PART I [Business](index=5&type=section&id=Item%201%2E%20Business) EPR Properties is a specialty REIT focused on long-term, triple-net lease investments in Entertainment, Recreation, and Education properties, with $6.9 billion in diversified assets as of December 31, 2018, aiming for predictable FFO and dividend growth - EPR Properties is a self-administered REIT with total assets of approximately **$6.1 billion** as of December 31, 2018, with investments primarily structured as long-term triple-net leases[15](index=15&type=chunk)[16](index=16&type=chunk) - The company's primary business objective is to enhance shareholder value by achieving predictable and increasing Funds From Operations (FFO) and dividends per share[55](index=55&type=chunk) Total Investments by Segment (December 31, 2018) | Segment | Investment Value | Percentage of Total | | :--- | :--- | :--- | | Entertainment | $3.0 billion | 43% | | Recreation | $2.3 billion | 33% | | Education | $1.4 billion | 21% | | Other | $194.9 million | 3% | [Entertainment Segment](index=6&type=section&id=Item%201%2E%20Business%23Entertainment) The Entertainment segment, the largest at **$3.0 billion** (43% of total investments) and 98% leased, includes 152 megaplex theatres, with **16.5% of revenue from AMC**, and supports theatre renovations - The Entertainment segment's portfolio includes 152 megaplex theatres and 7 entertainment retail centers, with a total investment of approximately **$3.0 billion**[23](index=23&type=chunk) - American Multi-Cinema, Inc. (AMC) is a significant tenant, accounting for approximately **$115.8 million**, or **16.5% of the Company's total revenues** for the year ended December 31, 2018[24](index=24&type=chunk) - The theatre industry is experiencing a trend of enhancing customer experience with luxury seating and expanded food/beverage options, which EPR supports through financing and lease extensions[25](index=25&type=chunk)[27](index=27&type=chunk) [Recreation Segment](index=7&type=section&id=Item%201%2E%20Business%23Recreation) The Recreation segment, representing **$2.3 billion** (33% of total investments) and 100% leased, features a diverse portfolio including ski properties, attractions, and 34 Topgolf complexes, utilizing both triple-net and traditional REIT lodging structures - The Recreation segment's portfolio includes investments in ski properties, attractions, and golf entertainment complexes, totaling approximately **$2.3 billion** and was **100% leased**[33](index=33&type=chunk) - The portfolio includes **34 golf entertainment complexes** leased to or under mortgage with Topgolf, which combines golf with entertainment and food/beverage services[37](index=37&type=chunk) - For recreation-anchored lodging, EPR uses both triple-net leases and traditional REIT lodging structures where operations are held in taxable REIT subsidiaries (TRSs)[38](index=38&type=chunk) [Education Segment](index=8&type=section&id=Item%201%2E%20Business%23Education) The Education segment, with **$1.4 billion** (21%) in investments and 98% leased, includes public charter schools and early education centers, where purchase or prepayment options can generate earnings volatility and termination fees - The Education segment's portfolio includes investments in public charter schools, early education centers, and private schools, totaling approximately **$1.4 billion**[40](index=40&type=chunk) - Many education lease and mortgage agreements contain purchase or prepayment options, which can create earnings volatility, with the premium over development cost from these options treated as termination fees included in FFOAA[49](index=49&type=chunk) Education Property Option Exercise Activity (2018) | Activity | Details | | :--- | :--- | | Mortgage Prepayments | Received $38.1 million on five mortgage notes, generating $3.4 million in prepayment fees | | Tenant Purchase Option | Completed sale of one public charter school for $12.0 million, recognizing a $1.9 million gain (treated as termination fee in FFOAA) | [Business Objectives and Strategies](index=10&type=section&id=Item%201%2E%20Business%23Business%20Objectives%20and%20Strategies) EPR aims to enhance shareholder value through predictable FFO and dividend growth, employing strategies focused on acquiring and developing properties in core segments, minimizing lease risk with triple-net leases, and maintaining a conservative capital structure with a target Net Debt to Adjusted EBITDA ratio of **4.6x to 5.6x** - The company's growth strategy is centered on acquiring or developing properties in its primary