Epr Properties 8-K, filed Aug 5, 2020
Epr Properties (EPR)
8-K
2020-08-05
For: 2020-08-05
View Original
Added on
April 05, 2026
About this 8-K
Epr Properties filed this 8-K on August 5, 2020.
Items reported
- Item 2.02: Financial results
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 5, 2020
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02 Results of Operations and Financial Condition.
On August 5, 2020, the Company announced its results of operations and financial condition for the second quarter and six months ended June 30, 2020. The public announcement was made by means of a press release, the text of which is set forth in Exhibit 99.1 hereto and is hereby incorporated by reference herein.
In addition, on August 5, 2020, the Company made available on its website an investor slide presentation and supplemental operating and financial data for the second quarter and six months ended June 30, 2020, the text of which are set forth in Exhibits 99.2 and 99.3 hereto, respectively, and are hereby incorporated by reference herein.
The information set forth in Item 2.02 of this Current Report on Form 8-K, including Exhibits 99.1, 99.2 and 99.3, is being “furnished” and shall not be deemed “filed” for the purposes of or otherwise subject to liabilities under Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Item 9.01 Financial Statements and Exhibits.
Exhibit No. | Description | |
Press Release dated August 5, 2020 issued by EPR Properties announcing its results of operations and financial condition for the second quarter and six months ended June 30, 2020. | ||
Investor slide presentation for the second quarter and six months ended June 30, 2020, made available by EPR Properties on August 5, 2020. | ||
Supplemental Operating and Financial Data for the second quarter and six months ended June 30, 2020, made available by EPR Properties on August 5, 2020. | ||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
EPR PROPERTIES | |||
By: | /s/ Mark A. Peterson | ||
Mark A. Peterson | |||
Executive Vice President, Treasurer and Chief Financial Officer | |||
Date: August 5, 2020
Exhibit 99.1
EPR PROPERTIES REPORTS SECOND QUARTER 2020 RESULTS
Kansas City, MO, August 5, 2020 -- EPR Properties (NYSE:EPR) today announced operating results for the second quarter and six months ended June 30, 2020 (dollars in thousands, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 (1) | 2020 | 2019 (1) | ||||||||||||
Total revenue from continuing operations | $ | 106,360 | $ | 161,740 | $ | 257,372 | $ | 312,267 | |||||||
Net (loss) income available to common shareholders | (68,999 | ) | 60,560 | (37,915 | ) | 119,875 | |||||||||
Net (loss) income available to common shareholders per diluted common share | (0.90 | ) | 0.79 | (0.49 | ) | 1.59 | |||||||||
Funds From Operations as adjusted (FFOAA) (a non-GAAP financial measure) | 31,418 | 105,219 | 107,344 | 208,210 | |||||||||||
FFOAA per diluted common share (a non-GAAP financial measure) | 0.41 | 1.36 | 1.39 | 2.73 | |||||||||||
Adjusted Funds From Operations (AFFO) (a non-GAAP financial measure) | 33,313 | 105,621 | 123,380 | 209,920 | |||||||||||
AFFO per diluted common share (a non-GAAP financial measure) | 0.44 | 1.37 | 1.59 | 2.75 | |||||||||||
(1) The operating results of the Company's public charter school portfolio for the three and six months ended June 30, 2019, include $6.5 million and $11.5 million in termination fees, respectively, and are included in all metrics in these columns except for total revenue from continuing operations. The remaining public charter school portfolio was sold subsequent to June 30, 2019.
Second Quarter Company Headlines
• | Strong Liquidity Position - With over $1.0 billion of cash on hand, it is currently estimated that the Company would have approximately six years of liquidity even if the elevated second quarter negative cash run rate were to persist. |
• | Property Openings - Approximately 88% of non-theatre properties are open as of August 4, 2020. |
• | Restructured AMC Leases - In exchange for agreeing with AMC to place 46 of the Company's 53 AMC leased theatres into a new master lease that reduces future restructuring risk and increases the average lease term by 9 years, the Company agreed to reduce annual fixed minimum rents by approximately 21%. |
• | Collections - Through August 4, 2020, customers paid approximately 21% and 28% of second quarter and July 2020 pre-COVID contractual cash rent and interest payments, respectively. |
• | Customer Agreements - The Company has reached resolution with customers representing 85% of its annualized pre-COVID contractual cash rent and interest payments, with no payment deferral for 18%, and deferral agreements for 67%. |
• | Permanent Rent Adjustments - Permanent rent adjustments are expected to lower annualized pre-COVID contractual cash rent and interest payments by approximately 5% to 7%, including the AMC rent reduction. |
CEO Comments
“As the country continues to face extraordinary challenges related to the COVID-19 pandemic, we have taken a number of steps to manage through this difficult time. We have effectively fortified our balance sheet and maintained sufficient liquidity, while working with our customers to help facilitate re-openings and operations in this current environment, and ensuring a strong positioning for the long term,” stated Greg Silvers, Company President and CEO. “Importantly, we have reached agreements with the vast majority of our customers including our largest tenant, AMC Theatres, which provides us additional certainty going forward. A number of our customers have been reopening, and they are seeing visitors return and exhibit their desire to participate in such experiences. While the outlook remains uncertain as the pandemic persists, we look forward to the eventual reopening of all of our customers and remain confident in our strategy of focusing on experiential real estate.”
