EPR Properties(EPR) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of EPR Properties, including the balance sheets, statements of income and comprehensive income, statements of changes in equity, and statements of cash flows, along with detailed notes explaining the company's organization, accounting policies, real estate investments, and other financial details for the periods ended June 30, 2025, and December 31, 2024 Consolidated Balance Sheets The consolidated balance sheets show a slight decrease in total assets from $5,616,507 thousand at December 31, 2024, to $5,560,880 thousand at June 30, 2025. Total liabilities also decreased, while total equity saw a modest increase Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024): | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $5,560,880 | $5,616,507 | | Real estate investments, net | $4,402,379 | $4,435,358 | | Mortgage notes and related accrued interest receivable, net | $666,154 | $665,796 | | Cash and cash equivalents | $12,955 | $22,062 | | Total Liabilities | $3,229,789 | $3,293,262 | | Debt | $2,792,970 | $2,860,458 | | Total Equity | $2,331,091 | $2,323,245 | Consolidated Statements of Income and Comprehensive Income For the three and six months ended June 30, 2025, the company reported significant increases in net income and net income available to common shareholders compared to the prior year, driven by higher total revenue and a substantial gain on sale of real estate, despite increased operating expenses Consolidated Statements of Income Highlights (Three Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :--------------------------------------- | :------------------ | :------------------ | :--------- | | Total revenue | $178,068 | $173,095 | 2.9% | | Total operating expenses | $83,596 | $95,169 | -12.2% | | Gain on sale of real estate | $16,779 | $1,459 | 1050.0% | | Income from operations | $111,251 | $79,385 | 40.1% | | Net income | $75,643 | $45,102 | 67.7% | | Net income available to common shareholders | $69,603 | $39,062 | 78.2% | | Basic EPS | $0.91 | $0.52 | 75.0% | | Diluted EPS | $0.91 | $0.51 | 78.4% | Consolidated Statements of Income Highlights (Six Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :--------------------------------------- | :------------------ | :------------------ | :--------- | | Total revenue | $353,101 | $340,327 | 3.8% | | Total operating expenses | $166,406 | $182,016 | -8.5% | | Gain on sale of real estate | $26,163 | $19,408 | 34.8% | | Income from operations | $212,858 | $177,719 | 19.8% | | Net income | $141,446 | $107,811 | 31.2% | | Net income available to common shareholders | $129,374 | $95,739 | 35.1% | | Basic EPS | $1.70 | $1.27 | 33.9% | | Diluted EPS | $1.69 | $1.26 | 34.1% | Consolidated Statements of Changes in Equity The company's total equity increased from $2,323,245 thousand at December 31, 2024, to $2,331,091 thousand at June 30, 2025, primarily due to net income and share-based compensation, partially offset by dividends paid to shareholders and an unrealized loss on derivatives Key Changes in Equity (Six Months Ended June 30, 2025): | Item | Amount (in thousands) | | :--------------------------------------- | :-------------------- | | Balance at December 31, 2024 | $2,323,245 | | Net income | $141,446 | | Dividends to common shareholders | $(133,088) | | Share-based compensation expense | $7,779 | | Foreign currency translation adjustment | $14,164 | | Change in unrealized loss on derivatives, net | $(10,412) | | Balance at June 30, 2025 | $2,331,091 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities increased, while investing activities shifted from a net use to a net provide of cash, primarily due to higher proceeds from real estate sales. Financing activities resulted in a larger net cash outflow, mainly due to debt repayments and dividend payments Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30): | Activity | 2025 (in thousands) | 2024 (in thousands) | Change (YoY) | | :--------------------------------- | :------------------ | :------------------ | :----------- | | Net cash provided by operating activities | $186,690 | $178,198 | +$8,492 | | Net cash provided (used) by investing activities | $29,823 | $(72,482) | +$102,305 | | Net cash used by financing activities | $(223,906) | $(149,856) | -$74,050 | | Net change in cash and cash equivalents and restricted cash | $(6,979) | $(44,292) | +$37,313 | | Cash and cash equivalents and restricted cash at end of period | $28,720 | $36,689 | -$7,969 | - Proceeds from sale of real estate significantly increased to $106,436 thousand in 2025 from $56,493 thousand in 2024, contributing to the positive shift in investing activities[22] - Principal payments on debt increased substantially to $484,000 thousand in 2025 from $20,000 thousand in 2024, leading to a larger net cash outflow from financing activities[22] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies, financial instrument valuations, and specific activities such as real estate investments, dispositions, mortgage notes, capital markets, and equity incentive plans, offering crucial context to the financial statements Note 1. Organization - Description of Business EPR Properties is a Maryland real estate investment trust (REIT) established in 1997, specializing in diversified experiential net lease properties across the U.S. and Canada, with a focus on underwriting based on industry, property cash flow, and tenant credit metrics - EPR Properties is a leading diversified experiential net lease REIT[27] - The company's underwriting focuses on key industry and property cash flow criteria, as well as tenant credit metrics[27] - Properties are located in the United States and Canada[27] Note 2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards This section outlines the basis of presentation for the unaudited interim financial statements, adherence to GAAP, and key accounting policies for consolidation, deferred financing costs, rental revenue recognition (including straight-line, tenant reimbursements, and percentage rents), mortgage notes, and concentrations of risk. It also details recently issued accounting standards - Financial statements are prepared in accordance with U.S. GAAP for interim information and