EPR PROPERTIES [EPR-PG] Filings

10-Q 1 epr-20230331.htm 10-Q epr-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-13561

EPR PROPERTIES

(Exact name of registrant as specified in its charter)


Maryland		43-1790877
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

909 Walnut Street,	Suite 200
Kansas City,	Missouri	64106
(Address of principal executive offices)		(Zip Code)


Registrant’s telephone number, including area code:			(816)			472-1700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common shares, par value $0.01 per share

EPR

New York Stock Exchange

5.75% Series C cumulative convertible preferred shares, par value $0.01 per share

EPR PrC

New York Stock Exchange

9.00% Series E cumulative convertible preferred shares, par value $0.01 per share

EPR PrE

New York Stock Exchange

5.75% Series G cumulative redeemable preferred shares, par value $0.01 per share

EPR PrG

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

At April 26, 2023, there were 75,279,238 common shares outstanding.

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 the uncertain financial impact of the COVID-19 pandemic, our capital resources and liquidity, our expected pursuit of growth opportunities, our expected cash flows, the performance of our customers, our expected cash collections 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 that 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,” “estimates,” “offers,” “plans,” “would” or other similar expressions or other comparable terms or discussions of strategy, plans or intentions in this Quarterly Report on Form 10-Q. In addition, references to our budgeted amounts and guidance are forward-looking statements.

Factors that could materially and adversely affect us include, but are not limited to, the factors listed below:

•Risks associated with the effects of the COVID-19 pandemic, or the future outbreak of any additional variants of COVID-19 or other highly infectious or contagious diseases;

•Uncertainties regarding the ultimate impact of a customer's pending bankruptcy proceeding on our existing leases with Regal theatre tenants;

•Global economic uncertainty, disruptions in financial markets, and generally weakening economic conditions;

•The impact of inflation on our customers and our results of operations;

•Reduction in discretionary spending by consumers;

•Covenants in our debt instruments that limit our ability to take certain actions;

•Adverse changes in our credit ratings;

•Rising interest rates;

•Defaults in the performance of lease terms by our tenants;

•Defaults by our customers and counterparties on their obligations owed to us;

•A borrower's bankruptcy or default;

•Our ability to renew maturing leases on terms comparable to prior leases and/or our ability to locate substitute lessees for these properties on economically favorable terms;

•Risks of operating in the experiential real estate industry;

•Our ability to compete effectively;

•Risks associated with three tenants representing a substantial portion of our lease revenues;

•The ability of our build-to-suit tenants to achieve sufficient operating results within expected time-frames and therefore have capacity to pay their agreed upon rent;

•Risks associated with our dependence on third-party managers to operate certain of our properties;

•Risks associated with our level of indebtedness;

•Risks associated with use of leverage to acquire properties;

•Financing arrangements that require lump-sum payments;

•Our ability to raise capital;

•The concentration of our investment portfolio;

•Our continued qualification as a real estate investment trust for U.S. federal income tax purposes and related tax matters;

•The ability of our subsidiaries to satisfy their obligations;

•Financing arrangements that expose us to funding and completion risks;

•Our reliance on a limited number of employees, the loss of which could harm operations;

•Risks associated with the employment of personnel by managers of certain of our properties;

•Risks associated with the gaming industry;

•Risks associated with gaming and other regulatory authorities;

•Delays or prohibitions of transfers of gaming properties due to required regulatory approvals;

•Risks associated with security breaches and other disruptions;

•Changes in accounting standards that may adversely affect our financial statements;

•Fluctuations in the value of real estate income and investments;

•Risks relating to real estate ownership, leasing and development, including local conditions such as an oversupply of space or a reduction in demand for real estate in the area, competition from other available space, whether tenants and users such as customers of our tenants consider a property attractive, changes in real estate taxes and other expenses, changes in market rental rates, the timing and costs associated with property improvements and rentals, changes in taxation or zoning laws or other governmental regulation, whether we are able to pass some or all of any increased operating costs through to tenants or other customers, and how well we manage our properties;

•Our ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;

•Risks involved in joint ventures;

•Risks in leasing multi-tenant properties;

•A failure to comply with the Americans with Disabilities Act or other laws;

•Risks of environmental liability;

•Risks associated with the relatively illiquid nature of our real estate investments;