COVID-19 Response and Update
AMC Restructuring
On July 31, 2020, the Company entered into a Forbearance Agreement (“Forbearance Agreement”), a Master Lease Agreement ("the Master Lease") and seven amended lease agreements (the "Transitional Leases" and collectively with the Master Lease, the "Leases") with American Multi-Cinema, Inc. and certain affiliates (“AMC”) relating to 53 properties currently leased by the Company to AMC (the “Leased Properties”). The Company and AMC entered into the Master Lease relating to 46 theatres
(“Master Lease Properties”) and amended the Transitional Leases relating to seven theatres (“Transitional Properties”), each of which is effective July 1, 2020.
Under the Leases, the Company agreed to reduce total annual fixed cash rent by approximately 21%, or $25.6 million, to $95.9 million (including $8.0 million of ground rent and the repayment of deferral amounts for the months of April, May and June, 2020 described below). The Company previously agreed to defer all of the fixed rent due under the Leases for the months of April, May and June 2020. The deferred amounts are included in the calculation of the new fixed cash rent of the Leases amortized over the first 14 years of the term of the applicable Lease or the expiration of the current term of the Lease, whichever is earlier. Additionally, the Master Lease has fixed escalators of 7.5% every five years on fixed rent excluding the portion attributable to deferred rent.
Pursuant to the Master Lease and the Forbearance Agreement, during the period of July 1, 2020 through December 31, 2020, AMC will pay percentage rent (15% of gross receipts) in lieu of fixed rent for the Leased Properties. The difference between the percentage rent paid and fixed rent due under the Leases represents an additional deferred amount that, beginning in February 2021, will be added to fixed cash rent and amortized over the first 14 years of the term of the applicable Lease or the expiration of the current term of the Lease, whichever is earlier. For the month of July, the Company expects no percentage rent given AMC theatres had not re-opened.
The Master Lease Properties have been divided into four tranches, with the initial term of each tranche expiring annually from June 30, 2034 to June 30, 2037. The Transitional Leases have expiration dates occurring between November 2026 and March 2029.
The Company believes that the AMC restructuring significantly improves the Company’s long-term position with respect to AMC, while providing AMC with deferrals it needs during the pandemic and better performing theatres in the future. Specifically:
• | The Master Lease was designed with the intention that the parties will respect the master lease characterization at all times, which the Company believes will enhance its position in the event of a reorganization proceeding regarding AMC, |
• | The lease terms on properties included in the Master Lease were increased by an average of nine years, and |
• | The Company has the ability to reduce its exposure to AMC through the option to terminate each of the seven Transitional Leases and re-brand or sell them with the cooperation of AMC. |
The material terms of the agreements with AMC described above will be more fully described in the Company’s Quarterly Report on Form 10-Q.
Collections and Property Openings
The Company's COVID-19 Task Force, an internal team comprised of individuals from across the Company, has been working diligently with customers negatively impacted by the pandemic to provide solutions for the parties' long-term mutual interests, including establishing appropriate repayment plans for deferred obligations and assisting these customers in establishing re-opening plans. The customers occupying substantially all of the Company's theatre properties are currently closed but most currently anticipate opening for business by the end of August subject to local restrictions. Approximately 88% of the customers in the Company's non-theatre portfolio are open for business as of August 4, 2020. Tenants and borrowers paid approximately 21% and 28% of second quarter and July 2020 pre-COVID contractual cash rent and interest payments, respectively. As many of the Company's customers remain temporarily closed or are only beginning to re-open, the Company has entered into agreements or is currently negotiating agreements to defer the rent and mortgage payments for substantially all of the customers that did not pay full rent or interest during the second quarter of 2020 and has classified tenants and borrowers (inclusive of AMC) into various categories described in the table below.
Additionally, as shown in the table below, during the quarter, the Company deferred approximately $64.0 million of amounts due from customers that were booked as revenue and receivables, and approximately $41.0 million that were not booked as revenue and receivables as the full amounts were not deemed probable of collection as a result of the COVID-19 pandemic. During the quarter, the Company reduced rental revenue by $3.3 million due to contractual rent abatements and provided $3.8 million in rent concessions. Permanent rent reductions are expected to total approximately 5% to 7% of annualized pre-COVID contractual revenue, inclusive of the AMC rent reduction discussed above.