Form 10-Q instructions[28] - The company consolidates entities where it is the primary beneficiary of a VIE and applies the equity method for joint ventures where it can exercise influence but is not the primary beneficiary[29][30] - Rental revenue includes fixed rents (straight-line recognition), tenant reimbursements, and percentage rents based on gross revenues exceeding thresholds[32][33][34][35][36] Revenue Concentration from Top Tenants (Six Months Ended June 30): | Tenant | 2025 (% of Total Revenue) | 2024 (% of Total Revenue) | | :----- | :------------------------ | :------------------------ | | Topgolf | 14.2% | 14.6% | | AMC | 13.4% | 13.9% | | Regal | 11.4% | 11.0% | - The FASB issued ASU No. 2023-09 (Income Taxes) effective for fiscal years after December 15, 2024, and ASU No. 2024-03 (Expense Disaggregation Disclosures) effective for annual periods after December 15, 2026, which the company is evaluating[44][45] Note 3. Real Estate Investments The carrying amount of real estate investments, net of accumulated depreciation, slightly decreased from $4,435,358 thousand at December 31, 2024, to $4,402,379 thousand at June 30, 2025. Depreciation expense for the six months ended June 30, 2025, was $81.3 million Real Estate Investments Carrying Amounts (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :-------------- | :---------------- | | Buildings and improvements | $4,694,351 | $4,632,557 | | Land | $1,200,411 | $1,218,418 | | Accumulated depreciation | $(1,641,916) | $(1,562,645) | | Total, net | $4,402,379 | $4,435,358 | - Depreciation expense on real estate investments was $81.3 million for the six months ended June 30, 2025, up from $80.1 million in the prior year[47] Note 4. Investments and Dispositions Investment spending for the six months ended June 30, 2025, totaled $86.3 million, including acquisitions of an attraction property and land for a build-to-suit property, and mortgage financing for a fitness & wellness property. The company completed sales of various theatre and early childhood education properties for net proceeds of $106.4 million, recognizing a $26.2 million net gain - Total investment spending for the six months ended June 30, 2025, was $86.3 million[48] - Acquisitions included an attraction property ($14.3 million), land for a new build-to-suit eat & play property ($1.6 million), and land with mortgage financing for a fitness & wellness property ($1.2 million land, $5.9 million mortgage)[48] - Dispositions generated $106.4 million in net proceeds and a $26.2 million net gain, including sales of vacant and operating theatre properties and early childhood education centers[49] - Subsequent to June 30, 2025, an additional vacant theatre property was sold for $16.0 million, with an expected gain of $3.0 million[50] Note 5. Investment in Mortgage Notes and Notes Receivable The company's mortgage notes and related accrued interest receivable remained stable at $666.2 million at June 30, 2025. The allowance for credit losses decreased significantly due to charge-offs related to a fully reserved note and a forgiven principal amount on a subordinated mortgage note Allowance for Credit Losses Activity (Six Months Ended June 30, 2025): | Category | Mortgage notes receivable (in thousands) | Unfunded commitments - mortgage notes receivable (in thousands) | Notes receivable (in thousands) | Total (in thousands) | | :--------------------------------------- | :------------------------ | :--------------------------------------------- | :--------------- | :------ | | Allowance at December 31, 2024 | $17,111 | $740 | $8,811 | $26,662 | | Provision (benefit) for credit losses, net | $458 | $(110) | $(3) | $345 | | Charge-offs | $(10,420) | — | $(1,916) | $(12,336) | | Allowance at June 30, 2025 | $7,149 | $630 | $6,892 | $14,671 | - The company received $8.1 million in prepayment for two mortgage notes secured by early childhood education centers[54] - A $10.3 million allowance for credit loss was reduced following the sale of a subordinated mortgage note receivable for $1.0 million, and $1.9 million of principal for a fully reserved note receivable was written off[55][56] - One mortgage note receivable ($10.4 million net of $0.4 million allowance) and one note receivable (fully reserved at $6.9 million) are considered collateral-dependent, with income recognized on a cash basis[57] Note 6. Accounts Receivable Total accounts receivable increased to $94.5 million at June 30, 2025, from $84.6 million at December 31, 2024, primarily due to an increase in straight-line rent receivable. The company is involved in a lawsuit with the City of Kansas City, Missouri, regarding tax assessments, with a receivable of $5.8 million under protest Accounts Receivable Carrying Amounts (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :-------------- | :---------------- | | Receivable from tenants | $6,725 | $5,160 | | Receivable from non-tenants | $7,664 | $7,094 | | Straight-line rent receivable | $80,125 | $72,335 | | Total | $94,514 | $84,589 | - Receivable from non-tenants includes $5.8 million related to a protested tax assessment from the City of Kansas City, Missouri, for which the company believes a refund is likely[60][61] Note 7. Capital Markets and Dividends The company declared cash dividends for common and preferred shares for the three and six months ended June 30, 2025. It repaid $300.0 million of senior unsecured notes using its revolving credit facility and filed new universal shelf and DSP Plan registration statements to allow for future securities offerings - Declared common share dividends of $0.885 per share for Q2 2025 and $1.750 per share for H1 2025[62] - Repaid $300.0 million of senior unsecured notes on April 1, 2025, using borrowings from the $1.0 billion senior unsecured revolving credit facility[63] - Filed new universal shelf registration statement and DSP Plan shelf registration statement, both effective for three years, to facilitate future offerings of various securities and common shares, respectively[64][65] Note 8. Derivative Instruments The company uses interest rate swaps, cross-currency swaps, and foreign currency forwards to manage interest rate and foreign exchange risks. As of June 30, 2025, derivative assets were $0.4 