EPR PROPERTIES The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q ofEPR Properties (the "Company", "EPR", "we" or "us"). The forward-looking statements included in this discussion and elsewhere in this Quarterly Report on Form 10-Q involve risks and uncertainties, including anticipated financial performance, anticipated liquidity and capital resources, business prospects, industry trends, shareholder returns, performance of leases by tenants, performance on loans to customers and other matters, which reflect management's best judgment based on factors currently known. See "Cautionary Statement Concerning Forward-Looking Statements" which is incorporated herein by reference. Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in Item 1A - "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 23, 2022 . Overview Business Our principal business objective is to enhance shareholder value by achieving predictable and increasing Funds From Operations As Adjusted ("FFOAA") and dividends per share. Our strategy is to focus on long-term investments in the Experiential sector which benefit from our depth of knowledge and relationships, and which we believe offer sustained performance throughout most economic cycles. Our investment portfolio includes ownership of and long-term mortgages on Experiential and Education properties. Substantially all of our 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 our owned multi-tenant properties are typically required to pay common area maintenance charges to reimburse us for their pro-rata portion of these costs. We also own certain experiential lodging assets structured using traditional REIT lodging structures. It has been our strategy to structure leases and financings to ensure a positive spread between our cost of capital and the rentals or interest paid by our tenants. We have primarily acquired or developed new properties that are pre-leased to a single tenant or multi-tenant properties that have a high occupancy rate. We have also entered into certain joint ventures and we have provided mortgage note financing. We intend to continue entering into some or all of these types of arrangements in the foreseeable future. 28 -------------------------------------------------------------------------------- Historically, our primary challenges have been locating suitable properties, negotiating favorable lease or financing terms (on new or existing properties), and managing our portfolio as we have continued to grow. We believe our management's knowledge and industry relationships have facilitated opportunities for us to acquire, finance and lease properties. Our business is subject to a number of risks and uncertainties, including those described in Item 1A - "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 23, 2022 . As ofMarch 31, 2022 , our total assets were approximately$5.8 billion (after accumulated depreciation of approximately$1.2 billion ) with properties located in 44 states andOntario, Canada . Our total investments (a non-GAAP financial measure) were approximately$6.5 billion atMarch 31, 2022 . See "Non-GAAP Financial Measures" for the calculation of total investments and reconciliation of total investments to "Total assets" in the consolidated balance sheet atMarch 31, 2022 andDecember 31, 2021 . We group our investments into two reportable segments, Experiential and Education. As ofMarch 31, 2022 , our Experiential investments comprised$5.9 billion , or 91%, and our Education investments comprised$0.6 billion , or 9%, of our total investments.
As of
•175 theatre properties;
•57 eat & play properties (including seven theatres located in entertainment districts);
•18 attraction properties;
•11 ski properties;
•eight experiential lodging properties;
•one gaming property;
•three cultural properties; and
•eight fitness & wellness properties.
As ofMarch 31, 2022 , our owned Experiential real estate portfolio consisted of approximately 19.4 million square feet, which was 96.0% leased and included$10.9 million in property under development and$20.2 million in undeveloped land inventory.
As of
•65 early childhood education center properties; and
•nine private school properties.
As of
The combined owned portfolio consisted of 20.8 million square feet and was 96.3% leased.
COVID-19 Update We continue to be subject to risks and uncertainties resulting from the COVID-19 pandemic. The COVID-19 pandemic severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. In response to the COVID-19 pandemic, many jurisdictions withinthe United States and abroad instituted health and safety measures, including quarantines, mandated business and school closures and travel restrictions. As a result, the COVID-19 pandemic severely impacted experiential real estate properties, given that such properties involve congregate social activity and discretionary consumer spending. Although many of these health and safety measures have been lifted, the extent of the impact of the COVID-19 pandemic on our business still remains highly uncertain and difficult to predict. As ofMarch 31, 2022 , we had no properties closed due to COVID-19 restrictions. The continuing impact of the COVID-19 pandemic on our business will depend on several factors, including, but not limited to, the scope, 29 -------------------------------------------------------------------------------- severity and duration or any resurgence of the pandemic (including COVID-19 variants), the actions taken to contain the outbreak or any resurgence or mitigate their impacts, the distribution and efficacy of vaccines and therapeutics, the ability of communities to achieve herd immunity, the public's confidence in the health and safety measures implemented by our tenants and borrowers, the continuing direct and indirect economic effects of the outbreak and containment measures, and the ability of our tenants and borrowers to recover from the negative economic impacts of the pandemic as it subsides and, in many cases, service elevated levels of debt resulting from the pandemic, all of which are uncertain and cannot be predicted. During 2020 and 2021, the COVID-19 pandemic negatively affected our business, and could continue to have material adverse effects on our financial condition, results of operations and cash flows. Our consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. We considered the impact of, and recovery from, the COVID-19 pandemic on the assumptions and estimates used in determining our financial condition and results of operations for the three months endedMarch 31, 2022 .