Classification of Customers and Deferral Information | |||||||||||||||||
($ in millions) | |||||||||||||||||
Three months ended June 30, 2020 | |||||||||||||||||
Annualized Revenue (1) | Deferrals Recognized | Deferrals Not Recognized | Projected Total Deferrals | ||||||||||||||
No Payment Deferral | $ | 115 | 18 | % | $ | — | $ | — | $ | — | |||||||
Payments Deferred and Recognized as Revenue During Deferral Period | 310 | 50 | % | 64 | — | 131 | |||||||||||
Payments Deferred But Not Recognized as Revenue During Deferral Period | 25 | 4 | % | — | 4 | 11 | |||||||||||
Cash Basis/Lease Restructurings (2) | 166 | 27 | % | — | 37 | n/a (3) | |||||||||||
New Vacancies | 8 | 1 | % | — | — | — | |||||||||||
Total | $ | 624 | 100 | % | $ | 64 | $ | 41 | $ | 142 | |||||||
(1) Represents annualized pre-COVID contractual revenue which includes cash rent (including tenant reimbursements) and interest payments. | |||||||||||||||||
(2) Includes leases for tenants accounted for on a cash basis and/or leases for tenants that have been or are expected to be restructured which generally have a ramp up in cash rent and some permanent reduction in rent after the ramp up period. This category includes AMC. | |||||||||||||||||
(3) Projected amounts not shown for this category as tenants are on a cash basis and/or agreements have been or are expected to be restructured. | |||||||||||||||||
Statistics for the $142.0 million of projected total deferrals shown above as well as the status of all agreements based on annualized pre-COVID contractual revenue is shown below:
Average Deferral Period | 11 months | |
Average Months Deferred | 5 months | |
Average Collection Period | 32 months | |
Projected Total Deferrals | Annualized Revenue (1) | ||||
No Deferral | n/a | 18 | % | ||
Executed | 86 | % | 67 | % | |
Subtotal | 86 | % | 85 | % | |
Approved | — | % | 1 | % | |
Pending | 14 | % | 13 | % | |
Vacant | n/a | 1 | % | ||
Total | 100 | % | 100 | % | |
(1) Represents annualized pre-COVID contractual revenue which includes cash rent (including tenant reimbursements) and interest payments. | |||||
Strong Liquidity Position
The Company remains focused on maintaining a strong balance sheet, strong liquidity and financial flexibility through the pandemic. The Company has no scheduled debt maturities until 2022 and over $1.0 billion of cash on hand. As previously announced and further discussed below, the Company entered into amendments to the agreements governing its bank credit facilities and private placement notes in the second quarter of 2020 to, among other things, waive the Company's obligations to comply with certain covenants. The Company also temporarily suspended its monthly cash dividend to common shareholders subsequent to the common share dividend previously declared and payable on May 15, 2020 and suspended its previously disclosed share repurchase program. In addition, the Company continues to limit investment spending.
The Company’s cash outflows from operations (which includes interest payments), less preferred dividends was approximately $38.0 million during the second quarter. The Company anticipates having a lower quarterly cash burn rate subsequent to the second quarter as collections are expected to continue to improve; however, even at the elevated second quarter negative cash burn rate, the Company would have approximately six years of liquidity based on the ending cash balance at June 30, 2020 of over $1.0 billion, and committed investment spending and anticipated maintenance capital expenditures totaling approximately $103.0 million during the remainder of 2020 and 2021 (assuming that none of the Company's available cash would be used for the repayment of principal on the Company's indebtedness, either at maturity or upon an acceleration event).
Portfolio Update
The Company's total investments (a non-GAAP financial measure) were approximately $6.7 billion at June 30, 2020 with Experiential totaling $5.9 billion, or 89%, and Education totaling $0.8 billion, or 11%.
The Company's Experiential portfolio (excluding property under development) consisted of the following property types (owned or financed) at June 30, 2020:
• | 180 theatre properties; |
• | 56 eat & play properties (including seven theatres located in entertainment districts); |
• | 18 attraction properties; |
• | 13 ski properties; |
• | six experiential lodging properties; |
• | one gaming property; |
• | three cultural properties; and |
• | seven fitness & wellness properties. |
As of June 30, 2020, the Company's owned Experiential portfolio consisted of approximately 19.4 million square feet, which was 97% leased and included $39.0 million in property under development and $22.7 million in undeveloped land inventory.
The Company's Education portfolio consisted of the following property types (owned or financed) at June 30, 2020:
• | 69 early childhood education center properties; and |
• | 16 private school properties. |
As of June 30, 2020, the Company's owned Education portfolio consisted of approximately 1.9 million square feet, which was 100% leased and included $3.5 million in undeveloped land inventory.
The combined owned portfolio consisted of 21.3 million square feet and was 97.3% leased.
Investment Update
The Company's investment spending for the three months ended June 30, 2020 totaled $11.7 million (bringing the year-to-date investment spending to $53.6 million), and included spending on Experiential build-to-suit development and redevelopment projects.
Balance Sheet and Liquidity Update
At June 30, 2020, the Company's net debt to gross assets ratio (a non-GAAP Financial Measure) was 41%.
The Company had $1.0 billion of unrestricted cash on hand and $750.0 million outstanding under its $1.0 billion unsecured revolving credit facility at June 30, 2020. The Company has no scheduled debt maturities until 2022 when its unsecured revolving credit facility comes due.
As previously announced, on June 29, 2020, the Company amended the agreements governing its bank credit facilities and private placement notes. The amendments modified certain provisions and waived the Company's obligation to comply with certain covenants under these debt agreements in light of the continuing financial and operational impacts of the COVID-19 pandemic on the Company and its tenants and borrowers. The changes are generally effective during the covenant relief period, which began at the execution of the amendment and end on the earlier of April 1, 2021 or when the Company provides notice that it elects to terminate the covenant relief period, subject to certain conditions. The loans subject to the modifications bear interest at higher rates during the covenant relief period, however, the rates will return to previous levels at the end of such
period, subject to certain conditions. The rates are subject to change based on long-term unsecured debt ratings, as defined in the agreements.
The share repurchase program previously approved by the Company's Board of Trustees (the "Board") was scheduled to expire on December 31, 2020, however, the Company suspended the program on June 29, 2020, the effective date of the covenant modification agreements. During the three months ended June 30, 2020, the Company repurchased 4,066,716 common shares under the share repurchase program for approximately $106.0 million at an average price of $26.06 per share. The repurchases were made under a Rule 10b5-1 trading plan.