million and liabilities were $8.9 million - Derivative assets decreased from $2.2 million (Dec 31, 2024) to $0.4 million (June 30, 2025), while derivative liabilities increased from $0.03 million to $8.9 million over the same period[66] - Uses interest rate swaps for cash flow hedges of interest rate risk (e.g., $25.0 million notional amount at 2.5325% fixed rate against USD SOFR, maturing Sep 2026)[68][69] - Uses cross-currency swaps for cash flow hedges of foreign exchange risk on CAD-denominated cash flows from Canadian properties (total $260.0 million CAD notional amount at $1.35 CAD per USD, maturing Dec 2026)[71] - Uses foreign currency forwards for net investment hedges against USD-CAD exchange rate fluctuations on Canadian net investments (total $290.0 million CAD notional amount at $1.40 CAD per USD, maturing Dec 2026)[72] - Estimated $15 thousand of losses from interest rate hedges and $7 thousand of losses from foreign currency hedges will be reclassified from AOCI to interest expense and other income, respectively, in the next twelve months[70][71] Note 9. Fair Value Disclosures The company's financial instruments measured at fair value, primarily derivatives, are classified as Level 2 in the fair value hierarchy. Fair values for mortgage notes receivable and debt instruments are estimated using discounted future cash flows and current market rates - Derivatives are classified as Level 2 in the fair value hierarchy, as credit valuation adjustments are not significant to their overall valuation[80] Fair Value of Financial Instruments (June 30, 2025 vs. December 31, 2024): | Instrument | Carrying Value (June 30, 2025) | Estimated Fair Value (June 30, 2025) | Carrying Value (Dec 31, 2024) | Estimated Fair Value (Dec 31, 2024) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Fixed-rate mortgage notes receivable | $666.2 million | $707.3 million | $665.8 million | $701.7 million | | Variable-rate debt | $430.0 million | ~$430.0 million | $200.0 million | ~$200.0 million | | Fixed-rate long-term debt | $2.38 billion | $2.30 billion | $2.68 billion | $2.57 billion | Note 10. Earnings Per Share Basic EPS for common shareholders increased to $0.91 for the three months and $1.70 for the six months ended June 30, 2025, compared to $0.52 and $1.27 in the prior year, respectively. Diluted EPS also saw similar increases. Certain convertible preferred shares and share options were anti-dilutive and excluded from diluted EPS calculations Basic and Diluted EPS (Three Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------------- | :--- | :--- | | Basic EPS | $0.91 | $0.52 | | Diluted EPS | $0.91 | $0.51 | Basic and Diluted EPS (Six Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------------- | :--- | :--- | | Basic EPS | $1.70 | $1.27 | | Diluted EPS | $1.69 | $1.26 | - Approximately 2.3 million Series C preferred shares, 1.7 million Series E preferred shares, and outstanding share options were excluded from diluted EPS calculations as they were anti-dilutive[95][99] Note 11. Equity Incentive Plans The company's 2016 Equity Incentive Plan was amended to increase authorized shares to 5,950,000. Share-based compensation expense for nonvested shares, performance share units, and restricted share units was recognized, with unamortized expenses totaling $15.0 million, $9.3 million, and $2.2 million, respectively, at June 30, 2025 - The 2016 Equity Incentive Plan was amended to increase authorized shares from 3,950,000 to 5,950,000[96] - Unamortized share-based compensation expense at June 30, 2025: * Nonvested shares: $15.0 million * Nonvested performance share units: $9.3 million * Restricted share units: $2.2 million[97][104][105] - Performance share units granted in 2022 achieved a 200% payout for both TSR relative to peers/MSCI US REIT Index and CAGR in AFFO per share[99][100] - For performance share units granted in H1 2025, achievement of the AFFO per share performance condition was deemed probable with an expected payout of 119%[103] Note 12. Operating Leases The company leases its real estate investments under operating leases and is also a lessee in 51 operating ground leases and one executive office lease. Sublease income from operating ground leases was $13.2 million for the six months ended June 30, 2025, while operating ground lease costs were $13.4 million - The company is a lessor for its real estate investments and a lessee in 51 operating ground leases and one executive office lease[106] - Tenants are generally subtenants responsible for ground lease rent, but the company is primarily responsible if a tenant defaults or there is no subtenant[106] Lease Revenue and Costs (Six Months Ended June 30): | Category | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Operating leases (Rental revenue) | $283,547 | $274,400 | | Sublease income - operating ground leases (Rental revenue) | $13,163 | $12,974 | | Operating ground lease cost (Property operating expense) | $13,376 | $13,086 | | Operating office lease cost (General and administrative expense) | $448 | $448 | Note 13. Segment Information The company operates in two reportable segments: Experiential and Education. As of June 30, 2025, Experiential investments comprised 94% of total investments, and Education comprised 6%. The Experiential segment showed higher total revenue and net operating income compared to Education for both the three and six months ended June 30, 2025 and 2024 - The company's two reportable operating segments are Experiential and Education[108] Total Assets by Segment (in thousands): | Segment | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Experiential | $5,169,562 | $5,171,845 | | Education | $367,913 | $409,801 | | Corporate/Unallocated | $23,405 | $34,861 | | Consolidated Total | $5,560,880 | $5,616,507 | Net Operating Income (NOI) by Segment (Three Months Ended June 30): | Segment | 2025 (in thousands) | 2024 (in thousands) | | :-------------------- | :------------------ | :------------------ | | Experiential | $142,965 | $134,285 | | Education | $8,651 | $9,573 | | Corporate/Unallocated | $(168) | $(23) | | Total NOI | $151,448 | $143,835 | Net Operating Income (NOI) by Segment (Six Months Ended June 30): | Segment | 2025 (in thousands) | 2024 (in