The following were impacts to our financial statements during the three months
ended
•We continued to recognize revenue on a cash basis for certain tenants includingAmerican-Multi Cinema, Inc. ("AMC") and Regal Cinemas ("Regal"), a subsidiary of Cineworld Group. •As ofMarch 31, 2022 , we have deferred amounts due from tenants of approximately$17.4 million that are booked as receivables. Additionally, we have amounts due from tenants that were not booked as receivables because the full amounts were not deemed probable of collection as a result of the COVID-19 pandemic. The amounts not booked as receivables remain obligations of the tenants and will be recognized as revenue when any such amounts are received. During the three months endedMarch 31, 2022 , we collected$1.6 million in deferred rent from cash basis tenants and from tenants for which the deferred payments were not previously recognized as revenue. In addition, during the three months endedMarch 31, 2022 , we collected$10.2 million of deferred rent and interest from accrual basis tenants and borrowers that reduced related accounts and interest receivable. The repayment terms for all of these deferments vary by tenant. While deferments for this and future periods delay rent or mortgage payments, these deferments generally do not release customers from the obligation to pay the deferred amounts in the future. Deferred rent amounts are reflected in our financial statements as accounts receivable if collection is determined to be probable or will be recognized when received as variable lease payments if collection is determined to not be probable, while deferred mortgage payments are reflected as mortgage notes and related accrued interest receivable, less any allowance for credit loss. Certain agreements with tenants where remaining lease terms are extended, or other changes are made that do not qualify for the treatment in theFinancial Accounting Standards Board ("FASB") Staff Q&A on Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, are treated as lease modifications. In these circumstances upon an executed lease modification, if the tenant is not being recognized on a cash basis, the contractual rent reflected in accounts receivable and the straight-line rent receivable will be amortized over the remaining term of the lease against rental revenue. In limited cases, tenants may be entitled to the abatement of rent during governmentally imposed prohibitions on business operations which is recognized in the period to which it relates, or we may provide rent concessions to tenants. In cases where we provide concessions to tenants to which they are not otherwise entitled, those amounts are recognized in the period in which the concession is granted unless the changes are accounted for as lease modifications. Operating Results Our total revenue, net income (loss) 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 endedMarch 31, 2022 and 2021 (in millions, except per share information): 30 --------------------------------------------------------------------------------
Three Months Ended March 31,
2022 2021 Change
Total revenue $ 157.5 $ 111.8 41 %
Net income (loss) available to common shareholders per 0.48 (0.04) 1,300 %
diluted share
FFOAA per diluted share 1.10 0.48 129 %
The major factors impacting our results for the three months ended March 31,
2022 , as compared to the three months ended March 31, 2021 were as follows:
•The increase in rental revenue due to an increase in contractual rental
payments from cash basis tenants and from tenants which were previously
receiving abatements;
•The effect of property acquisitions as well as dispositions that occurred in
2022 and 2021;
•The change in other income and other expenses primarily due to the
government-required closure of the Kartrite Resort and Indoor Waterpark in
Sullivan County, New York due to the COVID-19 pandemic in mid-March of 2020 and
the re-opening of this property in July of 2021;
•The decrease in interest expense due to the repayment of our unsecured term
loan facility and revolving credit facility as well as exiting the covenant
relief period in July of 2021 which caused higher interest rates on certain
debt;
•A decrease in equity in loss from joint ventures; and
•The increase in impairment charges, general and administrative expense and
transaction costs offset by a decrease in credit loss benefit.
For further detail on items impacting our operating results, see the section
below titled "Results of Operations". FFOAA is a non-GAAP financial measure. For
the definitions and further details on the calculations of FFOAA and certain
other non-GAAP financial measures, see the section below titled "Non-GAAP
Financial Measures."