The amendments to the agreements governing the Company's bank credit facilities and private placement notes also impose additional restrictions on the Company during the covenant relief period, including limitations on certain investments, incurrences of indebtedness, capital expenditures, payment of dividends or other distributions, and share repurchases, in each case subject to certain exceptions.
Impairment Charges
As a result of the COVID-19 pandemic, the Company reassessed the expected holding periods of certain properties during the six months ending June 30, 2020, and determined that the estimated cash flows were not sufficient to recover the carrying values of six properties. Accordingly, the Company recognized non-cash impairment charges of $51.3 million, which were comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets at two of these properties. Additionally, the Company recognized other-than-temporary non-cash impairment charges of $3.2 million on the Company's equity investments in three theatre projects located in China.
Dividend Information
The Board declared monthly cash dividends during the second quarter of 2020 totaling $0.3825 per common share. As discussed above, the monthly cash dividend to common shareholders was suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. The Company is restricted from paying dividends on its common shares during the covenant relief period, subject to certain limited exceptions, and there can be no assurances as to the Company's ability to reinstitute cash dividend payments to common shareholders or the timing thereof.
The Board also declared its regular quarterly dividends to preferred shareholders 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 $0.359375 per share on its 5.75% Series G cumulative redeemable preferred shares.
Conference Call Information
Management will host a conference call to discuss the Company's financial results on August 6, 2020 at 8:30 a.m. Eastern Time. The call may also include discussion of Company developments, and forward-looking and other material information about business and financial matters. The conference will be webcast and can be accessed via the Webcasts page in the Investor Center on the Company's website located at http://investors.eprkc.com/webcasts. To access the call, audio only, dial (866) 587-2930 and when prompted, provide the passcode 8734836.
You may watch a replay of the webcast by visiting the Webcasts page at http://investors.eprkc.com/webcasts.
Quarterly Supplemental
The Company's supplemental information package for the second quarter and six months ended June 30, 2020 is available in the Investor Center on the Company's website located at http://investors.eprkc.com/earnings-supplementals.
EPR Properties
Consolidated Statements of (Loss) Income
(Unaudited, dollars in thousands except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Rental revenue | $ | 97,531 | $ | 147,003 | $ | 232,574 | $ | 287,295 | |||||||
Other income | 416 | 5,726 | 7,989 | 6,070 | |||||||||||
Mortgage and other financing income | 8,413 | 9,011 | 16,809 | 18,902 | |||||||||||
Total revenue | 106,360 | 161,740 | 257,372 | 312,267 | |||||||||||
Property operating expense | 15,329 | 14,597 | 28,422 | 30,148 | |||||||||||
Other expense | 2,798 | 8,091 | 12,332 | 8,091 | |||||||||||
General and administrative expense | 10,432 | 12,230 | 21,420 | 23,940 | |||||||||||
Severance expense | — | — | — | 420 | |||||||||||
Costs associated with loan refinancing or payoff | 820 | — | 820 | — | |||||||||||
Interest expense, net | 38,340 | 36,458 | 73,093 | 70,421 | |||||||||||
Transaction costs | 771 | 6,923 | 1,846 | 12,046 | |||||||||||
Credit loss expense | 3,484 | — | 4,676 | — | |||||||||||
Impairment charges | 51,264 | — | 51,264 | — | |||||||||||
Depreciation and amortization | 42,450 | 38,790 | 86,260 | 74,792 | |||||||||||
(Loss) income before equity in (loss) income from joint ventures, other items and discontinued operations | (59,328 | ) | 44,651 | (22,761 | ) | 92,409 | |||||||||
Equity in (loss) income from joint ventures | (1,724 | ) | 470 | (2,144 | ) | 959 | |||||||||
Impairment charges on joint ventures | (3,247 | ) | — | (3,247 | ) | — | |||||||||
Gain (loss) on sale of real estate | 22 | — | 242 | (388 | ) | ||||||||||
(Loss) income before income taxes | (64,277 | ) | 45,121 | (27,910 | ) | 92,980 | |||||||||
Income tax benefit | 1,312 | 1,300 | 2,063 | 1,905 | |||||||||||
(Loss) income from continuing operations | $ | (62,965 | ) | $ | 46,421 | $ | (25,847 | ) | $ | 94,885 | |||||
Discontinued operations: | |||||||||||||||
Income from discontinued operations before other items | — | 10,399 | — | 20,568 | |||||||||||
Gain on sale of real estate from discontinued operations | — | 9,774 | — | 16,490 | |||||||||||
Income from discontinued operations | — | 20,173 | — | 37,058 | |||||||||||
Net (loss) income | (62,965 | ) | 66,594 | (25,847 | ) | 131,943 | |||||||||
Preferred dividend requirements | (6,034 | ) | (6,034 | ) | (12,068 | ) | (12,068 | ) | |||||||
Net (loss) income available to common shareholders of EPR Properties | $ | (68,999 | ) | $ | 60,560 | $ | (37,915 | ) | $ | 119,875 | |||||
Net (loss) income available to common shareholders of EPR Properties per share: | |||||||||||||||