thousands) | | :-------------------- | :------------------ | :------------------ | | Experiential | $279,458 | $264,068 | | Education | $19,467 | $19,210 | | Corporate/Unallocated | $(226) | $(107) | | Total NOI | $298,699 | $283,171 | Note 14. Other Commitments and Contingencies As of June 30, 2025, the company had commitments to fund approximately $119.1 million for 14 development projects, with $38.6 million expected in the remainder of 2025. Additionally, there were $49.8 million in mortgage note commitments, with $4.3 million expected to be funded in the remainder of 2025 - Commitments for 14 development projects totaled $119.1 million, with $38.6 million expected to be funded in the remainder of 2025[113] - Commitments for two mortgage notes totaled approximately $49.8 million, with $4.3 million expected to be funded in the remainder of 2025[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the three and six months ended June 30, 2025. It details business objectives, investment strategies, operating results, recent developments, and a comprehensive analysis of revenue, expenses, and non-GAAP financial measures Overview The company's primary objective is to enhance shareholder value through predictable FFOAA and dividends, focusing on long-term investments in the Experiential sector. Its portfolio, valued at approximately $6.9 billion, is predominantly Experiential (94%) and maintains high occupancy rates Business EPR Properties aims to enhance shareholder value through predictable FFOAA and dividends, focusing on long-term experiential sector investments. Its portfolio, totaling $6.9 billion as of June 30, 2025, is 94% Experiential and 6% Education, with a combined wholly-owned portfolio 99% leased or operated - Principal business objective is to enhance shareholder value by achieving predictable and increasing Funds From Operations As Adjusted ("FFOAA") and dividends per share[116] - Strategy is to focus on long-term investments in the Experiential sector that benefit from depth of knowledge and relationships, offering sustained performance[116] - Total investments were approximately $6.9 billion as of June 30, 2025[120] Investment Portfolio Breakdown (June 30, 2025): | Segment | % of Total Investments | | :---------- | :--------------------- | | Experiential | 94% | | Education | 6% | - The wholly-owned Experiential portfolio (18.5 million sq ft) was 99% leased or operated, excluding properties intended for sale[121] - The wholly-owned Education portfolio (1.1 million sq ft) was 100% leased[123] International Trade Environment The company faces risks from global economic uncertainty, including potential U.S. tariffs on foreign-made films and retaliatory restrictions, which could increase construction costs, reduce consumer spending, and negatively impact tenant's ability to meet obligations - The U.S. government has imposed, and is considering imposing, tariffs and trade restrictions on certain goods, including a potential tariff on foreign-made films, which could lead to retaliatory restrictions from other countries[124][125] - Overall economic uncertainty from trade policies could lead to weakened economic conditions, inflation, increased borrowing costs, and decreased consumer spending[125] - Tariff increases may raise the cost of imported construction materials, potentially increasing development and renovation expenses, reducing yields, and delaying or canceling projects[125] Operating Results For the three and six months ended June 30, 2025, total revenue increased by 2.9% and 3.8% respectively, while net income available to common shareholders per diluted share surged by 78.4% and 34.1%. FFOAA per diluted share also grew by 3.3% and 4.7%, primarily due to investments, dispositions, lower credit loss provisions, and higher gains on real estate sales, offset by reduced other income and expenses Key Operating Results (Three Months Ended June 30): | Metric | 2025 (in millions) | 2024 (in millions) | % Change | | :--------------------------------------- | :----------------- | :----------------- | :--------- | | Total revenue | $178.1 | $173.1 | 2.9% | | Net income available to common shareholders per diluted share | $0.91 | $0.51 | 78.4% | | FFOAA per diluted share | $1.26 | $1.22 | 3.3% | Key Operating Results (Six Months Ended June 30): | Metric | 2025 (in millions) | 2024 (in millions) | % Change | | :--------------------------------------- | :----------------- | :----------------- | :--------- | | Total revenue | $353.1 | $340.3 | 3.8% | | Net income available to common shareholders per diluted share | $1.69 | $1.26 | 34.1% | | FFOAA per diluted share | $2.45 | $2.34 | 4.7% | - Major factors impacting results include the effect of investments and dispositions, lower other income and other expense, no retirement and severance expense in 2025, a decrease in provision for credit losses, no impairment charges in 2025, and higher gain on sale of real estate[128] Critical Accounting Policies and Estimates The preparation of financial statements requires management to make significant estimates and assumptions, particularly concerning real estate valuation, acquisitions, and credit loss allowances for receivables. No changes to critical accounting policies occurred in the six months ended June 30, 2025 - Significant estimates and assumptions are made in the valuation of real estate, accounting for real estate acquisitions, assessing collectability of receivables, and credit loss related to mortgage and other notes receivable[129] - There were no changes to critical accounting policies for the six months ended June 30, 2025[129] Recent Developments Recent developments include a decrease in investment spending to $86.3 million, significant dispositions generating $106.4 million in net proceeds, the upcoming retirement of the Chief Investment Officer and appointment of his successor, and the filing of new universal shelf and DSP Plan registration statements to support future capital market activities Investment Spending Investment spending for the six months ended June 30, 2025, decreased to $86.3 million from $132.7 million in the prior year. Experiential segment investments dominated, with significant spending on new development, re-development, asset acquisition, and mortgage notes Total