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe 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 is included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . For the three months endedMarch 31, 2022 , there were no changes to critical accounting policies. Recent Developments Investment Spending Our investment spending during the three months endedMarch 31, 2022 and 2021 totaled$24.4 million and$52.1 million , respectively, and is detailed below (in thousands): 31 --------------------------------------------------------------------------------
Three Months Ended March 31, 2022
Mortgage Notes
Total Investment or Notes Investment in
Operating Segment Spending New Development Re-development Asset Acquisition Receivable Joint Ventures
Experiential:
Theatres $ 45 $ 5 $ 40 $ - $ - $ -
Eat & Play 2,899 2,793 106 - - -
Attractions 300 - 300 - - -
Experiential Lodging 1,256 309 299 - - 648
Cultural 5 - 5 - - -
Fitness & Wellness 19,858 - - 19,858 - -
Total Experiential 24,363 3,107 750 19,858 - 648
Education:
Total Education - - - - - -
Total Investment Spending $ 24,363 $ 3,107 $ 750 $ 19,858 $ - $ 648
Three Months Ended March 31, 2021
Mortgage Notes
Total Investment or Notes Investment in
Operating Segment Spending New Development Re-development Asset Acquisition Receivable Joint Ventures
Experiential:
Theatres $ 2,440 $ 2,382 $ 58 $ - $ - $ -
Eat & Play 30,847 4,061 111 26,675 - -
Attractions 14 - 14 - - -
Ski 1,013 - - - 1,013 -
Experiential Lodging 11,993 6,680 3,688 - - 1,625
Cultural 4,383 - 4 - 4,379 -
Fitness & Wellness 1,423 - - - 1,423 -
Total Experiential 52,113 13,123 3,875 26,675 6,815 1,625
Education:
Total Education - - - - - -
Total Investment Spending $ 52,113 $ 13,123 $ 3,875 $ 26,675 $ 6,815 $ 1,625
The above amounts include $0.2 million and $0.6 million in capitalized interest
for the three months ended March 31, 2022 and 2021, respectively, and $51
thousand and $25 thousand in capitalized other general and administrative direct
project costs for the three months ended March 31, 2022 and 2021, respectively.
Excluded from the table above is approximately $1.4 million and $0.8 million of
maintenance capital expenditures and other spending for the three months ended
March 31, 2022 and 2021, respectively.
Impairment charges
During the three months ended March 31, 2022 , we received an offer to purchase a
recently vacated property. As a result, we reassessed the expected holding
period of the property and determined that the estimated cash flows were not
sufficient to recover the carrying value of the property. Accordingly, we
recognized an impairment charge of $4.4 million on the real estate investment of
this property.
32
--------------------------------------------------------------------------------Results of Operations
Three months ended
Analysis of Revenue
The following table summarizes our total revenue (dollars in thousands):
Three Months Ended March 31,
2022 2021 Change
Minimum rent (1) $ 130,275 $ 94,190 $ 36,085
Percentage rent (2) 3,443 2,030 1,413
Straight-line rent 595 1,289 (694)
Tenant reimbursements 5,001 4,822 179
Other rental revenue 289 283 6
Total Rental Revenue $ 139,603 $ 102,614 $ 36,989
Other income (3) 9,305 678 8,627
Mortgage and other financing income 8,564 8,473 91
Total revenue $ 157,472 $ 111,765 $ 45,707
(1) For the three months ended March 31, 2022 compared to the three months ended
March 31, 2021 , the increase in minimum rent resulted primarily from an increase
of $35.1 million related to rental revenue on existing properties including
improved collections of rent being recognized on a cash basis and from tenants
which were previously receiving abatements, as well as scheduled rent increases.
In addition, there was an increase in minimum rent of $2.5 million related to
property acquisitions and developments completed in 2022 and 2021. This was
partially offset by a decrease in rental revenue of $1.5 million from property
dispositions.