•Risks with owning assets in foreign countries;

•Risks associated with owning, operating or financing properties for which the tenants', mortgagors' or our operations may be impacted by weather conditions, climate change and natural disasters;

•Risks associated with the development, redevelopment and expansion of properties and the acquisition of other real estate related companies;

•Our ability to pay dividends in cash or at current rates;

•Risks associated with the impact of inflation or market interest rates on the value of our shares;

•Fluctuations in the market prices for our shares;

•Certain limits on changes in control imposed under law and by our Declaration of Trust and Bylaws;

•Policy changes obtained without the approval of our shareholders;

•Equity issuances that could dilute the value of our shares;

•Future offerings of debt or equity securities, which may rank senior to our common shares;

•Risks associated with changes in foreign exchange rates; and

•Changes in laws and regulations, including tax laws and regulations.

Our 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 Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report") filed with the Securities and Exchange Commission ("SEC") on February 23, 2023.

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 of this Quarterly Report on Form 10-Q 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 of this Quarterly Report on Form 10-Q.

TABLE OF CONTENTS

Page

PART I

Item 1.

Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

iii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EPR PROPERTIES

Consolidated Balance Sheets

(Dollars in thousands except share data)


	March 31, 2023		December 31, 2022
	(unaudited)
Assets
Real estate investments, net of accumulated depreciation of $1,341,527 and $1,302,640 at March 31, 2023 and December 31, 2022, respectively	$	4,708,342	$	4,714,136
Land held for development	20,168		20,168
Property under development	85,829		76,029
Operating lease right-of-use assets	197,357		200,985
Mortgage notes and related accrued interest receivable, net	461,263		457,268

Investment in joint ventures	50,978		52,964
Cash and cash equivalents	96,438		107,934
Restricted cash	2,599		2,577


Accounts receivable	50,591		53,587

Other assets	83,050		73,053
Total assets	$	5,756,615	$	5,758,701
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	76,244	$	80,087
Operating lease liabilities	238,096		241,407
Common dividends payable	21,826		21,405
Preferred dividends payable	6,033		6,033
Unearned rents and interest	71,601		63,939
Debt	2,811,653		2,810,111
Total liabilities	3,225,453		3,222,982
Equity:
Common Shares, $0.01 par value; 100,000,000 shares authorized; and 82,905,229 and 82,545,501 shares issued at March 31, 2023 and December 31, 2022, respectively	829		825
Preferred Shares, $0.01 par value; 25,000,000 shares authorized:
5,392,916 Series C convertible shares issued at March 31, 2023 and December 31, 2022; liquidation preference of $134,822,900	54		54
3,446,070 and 3,447,381 Series E convertible shares issued at March 31, 2023 and December 31, 2022, respectively; liquidation preference of $86,151,750	34		34
6,000,000 Series G shares issued at March 31, 2023 and December 31, 2022; liquidation preference of $150,000,000	60		60
Additional paid-in-capital	3,910,235		3,899,732
Treasury shares at cost: 7,628,551 and 7,520,227 common shares at March 31, 2023 and December 31, 2022, respectively	(273,904)		(269,751)
Accumulated other comprehensive income	1,823		1,897
Distributions in excess of net income	(1,107,969)		(1,097,132)


Total equity	$	2,531,162	$	2,535,719
Total liabilities and equity	$	5,756,615	$	5,758,701

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(Dollars in thousands except per share data)


	Three Months Ended March 31,
	2023		2022
Rental revenue	$	151,591	$	139,603
Other income	9,333		9,305
Mortgage and other financing income	10,472		8,564
Total revenue	171,396		157,472
Property operating expense	14,155		13,939
Other expense	8,950		8,097
General and administrative expense	13,965		13,224


Transaction costs	270		2,247
Credit loss expense (benefit)	587		(306)
Impairment charges	—		4,351
Depreciation and amortization	41,204		40,044
Total operating expenses	79,131		81,596
Loss on sale of real estate	(560)		—

Income from operations	91,705		75,876


Interest expense, net	31,722		33,260
Equity in loss from joint ventures	1,985		106

Income before income taxes	57,998		42,510
Income tax expense	341		318









Net income	57,657		42,192
Preferred dividend requirements	6,033		6,033

Net income available to common shareholders of EPR Properties	$	51,624	$	36,159

Net income available to common shareholders of EPR Properties per share:


Basic	$	0.69	$	0.48




Diluted	$	0.69	$	0.48
Shares used for computation (in thousands):
Basic	75,084		74,843
Diluted	75,283		75,047

Other comprehensive income:
Net income	$	57,657	$	42,192
Foreign currency translation adjustment	230		2,606
Change in net unrealized loss on derivatives	(304)		(2,090)
Comprehensive income attributable to EPR Properties	$	57,583	$	42,708

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Consolidated Statements of Changes in Equity

(Unaudited)

(Dollars in thousands except per share data)


	EPR Properties Shareholders’ Equity
	Common Stock			Preferred Stock			Additional paid-in capital		Treasury shares		Accumulated other comprehensive income		Distributions in excess of net income		Total
	Shares	Par		Shares	Par
Balance at December 31, 2021	82,225,061	$	822	14,840,297	$	148	$	3,876,817	$	(264,817)	$	9,955	$	(1,004,886)	$	2,618,039
Restricted share units issued to Trustees	2,794	—		—	—		—		—		—		—		—
Issuance of nonvested shares and performance shares, net of cancellations	243,286	3		—	—		4,496		(83)		—		—		4,416
Purchase of common shares for vesting	—	—		—	—		—		(4,250)		—		—		(4,250)
Share-based compensation expense	—	—		—	—		4,245		—		—		—		4,245

Foreign currency translation adjustment	—	—		—	—		—		—		2,606		—		2,606

Change in unrealized loss on derivatives	—	—		—	—		—		—		(2,090)		—		(2,090)

Net income	—	—		—	—		—		—		—		42,192		42,192
Issuances of common shares	4,730	—		—	—		228		—		—		—		228




Stock option exercises, net	9,799	—		—	—		454		(458)		—		—		(4)
Dividend equivalents accrued on performance shares	—	—		—	—		—		—		—		(136)		(136)
Dividends to common shareholders ($0.7750 per share)	—	—		—	—		—		—		—		(58,099)		(58,099)
Dividends to Series C preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(1,938)		(1,938)
Dividends to Series E preferred shareholders ($0.5625 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series G preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(2,156)		(2,156)

Balance at March 31, 2022	82,485,670	$	825	14,840,297	$	148	$	3,886,240	$	(269,608)	$	10,471	$	(1,026,962)	$	2,601,114






Balance at December 31, 2022	82,545,501	$	825	14,840,297	$	148	$	3,899,732	$	(269,751)	$	1,897	$	(1,097,132)	$	2,535,719
Restricted share units issued to Trustees	1,449	—		—	—		—		—		—		—		—
Issuance of nonvested shares and performance shares, net of cancellations	352,090	4		—	—		5,956		(588)		—		—		5,372
Purchase of common shares for vesting	—	—		—	—		—		(3,565)		—		—		(3,565)
Share-based compensation expense	—	—		—	—		4,322		—		—		—		4,322

Foreign currency translation adjustment	—	—		—	—		—		—		230		—		230

Change in unrealized loss on derivatives	—	—		—	—		—		—		(304)		—		(304)

Net income	—	—		—	—		—		—		—		57,657		57,657
Issuances of common shares	5,557	—		—	—		225		—		—		—		225


Conversion of Series E Convertible Preferred shares to common shares	632	—		(1,311)	—		—		—		—		—		—


Dividend equivalents accrued on performance shares	—	—		—	—		—		—		—		(353)		(353)
Dividends to common shareholders ($0.825 per share)	—	—		—	—		—		—		—		(62,109)		(62,109)
Dividends to Series C preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(1,938)		(1,938)
Dividends to Series E preferred shareholders ($0.5625 per share)	—	—		—	—		—		—		—		(1,938)		(1,938)
Dividends to Series G preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(2,156)		(2,156)
Balance at March 31, 2023	82,905,229	$	829	14,838,986	$	148	$	3,910,235	$	(273,904)	$	1,823	$	(1,107,969)	$	2,531,162

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2023		2022
Operating activities:
Net income	$	57,657	$	42,192
Adjustments to reconcile net income to net cash provided by operating activities:

Impairment charges	—		4,351



Loss on sale of real estate	560		—
Gain on insurance recovery	—		(552)
Deferred income tax benefit	(90)		—


Equity in loss from joint ventures	1,985		106

Credit loss expense (benefit)	587		(306)
Depreciation and amortization	41,204		40,044
Amortization of deferred financing costs	2,129		2,071
Amortization of above/below market leases and tenant allowances, net	(89)		(87)
Share-based compensation expense to management and Trustees	4,322		4,245

Change in assets and liabilities:
Operating lease assets and liabilities	317		(49)
Mortgage notes accrued interest receivable	(296)		310
Accounts receivable	2,998		17,424

Other assets	(6,276)		(5,861)
Accounts payable and accrued liabilities	8,861		15,132
Unearned rents and interest	7,661		9,067


Net cash provided by operating activities	121,530		128,087
Investing activities:
Acquisition of and investments in real estate and other assets	(46,669)		(20,726)
Proceeds from sale of real estate	4,029		61



Investment in mortgage notes receivable	(1,427)		—
Proceeds from mortgage notes receivable paydowns	132		151
Investment in notes receivable	(3,025)		—
Proceeds from note receivable paydowns	161		75

Proceeds from insurance recovery, net	—		609


Additions to properties under development	(14,711)		(5,205)



Net cash used by investing activities	(61,510)		(25,035)
Financing activities:


Deferred financing fees paid	(74)		(48)

Net proceeds from issuance of common shares	141		160

Impact of stock option exercises, net	—		(4)

Purchase of common shares for treasury for vesting	(3,565)		(4,250)


Dividends paid to shareholders	(67,988)		(62,151)


Net cash used by financing activities	(71,486)		(66,293)
Effect of exchange rate changes on cash	(8)		57
Net change in cash and cash equivalents and restricted cash	(11,474)		36,816
Cash and cash equivalents and restricted cash at beginning of the period	110,511		289,901
Cash and cash equivalents and restricted cash at end of the period	$	99,037	$	326,717
Supplemental information continued on next page.

EPR PROPERTIES

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


Continued from previous page
	Three Months Ended March 31,
	2023		2022
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of the period	$	107,934	$	288,822
Restricted cash at beginning of the period	2,577		1,079
Cash and cash equivalents and restricted cash at beginning of the period	$	110,511	$	289,901

Cash and cash equivalents at end of the period	$	96,438	$	323,761
Restricted cash at end of the period	2,599		2,956
Cash and cash equivalents and restricted cash at end of the period	$	99,037	$	326,717

Supplemental schedule of non-cash activity:
Transfer of property under development to real estate investments	$	134	$	35,255

Transfer of real estate investments to mortgage note	$	1,321	$	—

Issuance of nonvested shares and restricted share units at fair value, including nonvested shares issued for payment of bonuses	$	21,698	$	19,791














Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	17,913	$	17,298
Cash paid during the period for income taxes	$	253	$	—
Interest cost capitalized	$	783	$	200
Change in accrued capital expenditures	$	(7,510)	$	5,928

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Notes to Consolidated Financial Statements (Unaudited)

1. Organization

Description of Business

EPR Properties (the Company) was formed on August 22, 1997 as a Maryland real estate investment trust (REIT), and an initial public offering of the Company's common shares of beneficial interest (common shares) was completed on November 18, 1997. Since that time, the Company has been a leading diversified Experiential net lease REIT specializing in select enduring experiential properties. The Company's underwriting is centered on key industry and property cash flow criteria, as well as the credit metrics of the Company's tenants and customers. The Company’s properties are located in the United States (U.S.) and Canada.

2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. In addition, operating results for the three month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Amounts as of December 31, 2022 have been derived from the audited Consolidated Financial Statements as of that date and should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (SEC) on February 23, 2023.

The Company consolidates certain entities when it is deemed to be the primary beneficiary in a variable interest entity (VIE) in which it has a controlling financial interest in accordance with the consolidation guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in the FASB ASC Topic on Consolidation (Topic 810) but can exercise influence over the entity with respect to its operations and major decisions.

The Company examines specific criteria and uses its judgment when determining if the Company is the primary beneficiary of a VIE. The primary beneficiary generally is defined as the party with the controlling financial interest. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. As of March 31, 2023 and December 31, 2022, the Company does not have any investments in consolidated VIEs.