Investment Spending by Operating Segment (Six Months Ended June 30): | Operating Segment | 2025 (in thousands) | 2024 (in thousands) | | :-------------------- | :------------------ | :------------------ | | Experiential | $86,332 | $132,659 | | Education | $0 | $0 | | Total | $86,332 | $132,659 | - In 2025, Experiential spending included $44.7 million for new development, $14.8 million for re-development, $15.5 million for asset acquisition, and $10.0 million for mortgage notes[130] - Capitalized interest was $2.4 million in 2025, up from $1.4 million in 2024[131] Dispositions The company completed sales of various theatre and early childhood education properties for net proceeds of $106.4 million, recognizing a $26.2 million net gain during the six months ended June 30, 2025. Additionally, $8.1 million was received from mortgage note prepayments - Sales of two vacant, two operating, and two leased theatre properties, along with one vacant and ten leased early childhood education centers, generated $106.4 million in net proceeds and a $26.2 million net gain[132] - Received $8.1 million in proceeds representing prepayment in full on two mortgage note receivables secured by early childhood education center properties[133] - Subsequent to June 30, 2025, an additional vacant theatre property was sold for $16.0 million, with an expected gain of approximately $3.0 million[133] Chief Investment Officer Transition Gregory E. Zimmerman, Executive Vice President and Chief Investment Officer, plans to retire in Q1 2026. Ben Fox, previously Managing Director at Ares Management Corporation, will join in August 2025 and is expected to succeed Mr. Zimmerman - Gregory E. Zimmerman, Executive Vice President and Chief Investment Officer, notified the company of his intention to retire in the first quarter of calendar year 2026[134] - Ben Fox, previously Managing Director in the Net Lease Division of Ares Management Corporation, will join in August 2025 and is expected to succeed Mr. Zimmerman as Chief Investment Officer[134] Capital Markets Activities The company repaid $300.0 million of senior unsecured notes using its revolving credit facility and filed new universal shelf and DSP Plan registration statements to enable future securities offerings - Repaid $300.0 million of senior unsecured notes upon maturity on April 1, 2025, using borrowings under the $1.0 billion senior unsecured revolving credit facility[135] - Filed a new universal shelf registration statement with the SEC, effective for three years, covering common shares, preferred shares, debt securities, depositary shares, warrants, and units[135] - Filed a new shelf registration statement for its Dividend Reinvestment and Direct Share Purchase Plan (DSP Plan), effective for three years, permitting the issuance of up to 25,000,000 common shares[135] Results of Operations The company's results of operations for the three and six months ended June 30, 2025, show increased total revenue driven by minimum rent, percentage rent, and mortgage income, while operating expenses decreased due to the absence of impairment charges and retirement/severance expense, leading to improved net income Analysis of Revenue Total revenue increased by $4.97 million (2.9%) for the three months and $12.77 million (3.8%) for the six months ended June 30, 2025, compared to the prior year. This growth was driven by increases in minimum rent from acquisitions and existing properties, higher percentage rent, and increased mortgage and other financing income, partially offset by a decrease in other income Total Revenue Breakdown (Three Months Ended June 30): | Revenue Type | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------- | :------------------ | :------------------ | :-------------------- | | Minimum rent | $134,837 | $132,365 | $2,472 | | Percentage rent | $4,594 | $1,973 | $2,621 | | Total Rental Revenue | $150,351 | $145,093 | $5,258 | | Other income | $12,218 | $14,418 | $(2,200) | | Mortgage and other financing income | $15,499 | $13,584 | $1,915 | | Total Revenue | $178,068 | $173,095 | $4,973 | Total Revenue Breakdown (Six Months Ended June 30): | Revenue Type | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------- | :------------------ | :------------------ | :-------------------- | | Minimum rent | $268,678 | $263,590 | $5,088 | | Percentage rent | $7,851 | $3,873 | $3,978 | | Total Rental Revenue | $296,710 | $287,374 | $9,336 | | Other income | $23,854 | $26,455 | $(2,601) | | Mortgage and other financing income | $32,537 | $26,498 | $6,039 | | Total Revenue | $353,101 | $340,327 | $12,774 | - Minimum rent increased due to property acquisitions and developments completed in 2025 and 2024, and rental revenue on existing properties, partially offset by property dispositions[136][137] - Percentage rent increased primarily from one of the company's theatre tenants and one of its early childhood education center tenants[139] - Mortgage and other financing income increased due to interest income on a new mortgage note funded in 2024 and additional investments on existing mortgage note receivables, including $1.8 million of participating interest income recognized in 2025[141] Analysis of Expenses and Other Line Items Total operating expenses decreased for both the three and six months ended June 30, 2025, primarily due to the absence of impairment charges and retirement/severance expense in 2025, and a decrease in other expense from sold properties. However, general and administrative expense and transaction costs increased Expenses and Other Line Items (Three Months Ended June 30): | Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :-------------------- | | Property operating expense | $14,661 | $14,427 | $234 | | Other expense | $11,959 | $14,833 | $(2,874) | | General and administrative expense | $13,230 | $12,020 | $1,210 | | Retirement and severance expense | $0 | $0 | $0 | | Transaction costs | $669 | $199 | $470 | | Provision (benefit) for credit losses, net | $997 | $404 | $593 | | Impairment charges | $0 | $11,812 | $(11,812) | | Depreciation and amortization | $42,080 | $41,474 | $606 | | Gain on sale of real estate | $16,779 | $1,459 | $15,320 | | Interest expense, net | $33,246 | $32,820 | $426 | Expenses and Other Line