Continuing operations | $ | (0.90 | ) | $ | 0.53 | $ | (0.49 | ) | $ | 1.10 | |||||
Discontinued operations | — | 0.27 | — | 0.49 | |||||||||||
Basic | $ | (0.90 | ) | $ | 0.80 | $ | (0.49 | ) | $ | 1.59 | |||||
Continuing operations | $ | (0.90 | ) | $ | 0.53 | $ | (0.49 | ) | $ | 1.10 | |||||
Discontinued operations | — | 0.26 | — | 0.49 | |||||||||||
Diluted | $ | (0.90 | ) | $ | 0.79 | $ | (0.49 | ) | $ | 1.59 | |||||
Shares used for computation (in thousands): | |||||||||||||||
Basic | 76,310 | 76,164 | 77,388 | 75,426 | |||||||||||
Diluted | 76,310 | 76,199 | 77,388 | 75,467 | |||||||||||
EPR Properties
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands)
June 30, 2020 | December 31, 2019 | ||||||
Assets | |||||||
Real estate investments, net of accumulated depreciation of $1,034,771 and $989,254 at June 30, 2020 and December 31, 2019, respectively | $ | 5,110,059 | $ | 5,197,308 | |||
Land held for development | 26,244 | 28,080 | |||||
Property under development | 39,039 | 36,756 | |||||
Operating lease right-of-use assets | 189,058 | 211,187 | |||||
Mortgage notes and related accrued interest receivable | 357,668 | 357,391 | |||||
Investment in joint ventures | 28,925 | 34,317 | |||||
Cash and cash equivalents | 1,006,981 | 528,763 | |||||
Restricted cash | 2,615 | 2,677 | |||||
Accounts receivable | 134,774 | 86,858 | |||||
Other assets | 107,615 | 94,174 | |||||
Total assets | $ | 7,002,978 | $ | 6,577,511 | |||
Liabilities and Equity | |||||||
Accounts payable and accrued liabilities | $ | 96,454 | $ | 122,939 | |||
Operating lease liabilities | 229,030 | 235,650 | |||||
Dividends payable | 6,053 | 35,458 | |||||
Unearned rents and interest | 81,096 | 74,829 | |||||
Debt | 3,854,088 | 3,102,830 | |||||
Total liabilities | 4,266,721 | 3,571,706 | |||||
Total equity | $ | 2,736,257 | $ | 3,005,805 | |||
Total liabilities and equity | $ | 7,002,978 | $ | 6,577,511 | |||
The historical financial results of the public charter schools sold by the Company in 2019 are reflected in the Company's consolidated statements of income as discontinued operations for the three and six months ended June 30, 2019. The operating results relating to discontinued operations are as follows (unaudited, dollars in thousands):
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
Rental revenue | $ | 10,327 | $ | 20,758 | |||
Mortgage and other financing income | 3,631 | 7,215 | |||||
Total revenue | 13,958 | 27,973 | |||||
Property operating expense | 174 | 416 | |||||
Interest expense, net | (180 | ) | (317 | ) | |||
Depreciation and amortization | 3,565 | 7,306 | |||||
Income from discontinued operations before other items | 10,399 | 20,568 | |||||
Gain on sale of real estate | 9,774 | 16,490 | |||||
Income from discontinued operations | $ | 20,173 | $ | 37,058 | |||
Non-GAAP Financial Measures
Funds From Operations (FFO), Funds From Operations As Adjusted (FFOAA) and Adjusted Funds From Operations (AFFO)
The National Association of Real Estate Investment Trusts (“NAREIT”) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. Pursuant to the definition of FFO by the Board of Governors of NAREIT, the Company calculates FFO as net income available to common shareholders, computed in accordance with GAAP, 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. Adjustments for unconsolidated partnerships, joint ventures and other affiliates are calculated to reflect FFO on the same basis. The Company has calculated FFO for all periods presented in accordance with this definition.
In addition to FFO, the Company presents FFOAA and AFFO. FFOAA is presented by adding to FFO costs associated with loan refinancing or payoff, transaction costs, severance expense, preferred share redemption costs, impairment of operating lease right-of-use assets, termination fees associated with tenants' exercises of public charter school buy-out options and credit loss expense and subtracting deferred income tax (benefit) expense. AFFO is presented by adding to FFOAA non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense to management and Trustees and amortization of above and below market leases, net and tenant allowances; and subtracting maintenance capital expenditures (including second generation tenant improvements and leasing commissions), straight-lined rental revenue (removing impact of straight-lined ground sublease expense), and the non-cash portion of mortgage and other financing income.
FFO, FFOAA and AFFO are widely used measures of the operating performance of real estate companies and are provided here as a supplemental measure to GAAP net income available to common shareholders and earnings per share, and management provides FFO, FFOAA and AFFO herein because it believes this information is useful to investors in this regard. FFO, FFOAA and AFFO are non-GAAP financial measures. FFO, FFOAA and AFFO do not represent cash flows from operations as defined by GAAP and are not indicative that cash flows are adequate to fund all cash needs and are not to be considered alternatives to net income or any other GAAP measure as a measurement of the results of our operations or our cash flows or liquidity as defined by GAAP. It should also be noted that not all REITs calculate FFO, FFOAA and AFFO the same way so comparisons with other REITs may not be meaningful.