Risks and Uncertainties

The COVID-19 pandemic severely impacted experiential real estate properties because such properties involve congregate social activity and discretionary spending. The Company's non-theatre properties have demonstrated strong recovery from the impacts of the pandemic. However, the Company's theatre customers were more severely impacted by the COVID-19 pandemic and have seen a slower recovery than its non-theatre customers due primarily to changes in the timing of film releases, production delays and experimentation with streaming. As a result, the Company continues to recognize revenue on a cash basis for certain tenants, including American-Multi Cinema, Inc. (AMC) and Regal Cinemas, a subsidiary of Cineworld Group.

On September 7, 2022, Cineworld Group, plc, Regal Entertainment Group and the Company's other Regal theatre tenants (collectively, Regal) filed for protection under Chapter 11 of the U.S. Bankruptcy Code (the Code). Regal leases 57 theatres from the Company pursuant to two master leases and 28 single property leases (the Regal Leases).

As a result of the filing, Regal did not pay its rent or monthly deferral payment for September 2022 but subsequently paid portions of this amount pursuant to an order of the bankruptcy court. Regal resumed payment of rent and deferral payments for all Regal Leases commencing in October 2022 and has continued making these payments through April 2023. However, there can be no assurance that subsequent payments will be made in a timely and complete manner.

In December of 2022, Regal filed a motion to reject leases for three of our properties, but thus far has not elected to proceed with these rejections. On April 2, 2023, Regal reported that it had entered into a restructuring support agreement with secured lenders holding most of Regal's outstanding secured indebtedness. On April 11, 2023, Regal filed a plan of reorganization and an accompanying disclosure statement. Based on this progress, Regal has announced its expectation to emerge from the bankruptcy case by mid-year. Given the complexity of this matter, there can be no assurance that Regal will not experience delays in concluding the bankruptcy case.

The Company is currently in negotiations with Regal regarding the properties Regal will continue to operate and the terms and conditions of leases for those properties. Regal is entitled to certain rights under the Code regarding the assumption or rejection of the Regal Leases. There can be no assurance that these negotiations will be successful and which Regal Leases, if any, will be assumed under the Code. Additionally, Regal owes the Company a significant amount of rent deferred during the COVID-19 pandemic pursuant to a Promissory Note. This amount is not included in the accompanying consolidated balance sheets and there can be no assurance how much of the amount, if any, the Company will recover under the Promissory Note.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations, as applicable. Deferred financing costs of $29.6 million and $31.1 million as of March 31, 2023 and December 31, 2022, respectively, are shown as a reduction of debt. The deferred financing costs related to the unsecured revolving credit facility of $5.9 million and $6.4 million as of March 31, 2023 and December 31, 2022, respectively, are included in "Other assets" in the accompanying consolidated balance sheets.

Rental Revenue

The Company leases real estate to its tenants under leases classified as operating leases. The Company's leases generally provide for rent escalations throughout the lease terms. Rents that are fixed are recognized on a straight-line basis over the lease term. Base rent escalations that include a variable component are recognized upon the occurrence of the specified event as defined in the Company's lease agreements. Many of the Company's leasing arrangements include options to extend the lease, which are not included in the minimum lease terms unless the option is reasonably certain to be exercised. Straight-line rental revenue is subject to an evaluation for collectibility, and the Company records a direct write-off against rental revenue if collectibility of these future rents is not probable. For the three months ended March 31, 2023 and 2022, the Company recognized $2.1 million and $0.6 million, respectively, of straight-line rental revenue. There were no straight-line write offs for the three months ended March 31, 2023 and 2022.

Most of the Company’s lease contracts are triple-net leases, which require the tenants to make payments to third parties for lessor costs (such as property taxes and insurance) associated with the properties. In accordance with Topic 842, the Company does not include these lessee payments to third parties in rental revenue or property operating expenses. In certain situations, the Company pays these lessor costs directly to third parties and the tenants reimburse the Company. In accordance with Topic 842, these payments are presented on a gross basis in rental revenue and property operating expense. During the three months ended March 31, 2023 and 2022, the Company recognized $0.7 million and $0.5 million, respectively, in tenant reimbursements related to the gross-up of these reimbursed expenses which are included in rental revenue.