Items (Six Months Ended June 30): | Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :-------------------- | | Property operating expense | $29,832 | $29,347 | $485 | | Other expense | $24,570 | $27,809 | $(3,239) | | General and administrative expense | $27,254 | $25,928 | $1,326 | | Retirement and severance expense | $0 | $1,836 | $(1,836) | | Transaction costs | $1,236 | $200 | $1,036 | | Provision (benefit) for credit losses, net | $345 | $3,141 | $(2,796) | | Impairment charges | $0 | $11,812 | $(11,812) | | Depreciation and amortization | $83,169 | $81,943 | $1,226 | | Gain on sale of real estate | $26,163 | $19,408 | $6,755 | | Interest expense, net | $66,267 | $64,471 | $1,796 | - The decrease in other expense was primarily due to a decrease in operating expense from three operating theatre properties that were sold during the six months ended June 30, 2025[143] - The change in provision (benefit) for credit losses, net, was primarily due to a release from additional funding commitments on one mortgage note receivable and changes in estimated current expected credit losses mostly due to macroeconomic conditions[145] - Interest expense, net, increased primarily due to an increase in the weighted average interest rate on outstanding debt, resulting from additional borrowings on the unsecured revolving credit facility to pay off lower-rate senior unsecured notes at maturity[148] Liquidity and Capital Resources The company maintains adequate liquidity through cash from operations, its revolving credit facility, and asset dispositions to meet short-term obligations and fund future investments. It has $2.8 billion in total debt, with $629.6 million maturing in 2026, and aims for a conservative capital structure Mortgage Debt, Senior Notes and Unsecured Revolving Credit Facility At June 30, 2025, total debt outstanding was $2.8 billion, 99% of which was unsecured. The company repaid $300.0 million of senior unsecured notes using its $1.0 billion unsecured revolving credit facility, which had an outstanding balance of $405.0 million and an interest rate of 5.44% at quarter-end. The company was in compliance with all debt covenants - Total debt outstanding was $2.8 billion at June 30, 2025, of which 99% was unsecured[150] - Repaid $300.0 million of senior unsecured notes upon maturity on April 1, 2025, using borrowings under the $1.0 billion senior unsecured revolving credit facility[152] - At June 30, 2025, the unsecured revolving credit facility had an outstanding balance of $405.0 million and bore interest at a floating rate of SOFR plus 1.15% (5.44% at June 30, 2025)[153][154] - The company was in compliance with all financial and other covenants under its consolidated debt instruments at June 30, 2025[156] - Two experiential lodging properties in unconsolidated joint ventures were severely damaged by hurricanes and remain closed; the company is working to remove these investments and related non-recourse debt from its portfolio[157] Capital Markets The company filed new universal shelf and DSP Plan registration statements, both effective for three years, to provide flexibility for future offerings of various securities and common shares, respectively - Filed a new universal shelf registration statement with the SEC, effective for three years, covering common shares, preferred shares, debt securities, depository shares, warrants, and units[159] - Filed a new shelf registration statement for its Dividend Reinvestment and Direct Share Purchase Plan (DSP Plan), effective for three years, permitting the issuance of up to 25,000,000 common shares[160] Liquidity Requirements Short-term liquidity needs are met by cash from operations, while long-term needs, primarily debt maturities, are expected to be managed through repayment, extension, or refinancing. Cash flows from operating activities increased to $186.7 million for the six months ended June 30, 2025 - Short-term liquidity requirements, including corporate operating expenses, debt service, and shareholder distributions, are historically met primarily through cash provided by operating activities[161] Cash Flow Summary (Six Months Ended June 30): | Activity | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $186,690 | $178,198 | | Net cash provided (used) by investing activities | $29,823 | $(72,482) | | Net cash used by financing activities | $(223,906) | $(149,856) | Commitments As of June 30, 2025, the company had $119.1 million in commitments for 14 development projects and $49.8 million for two mortgage notes, with significant portions expected to be funded in the remainder of 2025 - As of June 30, 2025, the company had 14 development projects with commitments to fund an aggregate of approximately $119.1 million, of which approximately $38.6 million is expected to be funded in the remainder of 2025[163] - As of June 30, 2025, the company had two mortgage notes with commitments totaling approximately $49.8 million, of which $4.3 million is expected to be funded in the remainder of 2025[164] Liquidity Analysis The company anticipates adequate liquidity from cash on hand, operations, its revolving credit facility, and asset dispositions to meet financial commitments, including debt service and shareholder distributions. It has $629.6 million of debt maturities due in 2026 and expects to manage these through repayment, extension, or refinancing - The company anticipates that cash on hand, cash from operations, funds available under its unsecured revolving credit facility, and proceeds from asset dispositions will provide adequate liquidity to meet financial commitments[165] - The company has $629.6 million of debt maturities due in 2026 and believes it will be able to repay, extend, refinance, or otherwise settle these obligations[166] - Future investments are expected to be financed with cash on hand, excess cash flow, proceeds from asset dispositions, or borrowings under the unsecured revolving credit facility, as well as debt and equity financing alternatives[167] Capital Structure The company aims to maintain a conservative capital structure, primarily measured by its net debt to adjusted EBITDAre ratio, and also considers interest, fixed charge, debt service coverage, and net debt to gross asset ratios - The