segments of Entertainment, Recreation, and Education, guided by five key underwriting principles: Inflection Opportunity, Enduring Value, Excellent Execution, Attractive Economics, and Advantageous Position[56](index=56&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - Operating strategies include minimizing lease-up risk with long-term, single-tenant, triple-net leases and leveraging a build-to-suit development program as a competitive advantage[60](index=60&type=chunk)[61](index=61&type=chunk)[66](index=66&type=chunk) - The company's primary capital structure measure is the ratio of net debt to adjusted EBITDA, with a target range of **4.6x to 5.6x**, relying primarily on an unsecured debt structure[71](index=71&type=chunk)[72](index=72&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A%2E%20Risk%20Factors) The company faces financial, operational, and market risks, including global economic uncertainty, reliance on consumer discretionary spending, **16.5% revenue concentration with AMC**, tenant defaults, and the need to distribute **90% of taxable income** as a REIT, limiting retained earnings - A significant financial risk is the concentration of lease revenues from a single tenant, AMC, which accounted for **16.5% of total revenues** in 2018, where a failure by AMC to perform its lease obligations could materially impact the company's ability to service debt and pay dividends[97](index=97&type=chunk)[99](index=99&type=chunk) - The company's investments are concentrated in entertainment, recreation, and education properties, making it more vulnerable to downturns in these specific industries compared to a more diversified portfolio[128](index=128&type=chunk) - The company faces risks related to tenant bankruptcies and defaults, particularly highlighted by the bankruptcy of early childhood education tenant Children's Learning Adventure (CLA) and potential criminal proceedings against a waterpark mortgagor (SVV), which could impact loan repayment[104](index=104&type=chunk)[110](index=110&type=chunk) - As a REIT, the company must distribute at least **90% of its taxable income**, limiting its ability to retain earnings for growth and requiring it to raise new capital through debt or equity markets, which may not always be available on favorable terms[125](index=125&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B%2E%20Unresolved%20Staff%20Comments) As of the Annual Report date, there are no unresolved comments from the SEC staff - There are no unresolved comments from the SEC staff[192](index=192&type=chunk) [Properties](index=32&type=section&id=Item%202%2E%20Properties) As of December 31, 2018, EPR's portfolio comprised **368 owned properties** totaling **22.2 million square feet** with **98.6% occupancy**, diversified across 42 states and Ontario, Canada, with Texas, California, and New York as top revenue states Owned Properties by Segment (as of Dec 31, 2018) | Segment | Number of Properties | Gross Square Footage | Percentage Leased | 2018 Rental Revenue (in millions) | | :--- | :--- | :--- | :--- | :--- | | Entertainment | 170 | 13,441,817 | 98.4% | $301.8 | | Recreation | 64 | 4,034,081 | 100.0% | $142.8 | | Education | 133 | 4,703,594 | 97.8% | $102.6 | | Other | 1 | — | 100.0% | $9.1 | | **Total** | **368** | **22,179,492** | **98.6%** | **$556.4** | - The company's properties are located in **42 states** and Ontario, Canada, with the top five locations by 2018 rental revenue being Texas (**14.0%**), California (**10.8%**), Florida (**7.3%**), New York (**6.3%**), and Ontario, Canada (**6.1%**)[204](index=204&type=chunk) - The portfolio has staggered lease expirations, with **37% of revenue** from the megaplex theatre portfolio, **20% of revenue** from the recreation portfolio, and **15% of revenue** from the education portfolio coming from leases expiring between 2019 and 2038+[198](index=198&type=chunk)[200](index=200&type=chunk)[202](index=202&type=chunk) [Legal Proceedings](index=38&type=section&id=Item%203%2E%20Legal%20Proceedings) The company faces ordinary course lawsuits, with the primary legal proceeding involving the Chapter 11 bankruptcy of early childhood education tenant CLA, leading to a February 2019 agreement for Crème de la Crème to take over **21 operating properties** - In December 2017, ten subsidiaries of tenant Children's Learning Adventure USA, LLC (CLA) filed for Chapter 11 bankruptcy, affecting **24 of 25 EPR properties** leased to CLA[210](index=210&type=chunk) - In February 2019, EPR entered into agreements with CLA for the transfer of assets at **21 