During the three months ended
(2) The increase in percentage rent (amounts above base rent) for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due primarily to higher percentage rent recognized from our gaming and golf entertainment tenants as well as one cultural tenant. This increase was partially offset by less percentage rent recognized from one early childhood education center tenant due to the restructured lease having higher base rents in 2022. (3) The increase in other income for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 related primarily to an increase in operating income as a result of the re-opening of theKartrite Resort , which was previously closed due to the COVID-19 pandemic. Additionally, during the three months endedMarch 31, 2022 the increase in other income was the result of increased operating income from two theatre properties and a gain on insurance recovery. 33 --------------------------------------------------------------------------------
Analysis of Expenses and Other Line Items
The following table summarizes our expenses and other line items (dollars in
thousands):
Three Months Ended March 31,
2022 2021 Change
Property operating expense $ 13,939 $ 15,313 $ (1,374)
Other expense (1) 8,097 2,552 5,545
General and administrative expense (2) 13,224 11,336 1,888
Costs associated with loan refinancing or payoff - 241 (241)
Interest expense, net (3) 33,260 39,194 (5,934)
Transaction costs (4) 2,247 548 1,699
Credit loss benefit (5) (306) (2,762) 2,456
Impairment charges (6) 4,351 - 4,351
Depreciation and amortization 40,044 40,326 (282)
Equity in loss from joint ventures (7) (106) (1,431) 1,325
Gain on sale of real estate - 201 (201)
Income tax expense (318) (407) 89
Preferred dividend requirements (6,033) (6,034) 1
(1) The increase in other expense for the three months ended
(2) The increase in general and administrative expense for the three months
ended
(3) The decrease in interest expense, net for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , resulted primarily from a decrease in average borrowings and a decrease in the weighted average interest rate on outstanding debt.
(4) The increase in transaction costs for the three months ended
(5) The change in credit loss benefit for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to a change in the credit loss model related to the expected timing of the economic recovery from the impacts of the COVID-19 pandemic.
(6) Impairment charges recognized during the three months ended
(7) The decrease in equity in loss from joint ventures related primarily to more income recognized at two experiential lodging properties located inSt. Petersburg, Florida . This was partially offset by losses recognized at our experiential lodging property located inWarrens, Wisconsin which was acquired in August of 2021.
Liquidity and Capital Resources
Cash and cash equivalents were$323.8 million atMarch 31, 2022 . In addition, we had restricted cash of$3.0 million atMarch 31, 2022 . Of the restricted cash atMarch 31, 2022 ,$1.9 million related to cash held for our tenants' off-season rent reserves and$1.1 million related to escrow deposits required for property management agreements or held for potential acquisitions and redevelopments. 34 --------------------------------------------------------------------------------
Mortgage Debt, Senior Notes and Unsecured Revolving Credit Facility
At
AtMarch 31, 2022 , we had outstanding$2.5 billion in aggregate principal amount of unsecured senior notes (excluding the private placement notes discussed below) ranging in interest rates from 3.60% to 4.95%. The notes contain various covenants, including: (i) a limitation on incurrence of any debt that would cause the ratio of our debt to adjusted total assets to exceed 60%; (ii) a limitation on incurrence of any secured debt that would cause the ratio of secured debt to adjusted total assets to exceed 40%; (iii) a limitation on incurrence of any debt that would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of our total unencumbered assets such that they are not less than 150% of our outstanding unsecured debt. AtMarch 31, 2022 , we had no outstanding balance under our$1.0 billion unsecured revolving credit facility. Our unsecured revolving credit facility is governed by the terms of a Third Amended, Restated and Consolidated Credit Agreement, dated as ofOctober 6, 2021 (the "Third Consolidated Credit Agreement"). The facility will mature onOctober 6, 2025 . We have two options to extend the maturity date of the facility by an additional six months each (for a total of 12 months), subject to paying additional fees and the absence of any default. The facility provides for an initial maximum principal amount of borrowing availability of$1.0 billion with an "accordion" feature under which we may increase the total maximum principal amount available by$1.0 billion , to a total of$2.0 billion , subject to lender consent. The unsecured revolving credit facility bears interest at a floating rate of LIBOR plus 1.20% (based on our unsecured debt ratings and with a LIBOR floor of zero), which was 1.66% atMarch 31, 2022 . Additionally, the facility fee on the revolving credit facility is 0.25%. AtMarch 31, 2022 , we had outstanding$316.2 million of senior unsecured notes that were issued in a private placement transaction. The private placement notes were issued in two tranches with$148.0 million dueAugust 22, 2024 , and$192.0 million dueAugust 22, 2026 . AtMarch 31, 2022 , the interest rates for the private placement notes were 4.35% and 4.56% for the Series A notes due 2024 and the Series B notes due 2026, respectively. OnJanuary 14, 2022 , we amended the note purchase agreement governing our private placement notes (the "Note Purchase Agreement") to, among other things: (i) amend certain financial and other covenants and provisions in the Note Purchase Agreement to conform generally to the changes beneficial to us in the corresponding covenants and provisions contained in the Third Consolidated Credit Agreement, and (ii) amend certain financial and other covenants and provisions in the existing Note Purchase Agreement to reflect the prior termination of