The following table summarizes FFO, FFOAA and AFFO for the three and six months ended June 30, 2020 and 2019 and reconciles such measures to net income available to common shareholders, the most directly comparable GAAP measure:
EPR Properties
Reconciliation of Non-GAAP Financial Measures
(Unaudited, dollars in thousands except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
FFO: | ||||||||||||||||
Net (loss) income available to common shareholders of EPR Properties | $ | (68,999 | ) | $ | 60,560 | $ | (37,915 | ) | $ | 119,875 | ||||||
Gain on sale of real estate | (22 | ) | (9,774 | ) | (242 | ) | (16,102 | ) | ||||||||
Impairment of real estate investments, net (1) | 36,255 | — | 36,255 | — | ||||||||||||
Real estate depreciation and amortization | 42,151 | 42,098 | 85,676 | 81,612 | ||||||||||||
Allocated share of joint venture depreciation | 378 | 554 | 761 | 1,109 | ||||||||||||
Impairment charges on joint ventures | 3,247 | — | 3,247 | — | ||||||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 93,438 | $ | 87,782 | $ | 186,494 | ||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 93,438 | $ | 87,782 | $ | 186,494 | ||||||||
Add: Preferred dividends for Series C preferred shares | — | 1,939 | — | 3,878 | ||||||||||||
Add: Preferred dividends for Series E preferred shares | — | 1,939 | — | 3,878 | ||||||||||||
Diluted FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 97,316 | $ | 87,782 | $ | 194,250 | ||||||||
FFOAA: | ||||||||||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 93,438 | 87,782 | $ | 186,494 | |||||||||
Costs associated with loan refinancing or payoff | 820 | — | 820 | — | ||||||||||||
Transaction costs | 771 | 6,923 | 1,846 | 12,046 | ||||||||||||
Severance expense | — | — | — | 420 | ||||||||||||
Termination fees included in gain on sale | — | 6,533 | — | 11,534 | ||||||||||||
Impairment of operating lease right-of-use assets (1) | 15,009 | — | 15,009 | — | ||||||||||||
Credit loss expense | 3,484 | — | 4,676 | — | ||||||||||||
Deferred income tax benefit | (1,676 | ) | (1,675 | ) | (2,789 | ) | (2,284 | ) | ||||||||
FFOAA available to common shareholders of EPR Properties | $ | 31,418 | $ | 105,219 | $ | 107,344 | $ | 208,210 | ||||||||
FFOAA available to common shareholders of EPR Properties | $ | 31,418 | $ | 105,219 | $ | 107,344 | $ | 208,210 | ||||||||
Add: Preferred dividends for Series C preferred shares | — | 1,939 | — | 3,878 | ||||||||||||
Add: Preferred dividends for Series E preferred shares | — | 1,939 | — | 3,878 | ||||||||||||
Diluted FFOAA available to common shareholders of EPR Properties | $ | 31,418 | $ | 109,097 | $ | 107,344 | $ | 215,966 | ||||||||
AFFO: | ||||||||||||||||
FFOAA available to common shareholders of EPR Properties | $ | 31,418 | $ | 105,219 | $ | 107,344 | $ | 208,210 | ||||||||
Non-real estate depreciation and amortization | 299 | 257 | 584 | 486 | ||||||||||||
Deferred financing fees amortization | 1,651 | 1,517 | 3,285 | 3,019 | ||||||||||||
Share-based compensation expense to management and trustees | 3,463 | 3,283 | 6,972 | 6,460 | ||||||||||||
Amortization of above and below market leases, net and tenant allowances | (108 | ) | (58 | ) | (260 | ) | (117 | ) | ||||||||
Maintenance capital expenditures (2) | (1,291 | ) | (510 | ) | (2,219 | ) | (807 | ) | ||||||||
Straight-lined rental revenue | (2,229 | ) | (3,223 | ) | 7,479 | (5,637 | ) | |||||||||
Straight-lined ground sublease expense | 207 | 205 | 383 | 389 | ||||||||||||
Non-cash portion of mortgage and other financing income | (97 | ) | (1,069 | ) | (188 | ) | (2,083 | ) | ||||||||
AFFO available to common shareholders of EPR Properties | $ | 33,313 | $ | 105,621 | $ | 123,380 | $ | 209,920 | ||||||||
AFFO available to common shareholders of EPR Properties | $ | 33,313 | $ | 105,621 | $ | 123,380 | $ | 209,920 | ||||||||
Add: Preferred dividends for Series C preferred shares | — | 1,939 | — | 3,878 | ||||||||||||
Add: Preferred dividends for Series E preferred shares | — | 1,939 | — | 3,878 | ||||||||||||
Diluted AFFO available to common shareholders of EPR Properties | $ | 33,313 | $ | 109,499 | $ | 123,380 | $ | 217,676 | ||||||||
FFO per common share: | ||||||||||||||||
Basic | $ | 0.17 | $ | 1.23 | $ | 1.13 | $ | 2.47 | ||||||||
Diluted | 0.17 | 1.22 | 1.13 | 2.45 | ||||||||||||
FFOAA per common share: | ||||||||||||||||
Basic | $ | 0.41 | $ | 1.38 | $ | 1.39 | $ | 2.76 | ||||||||
Diluted | 0.41 | 1.36 | 1.39 | 2.73 | ||||||||||||
AFFO per common share: | ||||||||||||||||
Basic | $ | 0.44 | $ | 1.39 | $ | 1.59 | $ | 2.78 | ||||||||
Diluted | 0.44 | 1.37 | 1.59 | 2.75 | ||||||||||||
Shares used for computation (in thousands): | ||||||||||||||||
Basic | 76,310 | 76,164 | 77,388 | 75,426 | ||||||||||||
Diluted | 76,310 | 76,199 | 77,388 | 75,467 | ||||||||||||
Weighted average shares outstanding-diluted EPS | 76,310 | 76,199 | 77,388 | 75,467 | ||||||||||||
Effect of dilutive Series C preferred shares | — | 2,158 | — | 2,151 | ||||||||||||
Effect of dilutive Series E preferred shares | — | 1,628 | — | 1,625 | ||||||||||||
Adjusted weighted average shares outstanding-diluted Series C and Series E | 76,310 | 79,985 | 77,388 | 79,243 | ||||||||||||
Other financial information: | ||||||||||||||||
Dividends per common share | $ | 0.3825 | $ | 1.1250 | $ | 1.5150 | $ | 2.2500 | ||||||||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of income for all periods.
