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EPR Properties (NYSE:EPR) Q4 2024 Earnings Conference Call February 27, 2025 8:30 AM ET Company Participants Brian Moriarty - SVP of Corporate Communications Greg Silvers - Chairman and CEO Greg Zimmerman - EVP and CIO Mark Peterson - EVP and CFO Conference Call Participants Rob Stevenson - Janney Montgomery Scott Anthony Paolone - JPMorgan Bennett Rose - Citi Michael Goldsmith - UBS Michael Carroll - RBC Capital Markets Upal Rana - KeyBanc Capital Markets Operator Hello, and welcome to the EPR Properties Q ...

Investment Strategy - Total investments as of December 31, 2024, were approximately $6.9 billion, with Experiential investments comprising $6.4 billion (93%) and Education investments comprising $0.5 billion (7%) of total investments[28]. - The company intends to significantly reduce investments in theatres and diversify into other experiential property types[38]. - The company plans to continue pursuing opportunities in experiential lodging, fitness & wellness, and cultural investments to enhance shareholder value[60][61]. - The growth strategy focuses on acquiring or developing a diversified portfolio of experiential real estate venues that facilitate out-of-home leisure and recreation experiences[62]. - The company plans to be more selective in investments and acquisitions due to elevated interest rates and inflation impacting the cost of capital[65]. - The company aims to diversify its asset base by property type, geographic location, and customer, targeting experiential business operators[74]. - The company will explore joint venture opportunities with institutional investors or developers that align with its investment principles[80]. Real Estate Portfolio - The wholly-owned Experiential real estate portfolio consisted of approximately 18.8 million square feet, with 99% leased or operated, excluding 0.3 million square feet of vacant properties intended for sale[31]. - The wholly-owned Education real estate portfolio consisted of approximately 1.2 million square feet, with 100% leased, excluding 13 thousand square feet of a vacant property intended for sale[57]. - The company intends to continue developing and redeveloping properties consistent with growth strategies, requiring signed leases or significant pre-leasing before construction[70]. - The company typically acquires or develops single-tenant properties under long-term leases to minimize lease-up risks and ensure predictable income streams[66]. - The company structures leases on a triple-net basis, allowing tenants to bear financial and operational responsibilities, with periodic rent increases based on gross sales[67]. Financial Performance - Total North American box office revenues for 2024 were down approximately 4% compared to 2023, but theatre rent coverage levels were near pre-COVID levels despite the decrease in box office revenue[32]. - Approximately $94.4 million (13.5%) of total revenue for the year ended December 31, 2024, was from AMC, and $76.4 million (10.9%) was from Regal tenants[39]. - The investment in golf entertainment complexes, specifically Topgolf, contributed approximately $100.8 million (14.4%) to total revenue for the year ended December 31, 2024[41]. Capital Structure and Debt Management - As of December 31, 2024, the company had a $1.0 billion unsecured revolving credit facility with $175.0 million outstanding, and a $25.0 million bond fixed through an interest rate swap[304]. - The company is focused on maintaining a conservative capital structure, seeking to keep a low net debt to adjusted EBITDA ratio[76]. - As of December 31, 2024, the total fixed rate debt amounts to $2,704.6 million with an average interest rate of 4.32%[308]. - The fair value of fixed rate debt decreased from $2,606.8 million in 2023 to $2,590.3 million in 2024[310]. - The estimated fair value of total debt as of December 31, 2024, is $2,590.3 million, reflecting the company's ongoing management of interest rate and foreign currency risks[310]. Risk Management - The company is exposed to market risks related to interest rates and foreign currency exchange rates, actively seeking to mitigate these risks[304]. - The company has entered into an interest rate swap agreement with a notional amount of $25.0 million, capping the variable interest rate at 2.5325% until September 30, 2026[311]. - The company has six USD-CAD cross-currency swaps effective October 1, 2024, with a total notional value of $170.0 million CAD and $125.0 million USD, locking in an exchange rate of $1.35 CAD per USD[313]. - Two additional USD-CAD cross-currency swaps effective December 1, 2024, have a total notional value of $90.0 million CAD and $66.2 million USD, also locking in an exchange rate of $1.35 CAD per USD[314]. - The company entered into two forward contracts with a fixed notional value of $200.0 million CAD and $142.8 million USD, with an exchange rate of approximately $1.40 CAD per USD, effective December 19, 2024[315]. - A forward contract with a notional value of $90.0 million CAD and $64.3 million USD was also established, effective December 19, 2024, at an exchange rate of approximately $1.40 CAD per USD[316]. - The company terminated previous CAD to USD forward contracts on December 19, 2024, receiving $10.4 million from the settlement[317]. - Changes in the fair value of foreign currency derivatives designated as net investment hedges are reported in AOCI, impacting earnings when the hedged net investment is sold or liquidated[318]. Dividend Policy - The company expects to continue paying monthly dividends to common shareholders and quarterly dividends to preferred shareholders, with specific rates for different series of preferred shares[81][82].