operating properties** to a new operator, Crème de la Crème, with transfers expected to close between May 2019 and March 2020[214](index=214&type=chunk) - EPR also entered into new **20-year leases** with Crème de la Crème for all **21 operating properties**, contingent on EPR delivering possession, though the outcome and timing of the asset transfers from CLA to Crème are not assured[217](index=217&type=chunk)[218](index=218&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204%2E%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[219](index=219&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=40&type=section&id=Item%205%2E%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) EPR common shares trade on the NYSE under 'EPR', with **7,471 holders of record** as of February 27, 2019, and a **five-year cumulative return of 76.91%**, outperforming both the MSCI U.S. REIT and Russell 1000 indices - The company's common shares are listed on the NYSE under the symbol '**EPR**'[222](index=222&type=chunk) - In November 2018, **8,862 common shares** were repurchased at an average price of **$70.08 per share** in connection with employee stock option exercises[223](index=223&type=chunk) Five-Year Cumulative Total Return Comparison (2013-2018) | Index | 2013 (USD) | 2018 (USD) | Cumulative Return | | :--- | :--- | :--- | :--- | | EPR Properties | $100.00 | $176.91 | +76.91% | | MSCI U.S. REIT Index | $100.00 | $145.55 | +45.55% | | Russell 1000 Index | $100.00 | $148.37 | +48.37% | [Selected Financial Data](index=42&type=section&id=Item%206%2E%20Selected%20Financial%20Data) The company's selected financial data from 2014 to 2018 shows total revenue growth from **$385.1 million to $700.7 million**, total assets expanding from **$3.7 billion to $6.1 billion**, and cash dividends per share increasing from **$3.42 to $4.32** Selected Financial Data (2014-2018) | Metric | 2018 (in thousands, except per share) | 2017 (in thousands, except per share) | 2016 (in thousands, except per share) | 2015 (in thousands, except per share) | 2014 (in thousands, except per share) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $700,731 | $575,991 | $493,242 | $421,017 | $385,051 | | Net income available to common shareholders | $242,841 | $234,218 | $201,176 | $170,726 | $155,826 | | Diluted EPS | $3.27 | $3.29 | $3.17 | $2.93 | $2.86 | | Cash dividends declared per common share | $4.32 | $4.08 | $3.84 | $3.63 | $3.42 | | Total assets | $6,131,390 | $6,191,493 | $4,865,022 | $4,217,270 | $3,686,275 | | Debt | $2,986,054 | $3,028,827 | $2,485,625 | $1,981,920 | $1,629,750 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, total revenue increased **22% to $700.7 million**, with FFOAA per diluted share rising **22% to $6.10**, while investment spending became more selective at **$572.0 million**, maintaining a strong liquidity position and a Net Debt to Adjusted EBITDA ratio of **5.5x** Key Operating Results (2018 vs. 2017) | Metric | 2018 (in millions, except per share) | 2017 (in millions, except per share) | Change | | :--- | :--- | :--- | :--- | | Total revenue | $700.7 | $576.0 | +22% | | Net income available to common shareholders per diluted share | $3.27 | $3.29 | -1% | | FFOAA per diluted share | $6.10 | $5.02 | +22% | - Investment spending decreased significantly to **$572.0 million** in 2018 from **$1.6 billion** in 2017, as the company became more selective due to a higher cost of capital and used asset sales to fund investments[244](index=244&type=chunk) - The company's Net Debt to Adjusted EBITDA ratio was **5.5x** as of December 31, 2018, which is within its target range of **4.6x to 5.6x**[354](index=354&type=chunk) [Critical Accounting Policies](index=45&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Critical%20Accounting%20Policies) Critical accounting policies involve significant estimates and assumptions for real estate impairment, accounting for acquisitions, and allowances for doubtful accounts and mortgage note impairments, which can materially impact financial statements - Key accounting estimates involve the valuation and potential impairment of real estate, accounting for acquisitions, and reserves for uncollectible receivables[247](index=247&type=chunk) - The company assesses rental properties for impairment whenever events indicate the carrying amount may not be recoverable, comparing it to estimated future undiscounted cash flows[248](index=248&type=chunk) - For mortgage notes, an impairment is recognized when it is probable that all amounts due will not be collected, with the loss