company believes its shareholders are best served by a conservative capital structure, primarily measured by its net debt to adjusted EBITDAre ratio[168] - The company also seeks to maintain conservative interest, fixed charge, debt service coverage, and net debt to gross asset ratios[168] Non-GAAP Financial Measures This section defines and reconciles various non-GAAP financial measures, including FFO, FFOAA, AFFO, Net Debt, Gross Assets, Net Debt to Gross Assets Ratio, EBITDAre, Adjusted EBITDAre, and Net Debt to Adjusted EBITDAre Ratio. These metrics are used by management and investors to evaluate the company's operating performance, financial condition, and capital structure Funds From Operations (FFO), Funds From Operations As Adjusted (FFOAA) and Adjusted Funds From Operations (AFFO) FFO, FFOAA, and AFFO are non-GAAP measures used to evaluate REIT operating performance. For the six months ended June 30, 2025, diluted FFO increased to $195.9 million, diluted FFOAA to $196.8 million, and diluted AFFO to $196.5 million, all showing growth compared to the prior year - FFO is calculated as net income available to common shareholders, 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[169] - FFOAA is presented by adding to FFO retirement and severance expense, transaction costs, provision (benefit) for credit losses, net, costs associated with loan refinancing or payoff, preferred share redemption costs and impairment of operating lease right-of-use assets and subtracting sale participation income, gain on insurance recovery and deferred income tax (benefit) expense[170] - AFFO is presented by adding to FFOAA non-real estate depreciation and amortization, deferred financing fees amortization and share-based compensation expense to management and Trustees, and subtracting amortization of above and below market leases, net and tenant allowances, maintenance capital expenditures, straight-lined rental revenue, the non-cash portion of mortgage and other financing income and the allocated share of joint venture non-cash items[170] FFO, FFOAA, and AFFO (Six Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Diluted FFO available to common shareholders | $195,855 | $182,339 | | Diluted FFOAA available to common shareholders | $196,813 | $186,990 | | Diluted AFFO available to common shareholders | $196,532 | $185,713 | FFO and FFOAA Per Common Share (Six Months Ended June 30): | Metric | 2025 | 2024 | | :-------------------- | :--- | :--- | | Basic FFO | $2.48 | $2.31 | | Diluted FFO | $2.44 | $2.28 | | Basic FFOAA | $2.49 | $2.37 | | Diluted FFOAA | $2.45 | $2.34 | Net Debt Net Debt, a non-GAAP measure, represents total debt adjusted for deferred financing costs and reduced by cash and cash equivalents. At June 30, 2025, Net Debt was $2,796,637 thousand - Net Debt represents debt (reported in accordance with GAAP) adjusted to exclude deferred financing costs, net and reduced for cash and cash equivalents[176] Net Debt Calculation (in thousands): | Item | June 30, 2025 | December 31, 2024 | | :------------------------ | :-------------- | :---------------- | | Debt | $2,792,970 | $2,819,029 | | Deferred financing costs, net | $16,622 | $22,200 | | Cash and cash equivalents | $(12,955) | $(33,731) | | Net Debt | $2,796,637 | $2,807,498 | Gross Assets Gross Assets, a non-GAAP measure, represents total assets adjusted to exclude accumulated depreciation and reduced by cash and cash equivalents. At June 30, 2025, Gross Assets were $7,189,841 thousand - Gross Assets represents total assets (reported in accordance with GAAP) adjusted to exclude accumulated depreciation and reduced by cash and cash equivalents[177] Gross Assets Calculation (in thousands): | Item | June 30, 2025 | December 31, 2024 | | :------------------------ | :-------------- | :---------------- | | Total Assets | $5,560,880 | $5,645,367 | | Accumulated depreciation | $1,641,916 | $1,504,427 | | Cash and cash equivalents | $(12,955) | $(33,731) | | Gross Assets | $7,189,841 | $7,116,063 | Net Debt to Gross Assets Ratio The Net Debt to Gross Assets Ratio, a supplemental non-GAAP measure, was 39% at both June 30, 2025, and December 31, 2024, indicating a stable leverage profile relative to the company's investment base - The Net Debt to Gross Assets Ratio was 39% at June 30, 2025, and December 31, 2024[185] EBITDAre EBITDAre, a non-GAAP measure, is used to compare REIT operating performance independently of capital structure. For the three months ended June 30, 2025, EBITDAre was $136,286 thousand - EBITDAre is calculated as net income, 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[179] EBITDAre Calculation (Three Months Ended June 30): | Item | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Net income | $75,643 | $45,102 | | Interest expense, net | $33,246 | $32,820 | | Income tax expense | $681 | $557 | | Depreciation and amortization | $42,080 | $41,474 | | Gain on sale of real estate | $(16,779) | $(1,459) | | Impairment of real estate investments, net | $0 | $11,812 | | Allocated share of joint venture depreciation | $985 | $2,457 | | Allocated share of joint venture interest expense | $430 | $2,310 | | EBITDAre | $136,286 | $135,073 | Adjusted EBITDAre Adjusted EBITDAre, a non-GAAP measure, excludes items not indicative of operating performance. For the three months ended June 30, 2025, Adjusted EBITDAre was $137,952 thousand, and annualized Adjusted EBITDAre was $551,808 thousand - Adjusted EBITDAre is defined as EBITDAre excluding sale participation income, gain on insurance recovery, retirement and severance expense, transaction costs, provision (benefit) for credit losses, net, impairment losses on operating lease right-of-use assets and prepayment fees[181] Adjusted EBITDAre Calculation (Three Months Ended June 30): | Item | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | EBITDAre | $136,286 | $135,073 | | Transaction costs | $669 | $199 | | Provision (benefit) for credit losses, net | $997 | $404 | | Adjusted EBITDAre (for the quarter) | $137,952 | $135,676 | | Adjusted EBITDAre (annualized) | $551,808 | $542,704 | Net Debt to Adjusted EBITDAre Ratio The Net Debt to Adjusted EBITDAre Ratio, a supplemental non-GAAP measure, was 5.1 at June 30, 2025, slightly down from 5.2 at June 30, 