EPR Properties Reports First Quarter 2016 Results

EPR Properties (NYSE:EPR) today announced operating results for the first quarter ended March 31, 2016.

• Total revenue was $118.8 million for the first quarter of 2016, representing a 19% increase from $99.4 million for the same quarter in 2015.
• Net income available to common shareholders was $48.2 million, or $0.77 per diluted common share, for the first quarter of 2016 compared to $36.9 million, or $0.64 per diluted common share, for the same quarter in 2015.
• Funds From Operations (FFO) for the first quarter of 2016 was $73.8 million, or $1.17 per diluted common share, compared to $32.1 million, or $0.56 per diluted common share, for the same quarter in 2015.
• FFO as adjusted for the first quarter of 2016 was $74.2 million, or $1.18 per diluted common share, compared to $59.0 million, or $1.03 per diluted common share, for the same quarter in 2015, representing a 15% increase in per share results.

“We continue to demonstrate the strength of our business model and the effectiveness of our execution as we delivered yet another quarter of record revenue, driving 15% FFO as adjusted per share growth,” commented Greg Silvers, President and CEO. “With our deep relationships and industry expertise, we made strategic investments in each of our segments and continue to be excited about the growth potential across our portfolio.”

A reconciliation of FFO to FFO as adjusted follows (unaudited, dollars in thousands, except per share amounts):

Portfolio Update

The Company's investment portfolio (excluding property under development) consisted of the following at March 31, 2016:

• The Entertainment segment included investments in 131 megaplex theatre properties, nine entertainment retail centers (which include eight additional megaplex theatre properties and one live performance venue) and eight family entertainment centers. The Company’s portfolio of owned entertainment properties consisted of 11.9 million square feet and was 98% leased, including megaplex theatres that were 100% leased.
• The Education segment included investments in 69 public charter school properties, 19 early education centers and three private school properties. The Company’s portfolio of owned education properties consisted of 4.3 million square feet and was 100% leased.
• The Recreation segment included investments in 11 metro ski parks, five waterparks and 19 golf entertainment complexes. The Company’s portfolio of owned recreation properties was 100% leased.
• The Other segment consisted primarily of the property under development and land held for development related to the Adelaar casino and resort project in Sullivan County, New York.

The combined owned portfolio consisted of 18.4 million square feet and was 99% leased. As of March 31, 2016, the Company also had a total of approximately $266.6 million invested in property under development.

Investment Update

The Company's investment spending during the three months ended March 31, 2016 totaled $145.1 million, and included investments in each of its four operating segments:

• Entertainment investment spending during the three months ended March 31, 2016 totaled $47.7 million, and was related to the acquisition of one family entertainment center located in Georgia, which is subject to a long-term triple net lease, the investment in a mortgage note secured by an entertainment retail center located in North Carolina, as well as investments in the development or redevelopment of six megaplex theatres, one family entertainment center and four entertainment retail centers.
• Education investment spending during the three months ended March 31, 2016 totaled $45.8 million, and was related to investments in the development or expansion of 19 public charter schools, three private schools, and 14 early childhood education centers.
• Recreation investment spending during the three months ended March 31, 2016 totaled $51.4 million, and was related to build-to-suit construction of 11 Topgolf golf entertainment facilities, the investment in one ski resort located in Hunter, New York, which is subject to a long-term mortgage agreement, as well as the Adelaar waterpark project.
• Other investment spending during the three months ended March 31, 2016 totaled $0.2 million, and was related to the Adelaar casino and resort project in Sullivan County, New York.

Adelaar Project Update

As previously announced, in December 2015, Montreign Operating Company, LLC (Montreign), a wholly-owned subsidiary of Empire Resorts Inc., received a New York gaming license to operate a casino resort within our Adelaar project. On March 1, 2016, the gaming license became effective upon the deposit of bonds by Montreign and the Company with the New York State Gaming Commission (NYSGC) of 10% of the minimum capital investment required for the project. On March 30, 2016, Montreign submitted payment for the gaming facility license in the amount of $51 million to the NYSGC.

Mortgage Notes Receivable

On January 5, 2016, the Company received prepayment on one mortgage note receivable of $19.3 million that was secured by a public charter school located in Washington D.C. In connection with the full payoff of this note, the Company received a prepayment fee of $3.6 million which was included in mortgage and other financing income. Subsequent to quarter end, the Company received prepayment in full on one mortgage note receivable of $44.3 million that was secured by an entertainment retail center located in North Carolina.

Balance Sheet Update

The Company continues to have a conservative capital structure and strong balance sheet with a net debt to adjusted EBITDA ratio of 4.8x at March 31, 2016. The Company had $11.0 million of unrestricted cash on hand and $217 million outstanding under its $650 million unsecured revolving credit facility at March 31, 2016.

During the quarter, the Company prepaid in full a mortgage note payable totaling $4.6 million that had an annual interest rate of 7.37%. In connection with this note payoff, the Company paid $472 thousand in additional costs included in costs associated with loan refinancing or payoff.