calculated by comparing the recorded investment to the discounted expected future cash flows or the fair value of the collateral[255](index=255&type=chunk) [Recent Developments](index=46&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Recent%20Developments) In 2018, the company invested **$572.0 million**, with **$384.0 million** in Recreation, received **$65.9 million** in mortgage prepayment fees, recognized **$16.5 million** in impairment charges related to CLA bankruptcy, and reached an agreement in February 2019 to transition **21 CLA schools** to a new operator Investment Spending by Segment (2018) | Segment | Investment Spending (in millions) | | :--- | :--- | | Entertainment | $87.2 | | Recreation | $384.0 | | Education | $86.9 | | Other | $13.9 | | **Total** | **$572.0** | - The company received full prepayment on a **$250.3 million mortgage note** from OZRE secured by 14 ski properties, recognizing **$65.9 million in prepayment fees**[273](index=273&type=chunk) - Following the CLA bankruptcy, CLA relinquished control of four properties under development, leading EPR to record a **$16.5 million impairment charge** as their carrying values were not recoverable[284](index=284&type=chunk) [Results of Operations](index=50&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Results%20of%20Operations) In 2018, total revenue increased by **$124.7 million** over 2017, driven by **$73.9 million** in mortgage prepayment fees and **$63.1 million** in new rental revenue, while expenses rose due to **$30.5 million** in loan refinancing costs and **$17.1 million** in impairment charges - Rental revenue increased to **$556.4 million** in 2018 from **$484.2 million** in 2017, mainly due to property acquisitions and developments[290](index=290&type=chunk) - Mortgage and other financing income rose to **$142.3 million** in 2018 from **$88.7 million** in 2017, primarily due to a **$73.9 million increase in prepayment fees** from early mortgage payoffs[292](index=292&type=chunk) - Costs associated with loan refinancing or payoff increased to **$32.0 million** in 2018 from **$1.5 million** in 2017, largely due to the redemption of the **7.75% Senior Notes due 2020**[298](index=298&type=chunk) - Impairment charges were **$27.3 million** in 2018, compared to **$10.2 million** in 2017, with the 2018 charges related to early education centers and guarantees on theatre revenue bonds[302](index=302&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Liquidity%20and%20Capital%20Resources) As of December 31, 2018, the company had **$3.0 billion** in total debt (99% unsecured) and **$970.0 million** available on its credit facility, with no debt maturities until 2022, maintaining a Net Debt to Adjusted EBITDA ratio of **5.5x** - At year-end 2018, total debt was **$3.0 billion** (**99% unsecured**) with no maturities until 2022, and the company had **$5.9 million** in cash and **$970.0 million** available under its unsecured revolving credit facility[325](index=325&type=chunk)[326](index=326&type=chunk)[349](index=349&type=chunk) - In February 2018, the company redeemed all **$250.0 million** of its **7.75% Senior Notes due 2020**, incurring a **$28.6 million premium**[336](index=336&type=chunk) - In April 2018, the company issued **$400.0 million of 4.95% senior unsecured notes due 2028**, using the proceeds to pay down its revolving credit facility[337](index=337&type=chunk) Contractual Obligations as of December 31, 2018 (in thousands) | Obligation | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Long Term Debt | $0 | $0 | $0 | $380,000 | $675,000 | $1,964,995 | $3,019,995 | | Interest on Debt | $138,524 | $138,908 | $138,908 | $131,522 | $100,588 | $271,005 | $919,455 | | Operating Leases | $23,723 | $24,092 | $24,484 | $23,963 | $23,270 | $260,104 | $379,636 | [Non-GAAP Financial Measures](index=57&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP measures like FFO and FFOAA, with **FFOAA at $460.4 million** or **$6.10 per diluted share** in 2018, a **22% increase** from 2017, and provides detailed reconciliations to GAAP figures, including a Net Debt to Adjusted EBITDA ratio of **5.5x** for Q4 2018 Reconciliation of Net Income to FFO and FFOAA (Year ended Dec 31, in thousands) | Line Item | 2018 | 2017 | | :--- | :--- | :--- | | **Net income available to common shareholders** | **$242,841** | **$234,218** | | Real estate depreciation and amortization | $152,508 | $132,040 | | Gain on sale of real estate/DFL | ($8,551) | ($41,942) | | Impairment charges | $27,283 | $2,897 | | **FFO available to common