2024, indicating a slight improvement in leverage relative to operating performance - The Net Debt to Adjusted EBITDAre Ratio was 5.1 at June 30, 2025, compared to 5.2 at June 30, 2024[185] Total Investments Total investments, a non-GAAP measure, increased slightly to $6,890,799 thousand at June 30, 2025, from $6,877,912 thousand at December 31, 2024, reflecting the company's overall capital deployment across various asset categories - Total investments is 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 and related accrued interest receivable, net, investment in joint ventures, intangible assets, gross, and notes receivable and related accrued interest receivable, net[187] Total Investments Calculation (in thousands): | Item | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :-------------- | :---------------- | | Total assets | $5,560,880 | $5,616,507 | | Add: accumulated depreciation on real estate investments | $1,641,916 | $1,562,645 | | Add: accumulated amortization on intangible assets | $30,456 | $31,876 | | Total investments | $6,890,799 | $6,877,912 | Impact of Recently Issued Accounting Standards The company refers to Note 2 for additional information on the impact of recently issued accounting standards, including ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Expense Disaggregation Disclosures), which are currently being evaluated - Refer to Note 2 to the consolidated financial statements for additional information on the impact of recently issued accounting standards on the company's business[188] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily relating to potential losses due to changes in interest rates and foreign currency exchange rates. It mitigates interest rate risk through fixed-rate borrowings and an interest rate swap, and foreign currency risk on Canadian properties through cross-currency swaps and foreign currency forwards - The company is exposed to market risks primarily relating to potential losses due to changes in interest rates and foreign currency exchange rates[189] - Interest rate risk is mitigated by matching the term of new investments with new long-term fixed rate borrowings and through an interest rate swap agreement on a $25.0 million variable rate secured bond, fixing the SOFR rate to 2.5325% until September 30, 2026[189][191] - Foreign currency risk on CAD-denominated cash flows from Canadian properties is hedged using cross-currency swaps (total fixed original notional value of $260.0 million CAD, locking in an exchange rate of $1.35 CAD per USD on approximately $23.4 million annual CAD cash flows through December 2026)[192][193][194] - Net investments in Canada are hedged against USD-CAD exchange rate fluctuations using foreign currency forward agreements (total fixed notional value of $290.0 million CAD, with an exchange rate of approximately $1.40 CAD per USD, settling December 1, 2026)[195][196] Item 4. Controls and Procedures As of June 30, 2025, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective in providing reasonable assurance for timely and accurate financial reporting. However, they acknowledge inherent limitations in any control system - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[199] - Management acknowledges that disclosure controls, no matter how well designed, can only provide reasonable assurance of achieving objectives due to inherent limitations such as faulty judgments, simple errors, circumvention by individual acts or collusion, or management override[200] - There have been no changes in the company's internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[201] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal claims and lawsuits, but management believes any resulting liability will not materially adversely affect its consolidated financial position or results of operations - The company is subject to certain claims and lawsuits in the ordinary course of business[203] - In the opinion of management, any liability incurred upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on the company's consolidated financial position or results of operations[203] Item 1A. Risk Factors The primary new risk factor identified is the potential adverse effect of actual and perceived changes in U.S. trade policies, including tariffs and trade restrictions, which could increase operating costs, reduce consumer spending, and negatively impact development projects and tenant obligations - Other than the risk factor below, there have been no material changes to the risk factors associated with the business previously disclosed in Item 1A - "Risk Factors" in the 2024 Annual Report[204] - Actual and perceived changes in U.S. trade policies, including tariffs and trade restrictions (e.g., on foreign-made films), and retaliatory responses from other countries may have a material adverse effect on the company's business, results of operations, and financial condition[204][205] - Tariffs or other trade restrictions could increase operating costs, reduce discretionary consumer spending, cause disruptions in global supply chains, and negatively impact the economies in which the company, its tenants, and their customers operate[207] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds There were no reportable events regarding unregistered sales of equity securities or use of proceeds during the quarter ended June 30, 2025 - There were no reportable events during the quarter ended June 30, 2025[208] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the quarter ended June 30, 2025 - None[209] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[210] Item 5. Other Information No trustee or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025, and no other reportable events occurred under this item - During the quarter ended June 30, 2025, no trustee or officer adopted, modified, or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[211] - There were no other reportable events during the quarter ended June 30, 2025, otherwise reportable under this Item 5[211] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and various XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase)[215] - The Cover Page Interactive Data File is formatted in Inline XBRL and contained in Exhibit 101[215]