(1) Impairment charges recognized during the three and six months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets.
(2) Includes maintenance capital expenditures and certain second generation tenant improvements and leasing commissions.
The conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares would be dilutive to FFO and FFOAA per share for the three and six months ended June 30, 2019. Therefore, the additional common 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 and FFOAA per share for these periods.
Net Debt
Net Debt represents debt (reported in accordance with GAAP) adjusted to exclude deferred financing costs, net and reduced for cash and cash equivalents. By excluding deferred financing costs, net and reducing debt for cash and cash equivalents on hand, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. The Company believes this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition. The Company's method of calculating Net Debt may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
Gross Assets
Gross Assets represents total assets (reported in accordance with GAAP) adjusted to exclude accumulated depreciation and reduced for cash and cash equivalents. By excluding accumulated depreciation and reducing cash and cash equivalents, the result provides an estimate of the investment made by the Company. The Company believes that investors commonly use versions of this calculation in a similar manner. The Company's method of calculating Gross Assets may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
Net Debt to Gross Assets
Net Debt to Gross Assets is a supplemental measure derived from non-GAAP financial measures that the Company uses to evaluate capital structure and the magnitude of debt to gross assets. The Company believes that investors commonly use versions of this ratio in a similar manner. The Company's method of calculating Net Debt to Gross Assets may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
EBITDAre
NAREIT developed EBITDAre as a relative non-GAAP financial measure of REITs, independent of a company's capital structure, to provide a uniform basis to measure the enterprise value of a company. Pursuant to the definition of EBITDAre by the Board of Governors of NAREIT, the Company calculates EBITDAre as net income, computed in accordance with GAAP, 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.
Management provides EBITDAre herein because it believes this information is useful to investors as a supplemental performance measure as it can help facilitate comparisons of operating performance between periods and with other REITs. The Company's method of calculating EBITDAre may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. EBITDAre is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations or cash flows or liquidity as defined by GAAP.
Adjusted EBITDA
Management uses Adjusted EBITDA in its analysis of the performance of the business and operations of the Company. Management believes Adjusted EBITDA is useful to investors because it excludes various items that management believes are not indicative of operating performance, and that it is an informative measure to use in computing various financial ratios to evaluate the Company. The Company defines Adjusted EBITDA as EBITDAre (defined above) for the quarter excluding severance expense, credit loss expense, transaction costs, impairment losses on operating lease right-of-use assets and prepayment fees.
The Company's method of calculating Adjusted EBITDA may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Adjusted EBITDA is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered as an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations or cash flows or liquidity as defined by GAAP.
Reconciliations of debt and total assets (all reported in accordance with GAAP) to Net Debt, Gross Assets, Net Debt to Gross Assets, EBITDAre and Adjusted EBITDA (each of which is a non-GAAP financial measure) are included in the following tables (unaudited, in thousands):
June 30, | |||||||
2020 | 2019 | ||||||
Net Debt: | |||||||
Debt | $ | 3,854,088 | $ | 3,216,623 | |||
Deferred financing costs, net | 35,907 | 31,957 | |||||
Cash and cash equivalents | (1,006,981 | ) | (6,927 | ) | |||
Net Debt | $ | 2,883,014 | $ | 3,241,653 | |||
Gross Assets: | |||||||
Total Assets | $ | 7,002,978 | $ | 6,746,655 | |||
Accumulated depreciation | 1,034,771 | 954,806 | |||||
Cash and cash equivalents | (1,006,981 | ) | (6,927 | ) | |||
Gross Assets | $ | 7,030,768 | $ | 7,694,534 | |||
Net Debt to Gross Assets | 41 | % | 42 | % | |||
Three Months Ended June 30, | |||||||
2020 | 2019 | ||||||
EBITDAre and Adjusted EBITDA: | |||||||
Net (loss) income | $ | (62,965 | ) | $ | 66,594 | ||
Interest expense, net | 38,340 | 36,278 | |||||
Income tax benefit | (1,312 | ) | (1,300 | ) | |||
Depreciation and amortization | 42,450 | 42,355 | |||||
Gain on sale of real estate | (22 | ) | (9,774 | ) | |||
Impairment of real estate investments, net (1) | 36,255 | — | |||||
Costs associated with loan refinancing or payoff | 820 | — | |||||
Equity in loss (income) from joint ventures | 1,724 | (470 | ) | ||||
Impairment charges on joint ventures | 3,247 | — | |||||
EBITDAre | $ | 58,537 | $ | 133,683 | |||
Transaction costs | 771 | 6,923 | |||||
Credit loss expense | 3,484 | — | |||||
Impairment of operating lease right-of-use assets (1) | 15,009 | — | |||||
Adjusted EBITDA | $ | 77,801 | $ | 140,606 | |||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of (loss) income and comprehensive (loss) income. | |||||||
(1) Impairment charges recognized during the three and six months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets. | |||||||
Total Investments