Core Insights - EPR Properties reported revenue of $149.12 million for Q4 2024, a year-over-year increase of 0.3% and a surprise of +0.70% over the Zacks Consensus Estimate of $148.08 million [1] - The company achieved an EPS of $1.22, compared to $0.52 a year ago, with an EPS surprise of +0.83% against the consensus estimate of $1.21 [1] Revenue Breakdown - Rental revenue was $149.12 million, exceeding the three-analyst average estimate of $148.08 million, reflecting a year-over-year change of +0.3% [4] - Mortgage and other financing income reached $14.92 million, slightly above the estimated $14.86 million, marking a significant year-over-year increase of +33.5% [4] - Other income amounted to $13.20 million, surpassing the estimated $13.12 million, with a year-over-year change of +9.4% [4] Stock Performance - EPR Properties' shares returned +8% over the past month, contrasting with the Zacks S&P 500 composite's decline of -2.3% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Viewpoint - EPR Properties reported quarterly funds from operations (FFO) of $1.22 per share, exceeding the Zacks Consensus Estimate of $1.21 per share, and showing an increase from $1.16 per share a year ago [1] Financial Performance - The company achieved revenues of $149.12 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.70% and slightly up from $148.74 million year-over-year [2] - Over the last four quarters, EPR Properties has exceeded consensus FFO estimates two times and revenue estimates three times [2] Stock Performance - EPR Properties shares have increased approximately 14.7% since the beginning of the year, significantly outperforming the S&P 500's gain of 1.3% [3] Future Outlook - The future performance of EPR Properties' stock will largely depend on management's commentary during the earnings call and the company's FFO outlook [4][6] - Current consensus FFO estimate for the upcoming quarter is $1.15 on revenues of $144.7 million, and for the current fiscal year, it is $4.96 on revenues of $595.82 million [7] Industry Context - The REIT and Equity Trust - Retail industry, to which EPR Properties belongs, is currently ranked in the top 32% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8]

Core Insights - EPR Properties exceeded Q4 2024 earnings expectations with adjusted funds from operations (AFFO) of $1.22 per share, significantly higher than the estimated $0.64, and revenue of $177.23 million, surpassing the predicted $144 million [2][4] - Despite strong performance, the company reported a net loss of $14.44 million, primarily due to ongoing challenges related to its theater investments, which still account for approximately 28.1% of revenue [2][8] Business Overview - EPR Properties focuses on experiential real estate investments, diversifying into leisure venues such as eat & play facilities, ski resorts, and cultural sites, with 93% of its portfolio now dedicated to these experiential investments [5] - The company is strategically distancing itself from traditional theater properties due to declining appeal and revenue stability [5] Financial Performance - Q4 2024 revenue was 22.9% above forecasts, driven by strong consumer demand for leisure activities, while AFFO increased by 4.2% to $1.22 [7] - The company disposed of non-core theater assets during Q4 as part of its strategy to reduce dependency on theater revenue [8] Strategic Initiatives - EPR Properties is focusing on strategic capital management to mitigate the impact of rising interest rates and maintain strong tenant relationships, achieving a high occupancy rate of 99% in its experiential property segment [6] - The company executed a $1 billion revolving credit facility, maintaining $22.1 million in cash to support future investments amid elevated interest rates [9] Future Outlook - Management plans to invest between $200 million and $300 million in experiential properties in the upcoming year, with disposals expected to yield $25 to $75 million as part of its diversification strategy [10] - Financial guidance for 2025 suggests FFOAA per share could range from $4.94 to $5.14, reflecting ongoing strategic reallocations and investment [11]