shareholders** | **$414,307** | **$327,431** | | Costs associated with loan refinancing or payoff | $31,958 | $1,549 | | Transaction costs | $3,698 | $523 | | Severance & Litigation expenses | $8,028 | $0 | | Termination fee included in gain on sale | $1,864 | $20,049 | | Other adjustments | $573 | $4,184 | | **FFOAA available to common shareholders** | **$460,428** | **$360,536** | Net Debt to Adjusted EBITDA Ratio Calculation (Q4 2018, in thousands) | Metric | Amount | | :--- | :--- | | Debt | $2,986,054 | | Less: Deferred financing costs, net | ($33,941) | | Plus: Cash and cash equivalents | ($5,872) | | **Net Debt** | **$3,014,123** | | Q4 2018 Adjusted EBITDA | $137,716 | | **Annualized Adjusted EBITDA** | **$550,864** | | **Net Debt to Adjusted EBITDA Ratio** | **5.5x** | [Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%207A%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate and foreign currency fluctuations, managed by interest rate swaps on **$350.0 million** of its **$400.0 million** variable-rate term loan through February 2022, and cross-currency swaps for Canadian property exposures - The company's primary market risks are interest rate and foreign currency exchange rate fluctuations[389](index=389&type=chunk) - To manage interest rate risk on its **$400.0 million variable-rate term loan**, the company uses interest rate swaps to fix the rate on **$350.0 million** of the debt through February 2022[389](index=389&type=chunk)[600](index=600&type=chunk) - To mitigate foreign currency risk from its Canadian properties, the company uses cross-currency swaps to hedge both CAD-denominated cash flows and its net investment in the properties[394](index=394&type=chunk)[395](index=395&type=chunk) [Financial Statements and Supplementary Data](index=69&type=section&id=Item%208%2E%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2016-2018, including the independent auditor's unqualified opinion, balance sheets, income statements, cash flow statements, and comprehensive notes and schedules - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2018[404](index=404&type=chunk) - The Consolidated Balance Sheet shows total assets of **$6.13 billion** and total liabilities of **$3.27 billion** as of December 31, 2018[415](index=415&type=chunk) - The Consolidated Statement of Income for the year ended December 31, 2018 reports total revenue of **$700.7 million** and net income available to common shareholders of **$242.8 million**[417](index=417&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=126&type=section&id=Item%209%2E%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[766](index=766&type=chunk) [Controls and Procedures](index=126&type=section&id=Item%209A%2E%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with enhancements made for new revenue and lease accounting standards - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[767](index=767&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[770](index=770&type=chunk) - Enhancements were made to internal controls to address the adoption of new accounting standards for revenue and leases[769](index=769&type=chunk)[772](index=772&type=chunk) [Other Information](index=143&type=section&id=Item%209B%2E%20Other%20Information) This item is not applicable to the company - Not applicable[774](index=774&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees](index=143&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, and principal accountant fees, is incorporated by reference from the 2019 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders[776](index=776&type=chunk)[778](index=778&type=chunk)[779](index=779&type=chunk)[780](index=780&type=chunk)[781](index=781&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=143&type=section&id=Item%2015%2E%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents, debt instruments, executive compensation plans, and Sarbanes-Oxley Act certifications - This item lists all financial statements, schedules, and exhibits filed with the Form 10-K[783](index=783&type=chunk) - Exhibits include key debt instruments such as indentures for senior notes and the company's credit agreement, as well as executive employment agreements and equity incentive plans[785](index=785&type=chunk)[786](index=786&type=chunk) - Certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act are filed as Exhibits 31.1, 31.2, 32.1, and 32.2[788](index=788&type=chunk) [Form 10-K Summary](index=147&type=section&id=Item%2016%2E%20Form%2010-K%20Summary) This item is not applicable to the company - None[791](index=791&type=chunk)