the Covenant Relief Period (as defined in the existing Note Purchase Agreement) and removal of related provisions. Our unsecured revolving credit facility and the private placement notes contain financial covenants or restrictions that limit our levels of consolidated debt, secured debt, investments outside certain categories, stock repurchases and dividend distributions and require us to maintain a minimum consolidated tangible net worth and meet certain coverage levels for fixed charges and debt service. Additionally, these debt instruments contain cross-default provisions if we default under other indebtedness exceeding certain amounts. Those cross-default thresholds vary from$50.0 million to$75.0 million , depending upon the debt instrument. We were in compliance with all financial and other covenants under our debt instruments atMarch 31, 2022 . Our principal investing activities are acquiring, developing and financing Experiential and Education properties. These investing activities have generally been financed with senior unsecured notes, as well as the proceeds from equity offerings. Our unsecured revolving credit facility is also used to finance the acquisition or development of properties, and to provide mortgage financing. We have and expect to continue to issue debt securities in public or private offerings. We have and may in the future assume mortgage debt in connection with property acquisitions or incur new mortgage debt on existing properties. We may also issue equity securities in connection with acquisitions. Continued growth of our real estate investments and mortgage financing portfolios will depend in part on our continued ability to access funds through additional borrowings and securities offerings and, to a lesser extent, our ability to assume debt in connection with property acquisitions. We may also fund investments with the proceeds from asset dispositions. 35 -------------------------------------------------------------------------------- Liquidity Requirements Short-term liquidity requirements consist primarily of normal recurring corporate operating expenses, debt service requirements and distributions to shareholders. We have historically met these requirements primarily through cash provided by operating activities. The table below summarizes our cash flows (dollars in thousands): Three Months EndedMarch 31, 2022 2021
Net cash provided by operating activities
Net cash used by investing activities (25,035)
(29,894)
Net cash used by financing activities (66,293)
(532,435)
As previously disclosed, we have agreed to rent and mortgage payment deferral arrangements with most of our customers as a result of the COVID-19 pandemic. Under these deferral arrangements, our customers are required to resume rent and mortgage payments at negotiated times, and begin repaying deferred amount under negotiated schedules. In addition, the continuing impact of the COVID-19 pandemic may result in further extensions or adjustments for our customers, which we cannot predict at this time.
Commitments
As ofMarch 31, 2022 , we had 15 development projects with commitments to fund an aggregate of approximately$105.2 million , of which approximately$47.4 million is expected to be funded in 2022. 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 can discontinue funding construction draws. We have agreed to lease the properties to the operators at pre-determined rates upon completion of construction. We have certain commitments related to our mortgage notes and notes receivable 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 ofMarch 31, 2022 , we had two mortgage notes with commitments totaling approximately$11.8 million of which approximately$5.1 million is expected to be funded in 2022. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.
In connection with construction of our development projects and related
infrastructure, certain public agencies require posting of surety bonds to
guarantee that our obligations are satisfied. These bonds expire upon the
completion of the improvements or infrastructure. As of
Liquidity Analysis
We currently anticipate that our cash on hand, cash from operations, funds
available under our unsecured revolving credit facility and proceeds from asset
dispositions will provide adequate liquidity to meet our financial commitments,
including to fund our operations, make recurring debt service payments, and
allow distributions to our shareholders and avoid corporate level federal income
or excise tax in accordance with REIT Internal Revenue Code requirements.
Long-term liquidity requirements consist primarily of maturities of debt. We
have no scheduled debt payments due until 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 continuing economic uncertainty
caused by the COVID-19 pandemic.
Our primary use of cash after paying operating expenses, debt service,
distributions to shareholders and funding existing commitments is in growing our
investment portfolio through the acquisition, development and financing of
additional properties. We expect to finance these investments with borrowings
under our unsecured revolving credit facility as well as debt and equity
financing alternatives or proceeds from asset dispositions. The availability and
36
--------------------------------------------------------------------------------terms of any such financing or sales will depend upon market and other conditions. If we borrow the maximum amount available under our unsecured revolving credit facility, there can be no assurance that we will be able to obtain additional or substitute investment financing. We may also assume mortgage debt in connection with property acquisitions.
Capital Structure We believe that our shareholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet as measured primarily by our net debt to adjusted EBITDAre ratio (see "Non-GAAP Financial Measures" for definitions). We also seek to maintain conservative interest, fixed charge, debt service coverage and net debt to gross asset ratios. Our net debt to adjusted EBITDAre ratio was 5.1x and our net debt to gross assets ratio was 38% as ofMarch 31, 2022 (see "Non-GAAP Financial Measures" for calculation).