Financial Performance - Q4 2024 revenue was $177,234,000, a 3.3% increase from $171,981,000 in Q4 2023[16] - Net income available to common shareholders decreased to $(14,435,000) in Q4 2024 from $39,489,000 in Q4 2023[16] - Adjusted EBITDAre for Q4 2024 was $135,505,000, compared to $129,440,000 in Q4 2023, reflecting a 4.0% increase[16] - Total revenue for Q4 2024 was $177,234,000, a slight decrease from $180,507,000 in Q3 2024[21] - Net loss for Q4 2024 was $8,395,000, contrasting with a net income of $46,650,000 in Q3 2024[21] - Funds from Operations (FFO) available to common shareholders decreased to $84,295,000 in Q4 2024 from $101,368,000 in Q3 2024, a drop of approximately 16.8%[23] - Adjusted Funds from Operations (AFFO) available to common shareholders for Q4 2024 was $94,139,000, down from $99,309,000 in Q3 2024, representing a decrease of about 5.4%[24] - The diluted FFO per common share for Q4 2024 was $1.10, compared to $1.31 in Q3 2024, indicating a decline of 16.0%[23] - The total diluted AFFO available to common shareholders was $98,015,000 in Q4 2024, down from $103,185,000 in Q3 2024, reflecting a decrease of approximately 5.1%[24] - The company reported a net loss of $3,966 thousand for the three months ended December 31, 2024[47] Assets and Liabilities - Total assets as of December 31, 2024, were $5,616,507,000, down from $5,700,885,000 in 2023[16] - Total assets decreased to $5,616,507,000 in Q4 2024 from $5,689,162,000 in Q3 2024[20] - Total liabilities increased slightly to $3,293,262,000 in Q4 2024 from $3,285,459,000 in Q3 2024[20] - Cash and cash equivalents decreased to $22,062,000 in Q4 2024 from $35,328,000 in Q3 2024[20] - As of December 31, 2024, total consolidated debt amounted to $2,860,458,000, an increase from $2,816,095,000 in 2023, reflecting a growth of 1.57%[30] - The company’s total assets as of December 31, 2024, were reported at $7,146,711,000, with total unencumbered assets at $7,022,438,000[35] Debt and Leverage - Net debt as of December 31, 2024, was $2,857,530,000, compared to $2,763,150,000 in 2023, indicating an increase in leverage[16] - The net debt to total market capitalization ratio was 43% in Q4 2024, up from 41% in Q4 2023[16] - Debt to total assets ratio increased to 51% in Q4 2024 from 49% in Q4 2023[39] - Net debt to total market capitalization ratio rose to 43% in Q4 2024, compared to 41% in Q4 2023[39] - The company has a weighted average interest rate of 4.39% on its total debt, with fixed rate unsecured debt at 4.34% and variable rate unsecured debt at 5.46%[30] - The interest coverage ratio for Q4 2024 was 3.8, down from 4.0 in Q3 2024, indicating a decrease in the company's ability to cover interest expenses[83] Shareholder Returns - Dividends declared on common shares increased to $64,752,000 in Q4 2024 from $62,148,000 in Q4 2023[16] - The company aims to enhance shareholder value through predictable growth in Funds from Operations As Adjusted (FFOAA) and dividends per share[9] - Common dividends payable increased to $25,831,000 in Q4 2024 from $23,811,000 in Q3 2024[20] - The AFFO payout ratio for Q4 2024 was 70%, an increase from 66% in Q3 2024, suggesting a higher proportion of AFFO is being distributed as dividends[24] - FFO payout ratio increased to 78% in Q4 2024 from 71% in Q4 2023[39] Operational Highlights - The strategic focus includes acquiring or developing a diversified portfolio of experiential real estate venues[10] - The company is assessing new opportunities based on principles such as location quality and tenant success[12] - The company plans to focus on growing the Eat & Play and Attractions segments, while reducing its exposure in Theatres and Early Childhood Education[57] - Total investment spending for the year ended December 31, 2024, was $263.92 million, with $129.71 million allocated to Fitness & Wellness and $78.03 million to Attractions[51] - The company expects to incur total costs of $196.79 million for build-to-suit projects, with significant spending planned for the first and second quarters of 2025[53] Future Guidance - 2025 guidance for investment spending is projected between $200.0 million and $300.0 million[65] - FFO per diluted share is expected to range from $4.95 to $5.15, while FFOAA per diluted share is projected between $4.94 and $5.14[65] - Net income available to common shareholders is guided between $2.84 and $3.04 per diluted share[65] - Other income is anticipated to be between $42.0 million and $52.0 million, with other expenses also projected in the same range[65] - The company expects percentage rent to be between $18.0 million and $22.0 million[65] Risk Management - The company has identified risks associated with development projects, as noted in its most recent Annual Report, highlighting the importance of risk management in future strategies[55]

