement on approximately 65 thousand square feet and experienced an increase of approximately 2.9% in rental rates and paid no leasing commissions with respect to this lease renewal.
Current wording
During the three months ended June 30, 2024, we renewed nine lease agreements on approximately 230 thousand square feet and experienced a decrease of approximately 1.5% in rental rates and paid no leasing commissions with respect to these lease renewals.
Previous wording
(2) The increase in straight-line rent for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due primarily to straight-line rent receivable for Regal recognized during the three months ended March 31, 2024 in connection with reestablishing accrual basis accounting for Regal at August 1, 2023. Additionally, property acquisitions and developments completed in 2024 and 2023 contributed to the increase.
Current wording
(2) The increase in straight-line rent for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was due to property acquisitions and developments completed in 2024 and 2023 as well as straight-line rent receivable for Regal recognized during the three and six months ended June 30, 2024 in connection with reestablishing accrual basis accounting for Regal at August 1, 2023.
Previous wording
(3) The increase in other income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 related primarily to an increase in operating income from the addition of five operating theatre properties in the third quarter of 2023 that were previously leased by Regal.
Current wording
(3) The increase in other income for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 related primarily to an increase in operating income from the addition of five operating theatre properties in the third quarter of 2023 that were previously leased by Regal.
Previous wording
(4) The increase in mortgage and other financing income during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 related to interest income on new mortgage notes funded in 2024 and 2023 and from additional investments on existing mortgage note receivables.
Current wording
(4) The increase in mortgage and other financing income during the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 related to interest income on new mortgage notes funded in 2024 and 2023 and from additional investments on existing mortgage note receivables.
Previous wording
(1) The increase in other expense for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 related primarily to the addition of operating expense from five new theatre properties that were previously leased by Regal.
Current wording
(1) The increase in other expense for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 related primarily to the addition of operating expense from five theatre properties that were previously leased by Regal.
Previous wording
(3) The change in provision (benefit) for credit losses, net for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due primarily to a credit loss expense related to new mortgage notes funded in 2024 and 2023 and from additional investments on existing mortgage notes receivables.
Current wording
(3) The change in provision (benefit) for credit losses, net for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to credit loss expense related to new mortgage notes funded in 2024 and 2023 and changes in macro-economic factors included in our forward-looking commercial real estate forecasting tool used to estimate our current expected credit losses.
Previous wording
(4) The gain on sale of real estate for the three months ended March 31, 2024 related to the sales of two cultural properties and one vacant theatre property. The loss on sale of real estate for the three months ended March 31, 2023 related to the sale of one vacant eat & play property and a land parcel.
Current wording
(6) The gain on sale of real estate for the six months ended June 30, 2024 related to the sale of two cultural properties, four vacant theatre properties and one leased theatre property. The loss on sale of real estate for the six months ended June 30, 2023 related to the sale of one vacant eat & play property, one early childhood education center and a land parcel.
Previous wording
(5) The increase in equity in loss from joint ventures for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 related to lower revenues and higher expenses including depreciation expense at our joint ventures for the three months ended March 31, 2024.
Current wording
(7) The increase in equity in loss from joint ventures for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 related to lower revenues and higher expenses, including depreciation and interest, at our joint ventures during the six months ended June 30, 2024.
Previous wording
Cash and cash equivalents were $59.5 million at March 31, 2024. As of March 31, 2024, we had no uninsured deposits. In addition, we had restricted cash of $2.9 million at March 31, 2024, which related primarily to escrow deposits required for property management and debt agreements or held for potential acquisitions and redevelopments.
Current wording
Cash and cash equivalents were $33.7 million at June 30, 2024. As of June 30, 2024, we had no uninsured deposits. In addition, we had restricted cash of $3.0 million at June 30, 2024, which related primarily to escrow deposits required for property management and debt agreements or held for potential acquisitions and redevelopments.
Previous wording
As of March 31, 2024, we had 13 development projects with commitments to fund an aggregate of approximately $158.6 million, of which approximately $59.4 million is expected to be funded in the remainder of 2024. Development costs are advanced by us in periodic draws. If we determine that construction is not being completed in accordance with the terms of the development agreement, we may discontinue funding construction draws. We have agreed to lease the properties to the operators at pre-determined rates upon completion of construction.