Non-GAAP Financial Measures
Funds From Operations (FFO), Funds From Operations As Adjusted (FFOAA) and Adjusted Funds From Operations (AFFO)The National Association of Real Estate Investment Trusts ("NAREIT") developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. Pursuant to the definition of FFO by theBoard of Governors of NAREIT, we calculate FFO as net income (loss) available to common shareholders, computed in accordance with GAAP, excluding gains and losses from disposition of real estate and impairment losses on real estate, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships, joint ventures and other affiliates. Adjustments for unconsolidated partnerships, joint ventures and other affiliates are calculated to reflect FFO on the same basis. We have calculated FFO for all periods presented in accordance with this definition. In addition to FFO, we present FFOAA and AFFO. FFOAA is presented by adding to FFO costs associated with loan refinancing or payoff, transaction costs, severance expense, preferred share redemption costs, impairment of operating lease right-of-use assets and credit loss (benefit) expense and subtracting gain on insurance recovery and deferred income tax (benefit) expense. AFFO is presented by adding to FFOAA non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense to management and Trustees and amortization of above and below market leases, net and tenant allowances; and subtracting maintenance capital expenditures (including second generation tenant improvements and leasing commissions), straight-lined rental revenue (removing the impact of straight-line ground sublease expense), and the non-cash portion of mortgage and other financing income. FFO, FFOAA and AFFO are widely used measures of the operating performance of real estate companies and are provided here as supplemental measures to GAAP net income (loss) available to common shareholders and earnings per share, and management provides FFO, FFOAA and AFFO herein because it believes this information is useful to investors in this regard. FFO, FFOAA and AFFO are non-GAAP financial measures. FFO, FFOAA and AFFO do not represent cash flows from operations as defined by GAAP and are not indicative that cash flows are adequate to fund all cash needs and are not to be considered alternatives to net income or any other GAAP measure as a measurement of the results of our operations or our cash flows or liquidity as defined by GAAP. It should also be noted that not all REITs calculate FFO, FFOAA and AFFO the same way so comparisons with other REITs may not be meaningful.
The following table summarizes our FFO, FFOAA and AFFO including per share
amounts for FFO and FFOAA, for the three months ended
37
--------------------------------------------------------------------------------
Three Months Ended March 31,
2022 2021
FFO:
Net income (loss) available to common shareholders of
36,159 $ (2,654)
Gain on sale of real estate - (201)
Impairment of real estate investments, net 4,351 -
Real estate depreciation and amortization 39,827 40,109
Allocated share of joint venture depreciation 1,487 354
FFO available to common shareholders of EPR Properties $
81,824
FFO available to common shareholders of EPR Properties$ 81,824 $ 37,608 Add: Preferred dividends for Series C preferred shares 1,938 - Add: Preferred dividends for Series E preferred shares 1,939 - Diluted FFO available to common shareholders of EPR Properties $
85,701
FFOAA:
FFO available to common shareholders of EPR Properties$ 81,824 $ 37,608 Costs associated with loan refinancing or payoff - 241 Transaction costs 2,247 548 Credit loss benefit (306) (2,762) Gain on insurance recovery (included in other income) (552) (30) FFOAA available to common shareholders of EPR Properties $
83,213
FFOAA available to common shareholders of EPR Properties$ 83,213 $ 35,605 Add: Preferred dividends for Series C preferred shares 1,938 - Add: Preferred dividends for Series E preferred shares 1,939 -
Diluted FFOAA available to common shareholders of
87,090
AFFO:
FFOAA available to common shareholders of EPR Properties$ 83,213 $ 35,605 Non-real estate depreciation and amortization 217 217 Deferred financing fees amortization 2,071 1,547 Share-based compensation expense to management and trustees 4,245 3,784 Amortization of above and below market leases, net and tenant allowances (87) (96) Maintenance capital expenditures (1) (1,351) (756) Straight-lined rental revenue (595) (1,288) Straight-lined ground sublease expense 248 84 Non-cash portion of mortgage and other financing income (116) (171) AFFO available to common shareholders of EPR Properties $
87,845
AFFO available to common shareholders of EPR Properties$ 87,845 $ 38,926 Add: Preferred dividends for Series C preferred shares 1,938 - Add: Preferred dividends for Series E preferred shares 1,939 -
Diluted AFFO available to common shareholders of
91,722 $ 38,926
FFO per common share:
Basic $ 1.09 $ 0.50
Diluted 1.09 0.50
FFOAA per common share:
Basic $ 1.11 $ 0.48
Diluted 1.10 0.48
Shares used for computation (in thousands):
Basic 74,843 74,627
Diluted 75,047 74,669
38--------------------------------------------------------------------------------
Three Months Ended
2022 2021
Weighted average shares outstanding-diluted EPS 75,047 74,669
Effect of dilutive Series C preferred shares 2,241 -
Effect of dilutive Series E preferred shares 1,664 -
Adjusted weighted average shares outstanding-diluted Series C and Series E
78,952 74,669
Other financial information:
Dividends per common share $ 0.7750 $ -
(1) Includes maintenance capital expenditures and certain second-generation tenant improvements and leasing commissions.