As previously announced, on January 21, 2016, the Company issued 2.25 million common shares in a registered public offering. Total net proceeds, after the underwriting discount and offering expenses, were approximately $125.0 million. The proceeds from the common share issuance were used to reduce the balance outstanding on the Company's unsecured revolving credit facility.

Subsequent to quarter end, the Company issued an additional 258,263 common shares under its Direct Share Purchase Plan (DSPP) for net proceeds of $16.9 million. These proceeds were used to pay down a portion of the Company's unsecured revolving credit facility.

Dividend Information

The Company declared regular monthly cash dividends during the first quarter of 2016 totaling $0.96 per common share. This dividend represents an annualized dividend of $3.84 per common share, an increase of 5.8% over the prior year, and would be the Company's sixth consecutive year with an annual dividend increase.

The Company also declared first quarter cash dividends of $0.359375 per share on its 5.75% Series C cumulative convertible preferred shares, $0.5625 per share on its 9.00% Series E cumulative convertible preferred shares and $0.4140625 per share on its 6.625% Series F cumulative redeemable preferred shares.

2016 Guidance

The Company is confirming its 2016 guidance for FFO as adjusted per diluted share of a range of $4.70 to $4.80. In addition, the Company is confirming its 2016 investment spending guidance of a range of $600 million to $650 million.

FFO as adjusted guidance for 2016 is based on FFO per diluted share of $4.62 to $4.68 adjusted for costs associated with loan refinancing or payoff, transaction costs, termination fees related to public charter schools and deferred income tax expense. FFO per diluted share is based on a net income per diluted share range of $3.01 to $3.11 less estimated gains on sale of real estate of a range of $.04 to $.08 and the impact of Series C dilution of $.02, plus estimated real estate depreciation of $1.67 per diluted share (in accordance with the NAREIT definition of FFO).

Quarterly Supplemental

The Company's supplemental information package for the first quarter ended March 31, 2016 is available on the Company's website at http://eprkc.com/earnings-releases-supplemental.

The conversion of the 5.75% Series C cumulative convertible preferred shares would be dilutive to FFO per share and FFO as adjusted per share for the three months ended March 31, 2016. Therefore, the additional 2.0 million shares that would result from the conversion and the corresponding add-back of the preferred dividends declared on those shares are included in the calculation of diluted FFO per share and FFO as adjusted per share for this period as applicable. The additional 2.0 million shares that would result from conversion of the 5.75% Series C cumulative convertible preferred shares and the additional 1.6 million common shares that would result from the conversion of our 9.0% Series E cumulative convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted per share data for the remaining periods above because the effect is not dilutive.

Net Debt to Adjusted EBITDA

Net Debt to Adjusted EBITDA is a supplemental measure derived from non-GAAP financial measures the Company uses to evaluate its capital structure and the magnitude of its debt against its operating performance. The Company believes that investors commonly use versions of this ratio in a similar manner. In addition, financial institutions use versions of this ratio in connection with debt agreements to set pricing and covenant limitations. The Company's method of calculating Net Debt to Adjusted EBITDA may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Reconciliations of debt and net income available to common shareholders (both reported in accordance with GAAP) to Net Debt, EBITDA, Adjusted EBITDA, and Net Debt to Adjusted EBITDA (each of which is a non-GAAP financial measure) are included in the following tables (unaudited, in thousands):

About EPR Properties

EPR Properties is a specialty real estate investment trust (REIT) that invests in properties in select market segments which require unique industry knowledge, while offering the potential for stable and attractive returns. Our total investments exceed $4.7 billion and our primary investment segments are Entertainment, Recreation and Education. We adhere to rigorous underwriting and investing criteria centered on key industry and property level cash flow standards. We believe our focused niche approach provides a competitive advantage, and the potential for higher growth and better yields.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

With the exception of historical information, certain statements contained or incorporated by reference herein may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as those pertaining to our acquisition or disposition of properties, our capital resources, future expenditures for development projects, and our results of operations and financial condition. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of actual events. There is no assurance the events or circumstances reflected in the forward-looking statements will occur. You can identify forward-looking statements by use of words such as “will be,” “intend,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,” “forecast,” “pipeline,” “anticipates,” “estimates,” “offers,” “plans,” “would” or other similar expressions or other comparable terms or discussions of strategy, plans or intentions contained or incorporated by reference herein. While references to commitments for investment spending are based on present commitments and agreements of the Company, we cannot provide assurance that these transactions will be completed on satisfactory terms. In addition, references to our budgeted amounts and guidance are forward-looking statements. Forward-looking statements necessarily are dependent on assumptions, data or methods that may be incorrect or imprecise. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors see “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and, to the extent applicable, our Quarterly Reports on Form 10-Q.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date hereof or the date of any document incorporated by reference herein. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by law, we do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date hereof.

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