Certain of the Company's leases, particularly at its entertainment districts, require the tenants to make payments to the Company for property-related expenses such as common area maintenance. The Company has elected to combine these non-lease components with the lease components in rental revenue. For the three months ended March 31, 2023 and 2022, the amounts due for non-lease components included in rental revenue totaled $4.7 million and $4.5 million, respectively.

In addition, most of the Company's tenants are subject to additional rents (above base rents) if gross revenues of the properties exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents are recognized at the time when specific triggering events occur as provided by the lease agreement. Rental revenue included percentage rents of $1.8 million and $3.4 million for the three months ended March 31, 2023 and 2022, respectively.

The Company regularly evaluates the collectibility of its receivables on a lease-by-lease basis. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of the Company's tenants, historical trends of the tenant, current economic conditions and changes in customer payment terms. When the collectibility of lease receivables or future lease payments are no longer probable, the Company records a direct write-off of the receivable to rental revenue and recognizes future rental revenue on a cash basis.

Mortgage Notes and Other Notes Receivable

Mortgage notes and other notes receivable, including related accrued interest receivable, consist of loans originated by the Company and the related accrued and unpaid interest income as of the balance sheet date. Mortgage notes and other notes receivable are initially recorded at the amount advanced to the borrower less allowance for credit loss. Interest income is recognized using the effective interest method over the estimated life of the note. Interest income includes both the stated interest and the amortization or accretion of premiums or discounts (if any).

The Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables related to its mortgage notes and notes receivable. Accordingly, if accrued interest receivable is deemed to be uncollectible, the Company will record any necessary write-offs as a reversal of interest income. There were no accrued interest write-offs for the three months ended March 31, 2023 and 2022. As of March 31, 2023, the Company believes that all outstanding accrued interest is collectible.

In the event the Company has a past due mortgage note or note receivable that the Company determines is collateral dependent, the Company measures expected credit losses based on the fair value of the collateral. As of March 31, 2023, the Company does not have any mortgage notes or notes receivable with past due principal balances. See Note 5 for further discussion of mortgage notes and notes receivable for which the Company elected to apply the collateral dependent practical expedient.

Concentrations of Risk

Regal, AMC and Topgolf USA (Topgolf) represented a significant portion of the Company's total revenue for the three months ended March 31, 2023 and 2022. The following is a summary of the Company's total revenue derived from rental or interest payments from AMC, Topgolf and Regal (dollars in thousands):


	Three Months Ended March 31,
	2023				2022
	Total Revenue		% of Company's Total Revenue		Total Revenue		% of Company's Total Revenue
Regal	$	28,751	16.8	%	$	21,255	13.5	%
AMC	23,801		13.9	%	23,422		14.9	%
Topgolf	23,672		13.8	%	22,383		14.2	%

Impact of Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU contains practical expedients for reference rate reform - related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. On March 5, 2021, the Financial Conduct Authority (FCA) announced that the USD LIBOR will no longer be published after June 30, 2023. In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Topic

848. The guidance in ASU 2022-06 deferred the sunset date to December 31, 2024. The Company has transitioned existing contracts to a replacement index. These ASUs are not anticipated to have any significant impact on the Company's consolidated financial statements.

3. Real Estate Investments

The following table summarizes the carrying amounts of real estate investments as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Buildings and improvements	$	4,659,876	$	4,637,801
Furniture, fixtures & equipment	115,320		115,677
Land	1,247,733		1,236,358
Leasehold interests	26,940		26,940
	6,049,869		6,016,776
Accumulated depreciation	(1,341,527)		(1,302,640)
Total	$	4,708,342	$	4,714,136

Depreciation expense on real estate investments was $40.0 million and $38.8 million for the three months ended March 31, 2023 and 2022, respectively.

4. Investments and Dispositions

The Company's investment spending during the three months ended March 31, 2023 totaled $66.5 million, and included the acquisition of a fitness and wellness property for approximately $46.7 million and spending on build-to-suit experiential development and redevelopment projects.

During the three months ended March 31, 2023, the Company completed the sale of one vacant eat & play property and a land parcel for net proceeds of $4.0 million and recognized a net loss on sale of $0.6 million.

