EPR Properties(US:EPR)2024-08-01 14:20PART I Financial Statements This section presents EPR Properties' unaudited consolidated financial statements as of June 30, 2024, including balance sheets, income statements, cash flows, and detailed notes Consolidated Balance Sheets Total assets slightly decreased to $5.65 billion as of June 30, 2024, from $5.70 billion at year-end 2023, with corresponding minor decreases in total liabilities and equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $5,645,367 | $5,700,885 | | Real estate investments, net | $4,566,482 | $4,537,359 | | Cash and cash equivalents | $33,731 | $78,079 | | Total Liabilities | $3,220,571 | $3,246,730 | | Debt | $2,819,029 | $2,816,095 | | Total Equity | $2,424,796 | $2,454,155 | Consolidated Statements of Income Net income available to common shareholders significantly increased to $39.1 million in Q2 2024 and $95.7 million for H1 2024, primarily due to lower impairment charges Statement of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $173,095 | $172,907 | $340,327 | $344,303 | | Impairment Charges | $11,812 | $43,785 | $11,812 | $43,785 | | Net Income | $45,102 | $13,600 | $107,811 | $71,257 | | Net Income Available to Common Shareholders | $39,062 | $7,560 | $95,739 | $59,184 | | Diluted EPS | $0.51 | $0.10 | $1.26 | $0.78 | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $178.2 million for H1 2024, with net cash used in investing and financing activities leading to a $44.3 million net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $178,198 | $220,888 | | Net cash used by investing activities | ($72,482) | ($89,471) | | Net cash used by financing activities | ($149,856) | ($139,687) | | Net change in cash and cash equivalents | ($44,292) | ($8,177) | Notes to Consolidated Financial Statements These notes detail accounting policies, highlight the company's experiential net lease REIT business, revenue concentration, an $11.8 million impairment charge, and segment performance - The company is a leading diversified experiential net lease REIT specializing in properties located in the U.S. and Canada23 Revenue Concentration - Six Months Ended June 30 | Tenant | 2024 Revenue (in thousands) | % of Total Revenue | 2023 Revenue (in thousands) | % of Total Revenue | | :--- | :--- | :--- | :--- | :--- | | Topgolf | $49,528 | 14.6% | $47,353 | 13.8% | | AMC | $47,193 | 13.9% | $47,590 | 13.8% | | Regal | $37,357 | 11.0% | $56,101 | 16.3% | - In H1 2024, the company recognized an $11.8 million impairment charge on a theatre property after reassessing its holding period and estimating its fair value using an independent appraisal39 - For H1 2024, the company invested $132.7 million, including acquisitions and developments, and sold seven properties for net proceeds of $56.5 million, recognizing a $19.4 million gain40 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's long-term Experiential sector investment strategy, the impact of higher capital costs on selective investment, operating results, liquidity, and non-GAAP financial measures Overview EPR Properties' strategy focuses on long-term triple-net lease investments in Experiential and Education properties, with $6.9 billion in total investments as of June 30, 2024, and reduced near-term spending due to high capital costs - The company's principal business objective is to enhance shareholder value by achieving predictable and increasing FFOAA and dividends per share through long-term investments in the Experiential sector103 - As of June 30, 2024, the Experiential portfolio was 99% leased and the Education portfolio was 100% leased (excluding properties intended for sale)107108 - Due to elevated capital costs, near-term investments will be funded primarily from cash on hand, excess cash flow, disposition proceeds, and the unsecured revolving credit facility, leading to more selective investment decisions109 Results of Operations Q2 2024 saw flat total revenue at $173.1 million, a 410% increase in diluted EPS to $0.51 due to lower impairment charges, and a 5% decrease in FFOAA per diluted share to $1.22 Key Operating Results (in millions, except per share) | Metric | Q2 2024 | Q2 2023 | % Change | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $173.1 | $172.9 | 0% | $340.3 | $344.3 | (1)% | | Diluted EPS | $0.51 | $0.10 | 410% | $1.26 | $0.78 | 62% | | FFOAA per diluted share | $1.22 | $1.28 | (5)% | $2.34 | $2.53 | (8)% | - The decrease in rental revenue for H1 2024 was primarily due to a $11.4 million reduction related to the Regal restructuring agreement and a $13.2 million decrease in deferred rental repayments from cash basis tenants120 - The significant decrease in impairment charges to $11.8 million in H1 2024 from $43.8 million in H1 2023 was a primary driver of increased net income125 Liquidity and Capital Resources As of June 30, 2024, the company maintained $33.7 million in cash, $2.8 billion in total debt (99% unsecured), and no outstanding revolving credit facility balance, with a $136.6 million debt maturity due in August 2024 - At June 30, 2024, total debt was $2.8 billion, with 99% being unsecured, and the company had no outstanding balance on its $1.0 billion unsecured revolving credit facility127129 - The company was in compliance with all financial covenants under its debt instruments as of June 30, 2024132 - A debt maturity of $136.6 million is due on August 22, 2024, which management believes it will be able to repay, extend, or refinance138 - The company has commitments to fund approximately $161.4 million for development projects and $85.5 million for mortgage notes135136 Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures, reporting Q2 2024 diluted FFOAA at $1.22 per share and a Net Debt to Adjusted EBITDAre ratio of 5.2x as of June 30, 2024 FFO and FFOAA Reconciliation (per diluted share) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Diluted FFO | $1.21 | $1.27 | $2.28 | $2.52 | | Diluted FFOAA | $1.22 | $1.28 | $2.34 | $2.53 | Leverage and Asset Ratios | Ratio | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Net Debt to Gross Assets | 39% | 39% | | Net Debt/Adjusted EBITDAre | 5.2x | 5.0x | - Total Investments, a non-GAAP measure, increased to $6.86 billion at June 30, 2024, from $6.81 billion at year-end 2023167 Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates and foreign currency exchange rates through hedging strategies, including interest rate swaps and cross-currency swaps for Canadian properties - Primary market risks are changes in interest rates and foreign currency exchange rates (USD/CAD)169 - Interest rate risk on a $25.0 million variable-rate bond is hedged with an interest rate swap, fixing the SOFR rate at 2.5325% until September 2026172 - Foreign currency risk on Canadian cash flows and net investments is managed through cross-currency swaps and foreign currency forward contracts to fix exchange rates171173174 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective175 - No material changes were made to the company's internal control over financial reporting during the second quarter of 2024177 PART II Legal Proceedings Ongoing legal proceedings are not expected to materially affect the company's financial position or results of operations - Ongoing legal proceedings are not expected to have a material adverse effect on the company's consolidated financial position or results of operations178 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes to risk factors were reported for the quarter179 Unregistered Sale of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the quarter ended June 30, 2024 - No reportable events occurred under this item during the quarter180 Defaults Upon Senior Securities There were no defaults upon senior securities to report for the quarter ended June 30, 2024 - No reportable events occurred under this item during the quarter182 Other Information There were no other reportable events during the quarter ended June 30, 2024, including any adoption, modification, or termination of Rule 10b5-1 trading arrangements by officers or trustees - No reportable events occurred under this item during the quarter182 Exhibits This section lists the exhibits filed with the Form 10-Q, including an amendment to the credit agreement, certifications by the CEO and CFO, and XBRL data files - Key exhibits filed include Amendment No. 2 to the Credit Agreement, CEO/CFO certifications (Sections 302 and 906), and Inline XBRL documents184