Core Viewpoint - The commercial real estate sector has faced challenges due to higher interest rates, but a potential decline in rates could benefit real estate investment trusts (REITs) by boosting portfolio values and stock prices [1][2]. Group 1: EPR Properties - EPR Properties offers a monthly dividend yield of 6.9%, significantly higher than the S&P 500's 1.2% yield, potentially generating $69 of annual income from a $1,000 investment [3]. - The REIT has been funding its growth internally due to increased cost of capital, investing $200 million to $300 million annually into experiential real estate, supporting 3% to 4% annual growth in adjusted funds from operations (FFO) per share [4]. - As interest rates decline, EPR Properties can increase its investment pace, potentially delivering higher total returns than the current double-digit rate [5]. Group 2: Realty Income - Realty Income's stock currently yields 5.7%, impacted by a 25% decline in stock value due to rising interest rates, yet it has maintained a consistent dividend growth streak for 110 quarters [6]. - The REIT executed a $9.3 billion acquisition of Spirit Realty without accessing capital markets, using stock exchange and assuming existing low-rate debt [7]. - Realty Income plans to launch a private capital fund management platform to access less-volatile equity capital and generate management fee income, allowing for increased acquisition rates if stock prices rise [8]. Group 3: Mid-America Apartment Communities (MAA) - MAA's shares have decreased over 30% from their peak, resulting in a dividend yield of 3.8% [9]. - Higher interest rates have led to a reduction in new apartment projects, which, combined with strong demand, is expected to reignite rent growth, benefiting MAA's share price [11]. - MAA is actively pursuing development projects and acquisitions, with seven projects under construction and plans for additional developments, positioning the REIT for strong total returns [12]. Group 4: Investment Outlook - The decline in values for EPR Properties, Realty Income, and MAA due to higher interest rates has increased their dividend yields, making them attractive investment opportunities as rates are expected to fall [13].

Group 1: High-Yield Dividend Stocks Overview - High-yield dividend stocks can maximize income from investments, with average yields around 1.2% compared to higher yields like 5% [1] - EPR Properties, NNN REIT, and Stag Industrial are highlighted as strong options for income generation [2] Group 2: EPR Properties - EPR Properties is a REIT focused on experiential properties, providing stable rental income through leases [3] - The REIT currently pays a monthly dividend yielding around 7%, translating to $7.00 annual income for every $100 invested [4] - EPR plans to invest $200 million to $300 million annually in new properties, expecting 3% to 4% annual growth in adjusted funds from operations (FFO) [5] Group 3: NNN REIT - NNN REIT invests in single-tenant net lease retail properties, generating stable cash flow with a current yield of 5.7% [6] - It has a strong record of increasing dividends, marking 35 consecutive years of dividend increases [7] - NNN REIT utilizes post-dividend cash flow and strong balance sheet to acquire new properties, investing $560 million last year [8] Group 4: Stag Industrial - Stag Industrial focuses on industrial properties, offering a monthly dividend with a current yield of 4.3% [9] - The demand for industrial real estate is rising, with new lease rates 19.4% higher than previous ones [10] - Stag Industrial plans to invest between $350 million and $650 million in new properties this year, evaluating 180 acquisition opportunities worth $3.7 billion [11] Group 5: Conclusion on REITs - REITs like EPR Properties, NNN REIT, and Stag Industrial provide stable rental income, making them attractive for passive income seekers [12]

Group 1: EPR Properties Overview - EPR Properties, formerly known as Entertainment Properties Trust, invests in assets designed to bring consumers together in group settings, such as amusement parks and movie theaters [2] - The company faced significant challenges during the coronavirus pandemic, leading to a suspension of its dividend for about a year to maintain liquidity [3] - Currently, EPR's rent roll is heavily tied to movie theaters, which have seen a decline in performance, with a rent coverage ratio of 1.5x compared to 1.7x in 2019 [4] Group 2: Financial Performance - Adjusted funds from operations (FFO) for EPR fell year over year through the first nine months of 2024, indicating potential challenges for the full year [5] - The adjusted FFO payout ratio was 66% in the third quarter, suggesting sufficient room to manage adversity, but investor sentiment appears to be negative regarding the turnaround [6] Group 3: STAG Industrial Overview - STAG Industrial focuses on acquiring industrial assets using a net lease approach, where tenants cover most operating costs, and targets second-tier markets to reduce competition [7] - The REIT has consistently increased its dividend annually for over a decade, with a 10-year annualized growth rate of just under 2% [8] Group 4: Investment Comparison - For investors seeking reliable income, STAG is likely the better option due to its consistent performance and lower risk profile compared to EPR [10] - EPR is in the process of turning its business around, but it remains a work in progress, requiring close monitoring for those willing to accept the associated risks [11]