5. Investment in Mortgage Notes and Notes Receivable

The Company measures expected credit losses on its mortgage notes and notes receivable on an individual basis because its financial instruments do not have similar risk characteristics. The Company uses a forward-looking commercial real estate loss forecasting tool to estimate its current expected credit losses (CECL) for each of its mortgage notes and notes receivable on a loan-by-loan basis. As of March 31, 2023, the Company did not anticipate any prepayments; therefore, the contractual terms of its mortgage notes and notes receivable were used for the calculation of the expected credit losses. The Company updates the model inputs at each reporting period to reflect, if applicable, any newly originated loans, changes to loan specific information on existing loans and current macroeconomic conditions. The CECL allowance is a valuation account that is deducted from the related mortgage note or note receivable. Effective January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.

Certain of the Company’s mortgage notes and notes receivable include commitments to fund future incremental amounts to its borrowers. These future funding commitments are also subject to the CECL model. The allowance related to future funding is recorded as a liability and is included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheets.

During the three months ended March 31, 2023, the Company amended a mortgage note receivable and note receivable secured by an eat & play investment with one borrower. The modified loan agreement consolidated all of the borrower's obligations into one mortgage note agreement, including with respect to land which was previously ground leased to the borrower. The maturity date of this mortgage note receivable was modified to be August 31, 2024 and was previously June 17, 2039. In connection with the modification, the Company forgave approximately $7.8 million of principal, which was fully reserved at December 31, 2022, and reduced the allowance for credit loss at March 31, 2023. The balance of this mortgage note receivable at March 31, 2023 was $10.8 million.

Although foreclosure was not deemed probable and the principal balance of the mortgage note receivable was not past due at March 31, 2023, based on the borrower's declining financial condition, the Company determined that the borrower continues to experience financial difficulty. The repayments are expected to be provided substantially through the sale or operation of the collateral, therefore, the Company elected to apply the collateral dependent practical expedient. Expected credit losses are based on the fair value of the underlying collateral at the reporting date. The Company will continue to monitor and re-assess the borrower’s financial status at each reporting period and will continue to apply the practical expedient until the borrower is no longer experiencing financial difficulties or the repayment of the outstanding principal and interest is no longer in question. Income from this borrower is recognized on a cash basis. The Company received interest payments totaling $0.2 million and $0.3 million from this borrower for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, the borrower made all contractual interest payments according to the terms of the modified agreement.

Investment in notes receivable, including related accrued interest receivable, was $4.4 million and $2.9 million at March 31, 2023 and December 31, 2022, respectively, and is included in "Other assets" in the accompanying consolidated balance sheets.

At March 31, 2023, two of the Company's notes receivable are considered collateral dependent and expected credit losses are based on the fair value of the underlying collateral at the reporting date. The Company assessed the fair value of the collateral as of March 31, 2023 on these notes and the notes remain fully reserved with an allowance for credit loss totaling $8.4 million and $1.9 million, respectively, which represents the outstanding principal balance of the notes as of March 31, 2023. Income from these borrowers is recognized on a cash basis. No interest payments were received during the three months ended March 31, 2023 or 2022 on these notes.

At March 31, 2023, the Company's investment in one of the notes receivable was a variable interest investment and the underlying entity is a VIE. The Company is not the primary beneficiary of this VIE because the Company does not individually have the power to direct the activities that are most significant to the entity and, accordingly, this investment is not consolidated. The Company's maximum exposure to loss associated with this VIE is limited to the Company's outstanding note receivable in the amount of $8.4 million, which is fully reserved in the allowance for credit losses at March 31, 2023.

The following summarizes the activity within the allowance for credit losses related to mortgage notes, unfunded commitments and notes receivable for the three months ended March 31, 2023 (in thousands):


	Mortgage notes receivable		Unfunded commitments - mortgage notes receivable		Notes receivable		Unfunded commitments - notes receivable		Total
Allowance for credit losses at December 31, 2022	$	8,999	$	751	$	11,952	$	—	$	21,702
Credit loss expense (benefit)	1,416		372		(1,201)		—		587
Charge-offs	(7,771)		—		—		—		(7,771)
Recoveries	—		—		—		—		—
Allowance for credit losses at March 31, 2023	$	2,644	$	1,123	$	10,751	$	—	$	14,518

6. Accounts Receivable

The following table summarizes the carrying amounts of accounts receivable as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Receivable from tenants	$	2,827	$	7,595
Receivable from non-tenants	751		1,006



Straight-line rent receivable	47,013		44,986

Total	$	50,591	$	53,587

As of March 31, 2023, receivable from tenants includes payments of approximately $1.5 million that were deferred due to the COVID-19 pandemic and determined to be collectible. Additionally, the Company has amounts due from tenants that were not booked as receivables because the full amounts were not deemed probable of collection as a result of the COVID-19 pandemic. While deferments for this and future periods delay rent payments, these deferments do not release tenants from the obligation to pay the deferred amounts in the future.