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 additional common shares that would result from the conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares for the three months endedMarch 31, 2021 , and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted FFO, FFOAA and AFFO per share because the effect is anti-dilutive. 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 endedMarch 31, 2022 . 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, FFOAA and AFFO per share. Net Debt Net Debt represents debt (reported in accordance with GAAP) adjusted to exclude deferred financing costs, net and reduced for cash and cash equivalents. By excluding deferred financing costs, net and reducing debt for cash and cash equivalents on hand, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition. Our method of calculating Net Debt may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Gross Assets Gross Assets represents total assets (reported in accordance with GAAP) adjusted to exclude accumulated depreciation and reduced for cash and cash equivalents. By excluding accumulated depreciation and reducing cash and cash equivalents, the result provides an estimate of the investment made by us. We believe that investors commonly use versions of this calculation in a similar manner. Our method of calculating Gross Assets may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Net Debt to Gross Assets Ratio Net Debt to Gross Assets Ratio is a supplemental measure derived from non-GAAP financial measures that we use to evaluate capital structure and the magnitude of debt to gross assets. We believe that investors commonly use versions of this ratio in a similar manner. Our method of calculating the Net Debt to Gross Assets Ratio may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
EBITDAre
NAREIT developed EBITDAre as a relative non-GAAP financial measure of REITs, independent of a company's capital structure, to provide a uniform basis to measure the enterprise value of a company. Pursuant to the definition of EBITDAre by theBoard of Governors of NAREIT, we calculate EBITDAre as net income (loss), computed in accordance with GAAP, excluding interest expense (net), income tax (benefit) expense, depreciation and amortization, gains and losses from disposition of real estate, impairment losses on real estate, costs associated with loan refinancing or payoff and adjustments for unconsolidated partnerships, joint ventures and other affiliates. 39 -------------------------------------------------------------------------------- Management provides EBITDAre herein because it believes this information is useful to investors as a supplemental performance measure as it can help facilitate comparisons of operating performance between periods and with other REITs. Our method of calculating EBITDAre may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. EBITDAre is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered an alternative to net income or any other GAAP measure as a measurement of the results of our operations or cash flows or liquidity as defined by GAAP. Adjusted EBITDAre Management uses Adjusted EBITDAre in its analysis of the performance of the business and operations of the Company. Management believes Adjusted EBITDAre is useful to investors because it excludes various items that management believes are not indicative of operating performance, and that it is an informative measure to use in computing various financial ratios to evaluate the Company. We define Adjusted EBITDAre as EBITDAre (defined above) for the quarter excluding gain on insurance recovery, severance expense, credit loss (benefit) expense, transaction costs, impairment losses on operating lease right-of-use assets and prepayment fees. Our method of calculating Adjusted EBITDAre may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Adjusted EBITDAre is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered as an alternative to net income or any other GAAP measure as a measurement of the results of our operations or cash flows or liquidity as defined by GAAP. Net Debt to Adjusted EBITDAre Ratio Net Debt to Adjusted EBITDAre Ratio is a supplemental measure derived from non-GAAP financial measures that we use to evaluate our capital structure and the magnitude of our debt against our operating performance. We believe that investors commonly use versions of this ratio in a similar manner. In addition, financial institutions use versions of this ratio in connection with debt agreements to set pricing and covenant limitations. Our method of calculating the Net Debt to Adjusted EBITDAre Ratio may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Reconciliations of debt, total assets and net income (loss) (all reported in accordance