Current wording
As of June 30, 2024, we had 15 development projects with commitments to fund an aggregate of approximately $161.4 million, of which approximately $63.6 million is expected to be funded in the remainder of 2024. Development costs are advanced by us in periodic draws. If we determine that construction is not being completed in accordance with the terms of the development agreement, we may discontinue funding construction draws. We have agreed to lease the properties to the operators at pre-determined rates upon completion of construction.
Previous wording
We have certain commitments related to our mortgage notes investments that we may be required to fund in the future. We are generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of our direct control. As of March 31, 2024, we had five mortgage notes with commitments totaling approximately $99.9 million, of which $49.2 million is expected to be funded in the remainder of 2024. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.
Current wording
We have certain commitments related to our mortgage notes investments that we may be required to fund in the future. We are generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of our direct control. As of June 30, 2024, we had five mortgage notes with commitments totaling approximately $85.5 million, of which $33.4 million is expected to be funded in the remainder of 2024. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.
Previous wording
In connection with construction of our development projects and related infrastructure, certain public agencies require posting of surety bonds to guarantee that our obligations will be satisfied. These bonds expire upon the completion of the improvements or infrastructure. As of March 31, 2024, we had four surety bonds outstanding totaling $2.1 million.
Current wording
In connection with construction of our development projects and related infrastructure, certain public agencies require posting of surety bonds to guarantee that our obligations will be satisfied. These bonds expire upon the completion of the improvements or infrastructure. As of June 30, 2024, we had three surety bonds outstanding totaling $0.6 million.
Previous wording
Long-term liquidity requirements consist primarily of debt maturities. We have $136.6 million of debt maturities due in August 2024. We currently believe that we will be able to repay, extend, refinance or otherwise settle our debt maturities as the debt comes due and that we will be able to fund our remaining commitments, as necessary. However, there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or advantageous to us, particularly in light of the challenging economic environment and our elevated cost of capital.
Current wording
Long-term liquidity requirements consist primarily of debt maturities. We have $136.6 million of debt maturities due August 22, 2024. We currently believe that we will be able to repay, extend, refinance or otherwise settle our debt maturities as the debt comes due and that we will be able to fund our remaining commitments, as necessary. However, there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or advantageous to us, particularly in light of the challenging economic environment and our elevated cost of capital.
Previous wording
The following table summarizes our FFO, FFOAA and AFFO including per share amounts for FFO and FFOAA, for the three months ended March 31, 2024 and 2023 and reconciles such measures to net income available to common shareholders, the most directly comparable GAAP measure (unaudited, in thousands, except per share information):
Current wording
The following table summarizes our FFO, FFOAA and AFFO including per share amounts for FFO and FFOAA, for the three and six months ended June 30, 2024 and 2023 and reconciles such measures to net income available to common shareholders, the most directly comparable GAAP measure (unaudited, in thousands, except per share information):
Previous wording
The effect of the conversion of our convertible preferred shares is calculated using the if-converted method and the conversion, which results in the most dilution is included in the computation of per share amounts. The conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares would be dilutive to FFO, FFOAA and AFFO per share for the three months ended March 31, 2024 and 2023. Therefore, the additional common shares that would result from the conversion and the corresponding add-back of the preferred dividends declared on those shares are included in the calculation of diluted FFO and FFOAA per share and would be included in a calculation of AFFO per share.
Current wording
The effect of the conversion of our convertible preferred shares is calculated using the if-converted method and the conversion, which results in the most dilution is included in the computation of per share amounts. The conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares would be dilutive to FFO, FFOAA and AFFO per share for the three and six months ended June 30, 2024 and June 30, 2023. Therefore, the additional common shares that would result from the conversion and the corresponding add-back of the preferred dividends declared on those shares are included in the calculation of diluted FFO and FFOAA per share and would be included in a calculation of AFFO per share.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
For the six months ended June 30, 2024 compared to the six months ended June 30, 2023, the decrease in minimum rent resulted from a decrease of $11.4 million related to the comprehensive restructuring agreement with Regal entered into on June 27, 2023, a $13.2 million decrease in deferred rental repayments from cash basis tenants, a $3.2 million decrease from property dispositions and a $0.9 million decrease from vacant properties. This decrease was partially offset by an increase in rental revenue of $4.1 million related to property acquisitions and developments completed in 2024 and 2023 and an increase in rental revenue on existing properties of $3.0 million.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Three months ended March 31, 2024 compared to the three months ended March 31, 2023