7. Capital Markets and Dividends

During the three months ended March 31, 2023, the Company declared cash dividends totaling $0.825 per common share. Additionally, during the three months ended March 31, 2023, the Board declared cash dividends of $0.359375 per share on each of the Company's 5.75% Series C cumulative convertible preferred shares and the Company's 5.75% Series G cumulative redeemable preferred shares, and cash dividends of $0.5625 per share on the Company's 9.00% Series E cumulative convertible preferred shares.

On February 17, 2023, the Company amended its Third Consolidated Credit Agreement, which governs its unsecured revolving credit facility, to modify the interest rate from LIBOR to SOFR. The facility bears interest at a floating rate of SOFR plus 1.30% (with a SOFR floor of zero), which was 6.11% at March 31, 2023, and has a facility fee of 0.25%.

8. Unconsolidated Real Estate Joint Ventures

The following table summarizes the Company's investments in unconsolidated joint ventures as of March 31, 2023 and December 31, 2022 (in thousands):


					Investment as of				Income (Loss) for the Three Months Ended
Property Type	Location	Ownership Interest			March 31, 2023		December 31, 2022		March 31, 2023		March 31, 2022
Experiential lodging	St. Pete Beach, FL	65	%	(1)	$	19,393	$	18,712	$	682	$	1,198
Experiential lodging	Warrens, WI	95	%	(2)	9,650		10,865		(1,215)		(1,294)
Experiential lodging	Breaux Bridge, LA	85	%	(3)	15,855		17,080		(1,225)		—
Experiential lodging	Harrisville, PA	62	%	(4)	6,080		6,307		(227)		—
Theatres	China	various			—		—		—		(10)
					$	50,978	$	52,964	$	(1,985)	$	(106)

EPR PROPERTIES [EPR-PG] Filings
EPR PROPERTIES [EPR] Filings
EPR PROPERTIES [EPR-PE] Filings
EPR PROPERTIES [EPR-PC] Filings
10-Q	[2023-04-27]
10-K	[2023-02-23]
10-Q	[2022-11-03]
10-Q	[2022-08-02]
10-Q	[2022-05-05]
10-K	[2022-02-23]
10-Q	[2021-11-04]
10-Q	[2021-07-28]
10-Q	[2021-05-06]
10-K	[2021-02-25]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-11]
10-K	[2020-02-25]
10-Q	[2019-10-30]
10-Q	[2019-08-01]
10-Q	[2019-04-30]
10-K	[2019-02-28]
10-Q	[2018-10-30]
10-Q	[2018-07-31]
10-Q	[2018-05-09]
10-K	[2018-03-01]
10-Q	[2017-11-09]
10-Q	[2017-08-04]
10-Q	[2017-05-03]
10-K	[2017-03-01]
10-Q	[2016-11-03]
10-Q	[2016-08-04]
10-Q	[2016-04-29]
10-K	[2016-02-25]
10-Q	[2015-10-29]
10-Q	[2015-08-05]
10-Q	[2015-04-29]
10-K	[2015-02-25]
10-Q	[2014-10-29]
10-Q	[2014-07-25]
10-Q	[2014-04-30]
10-K	[2014-02-28]
10-Q	[2013-11-06]
10-Q	[2013-07-26]
10-Q	[2013-05-01]
10-K	[2013-02-27]
10-Q	[2012-10-31]
10-Q	[2012-07-27]
10-Q	[2012-05-02]
10-K	[2012-02-24]

EPR PROPERTIES [EPR-PG] Filings

EPR PROPERTIES [EPR] Filings

EPR PROPERTIES [EPR-PE] Filings

EPR PROPERTIES [EPR-PC] Filings