with GAAP) to Net Debt, Gross Assets, Net Debt to Gross Assets Ratio, EBITDAre, Adjusted EBITDAre and Net Debt to Adjusted EBITDAre Ratio (each of which is a non-GAAP financial measure), as applicable, are included in the following tables (unaudited, in thousands): March 31, 2022 2021 Net Debt: Debt$ 2,805,853 $ 3,171,193 Deferred financing costs, net 35,376 35,036 Cash and cash equivalents (323,761) (538,077) Net Debt$ 2,517,468 $ 2,668,152 Gross Assets: Total Assets$ 5,818,070 $ 6,208,102 Accumulated depreciation 1,206,317 1,101,727 Cash and cash equivalents (323,761) (538,077) Gross Assets$ 6,700,626 $ 6,771,752 Net Debt to Gross Assets Ratio 38 % 39 % 40 -------------------------------------------------------------------------------- Three
Months Ended
2022 2021
EBITDAre and Adjusted EBITDAre:
Net income $ 42,192 $ 3,380
Interest expense, net 33,260 39,194
Income tax expense 318 407
Depreciation and amortization 40,044 40,326
Gain on sale of real estate - (201)
Impairment of real estate investments, net 4,351 -
Costs associated with loan refinancing or payoff - 241
Allocated share of joint venture depreciation 1,487 354
Allocated share of joint venture interest expense 1,121 789
EBITDAre $ 122,773 $ 84,490
Gain on insurance recovery (1) (552) (30)
Transaction costs 2,247 548
Credit loss benefit (306) (2,762)
Adjusted EBITDAre (for the quarter) $
124,162
Adjusted EBITDAre (2)$ 496,648 Footnote 3 Net Debt/Adjusted EBITDAre Ratio 5.1 Footnote 3
(1) Included in "Other income" in the consolidated statements of (loss) income and comprehensive income for the quarter. Other income includes the following:
Three
Months Ended
2022 2021
Income from settlement of foreign currency swap contracts $ 45 $ 52 Gain on insurance recovery
552 30
Operating income from operated properties 8,648 295
Miscellaneous income 60 301
Other income $ 9,305 $ 678
(2) Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount.
(3) Not presented as ratio is not meaningful given the disruption caused by COVID-19 and the
associated accounting for tenant rent deferrals and other lease modifications.
41
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Total Investments
Total investments is a non-GAAP financial measure defined as the sum of the
carrying values of real estate investments (before accumulated depreciation),
land held for development, property under development, mortgage notes receivable
(including related accrued interest receivable), investment in joint ventures,
intangible assets, gross (before accumulated amortization and included in other
assets) and notes receivable and related accrued interest receivable, net
(included in other assets). Total investments is a useful measure for management
and investors as it illustrates across which asset categories the Company's
funds have been invested. Our method of calculating total investments may be
different from methods used by other REITs and, accordingly, may not be
comparable to such other REITs. A reconciliation of total investments to total
assets (computed in accordance with GAAP) is included in the following table
(unaudited, in thousands):
March 31, 2022 December 31, 2021
Total Investments:
Real estate investments, net of accumulated depreciation $ 4,738,887 $ 4,713,091
Add back accumulated depreciation on real estate
investments 1,206,317 1,167,734
Land held for development 20,168 20,168
Property under development 10,885 42,362
Mortgage notes and related accrued interest receivable 370,021 370,159
Investment in joint ventures 36,564 36,670
Intangible assets, gross (1) 60,109 57,962
Notes receivable and related accrued interest receivable,
net (1) 7,222 7,254
Total investments $ 6,450,173 $ 6,415,400
Total investments $ 6,450,173 $ 6,415,400
Operating lease right-of-use assets 177,174 180,808
Cash and cash equivalents 323,761 288,822
Restricted cash 2,956 1,079
Accounts receivable 60,704 78,073Less: accumulated depreciation on real estate investments (1,206,317)
(1,167,734)
Less: accumulated amortization on intangible assets (1) (20,976) (20,163)
Prepaid expenses and other current assets (1) 30,595 24,865
Total assets $
5,818,070
(1) Included in "Other assets" in the accompanying consolidated balance sheet. Other assets include the following:
March 31, 2022 December 31, 2021
Intangible assets, gross $ 60,109 $ 57,962
Less: accumulated amortization on intangible assets (20,976) (20,163)
Notes receivable and related accrued interest receivable, net
7,222 7,254
Prepaid expenses and other current assets 30,595 24,865
Total other assets $ 76,950 $ 69,918
Impact of Recently Issued Accounting Standards
See Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on the impact of recently issued accounting standards on our business.
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