Total investments is a non-GAAP financial measure 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 (including related accrued interest receivable), investment in joint ventures, intangible assets, gross (before accumulated amortization and included in other assets) and notes receivable and related accrued interest receivable, net (included in other assets). Total investments is a useful measure for management and investors as it illustrates across which asset categories the Company's funds have been invested. Our method of calculating total investments may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. A reconciliation of total investments to total assets (computed in accordance with GAAP) is included in the following table (unaudited, in thousands):
June 30, 2020 | December 31, 2019 | ||||||
Total Investments: | |||||||
Real estate investments, net of accumulated depreciation | $ | 5,110,059 | $ | 5,197,308 | |||
Add back accumulated depreciation on real estate investments | 1,034,771 | 989,254 | |||||
Land held for development | 26,244 | 28,080 | |||||
Property under development | 39,039 | 36,756 | |||||
Mortgage notes and related accrued interest receivable | 357,668 | 357,391 | |||||
Investment in joint ventures | 28,925 | 34,317 | |||||
Intangible assets, gross (1) | 58,784 | 57,385 | |||||
Notes receivable and related accrued interest receivable, net (1) | 14,037 | 14,026 | |||||
Total investments | $ | 6,669,527 | $ | 6,714,517 | |||
Total investments | $ | 6,669,527 | $ | 6,714,517 | |||
Operating lease right-of-use assets | 189,058 | 211,187 | |||||
Cash and cash equivalents | 1,006,981 | 528,763 | |||||
Restricted cash | 2,615 | 2,677 | |||||
Accounts receivable | 134,774 | 86,858 | |||||
Less: accumulated depreciation on real estate investments | (1,034,771 | ) | (989,254 | ) | |||
Less: accumulated amortization on intangible assets | (14,624 | ) | (12,693 | ) | |||
Prepaid expenses and other current assets | 49,418 | 35,456 | |||||
Total assets | $ | 7,002,978 | $ | 6,577,511 | |||
(1) Included in other assets in the accompanying consolidated balance sheet. Other assets include the following: | |||||||
June 30, 2020 | December 31, 2019 | ||||||
Intangible assets, gross | $ | 58,784 | $ | 57,385 | |||
Less: accumulated amortization on intangible assets | (14,624 | ) | (12,693 | ) | |||
Notes receivable and related accrued interest receivable, net | 14,037 | 14,026 | |||||
Prepaid expenses and other current assets | 49,418 | 35,456 | |||||
Total other assets | $ | 107,615 | $ | 94,174 | |||
About EPR Properties
EPR Properties is a leading experiential net lease real estate investment trust (REIT), specializing in select enduring experiential properties in the real estate industry. We focus on real estate venues which create value by facilitating out of home leisure and recreation experiences where consumers choose to spend their discretionary time and money. We have nearly $6.7 billion in total investments across 44 states. We adhere to rigorous underwriting and investing criteria centered on key industry, property and tenant level cash flow standards. We believe our focused approach provides a competitive advantage and the potential for stable and attractive returns. Further information is available at www.eprkc.com.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The financial results in this press release reflect preliminary, unaudited results, which are not final until the Company's Quarterly Report on Form 10-Q is filed. 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 COVID-19, our capital resources and liquidity, expected liquidity and performance of our customers, including AMC, our expected revenue and customer deferral agreements, our expected dividend payments and share repurchases and our results of operations and financial condition. The estimates presented herein are based on the Company's current expectations and, given the current economic uncertainty, there can be no assurances that the Company will be able to continue to comply with other applicable covenants under its debt agreements, which could materially impact actual performance. 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,” “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. 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission ("SEC") on May 11, 2020.
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.
EPR Properties
Brian Moriarty, 888-EPR-REIT
www.eprkc.com
Second Quarter 2020 Earnings Call August 6, 2020
DISCLAIMER 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 COVID-19, our capital resources and liquidity, expected dividend payments, expected liquidity and performance of our customers, including AMC, future expenditures for development projects and our results of operations and financial condition. The estimates presented herein are based on the Company's current expectations and, given the current economic uncertainty, there can be no assurances that the Company will be able to continue paying dividends at expected levels, or at all, or continue to comply with applicable covenants under its debt agreements, which could materially impact actual performance. 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,” “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. 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission ("SEC") on May 11, 2020. 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. 2
INTRODUCTORY COMMENTS This information is as of the date indicated and, to our knowledge, was timely and accurate when presented. We are under no obligation to update or remove outdated information other than as required by applicable law or regulation. 3
PORTFOLIO UPDATE 4
PORTFOLIO OVERVIEW Portfolio Snapshot Q2 Update $6.7B Total Investments* Investment Spending $11.7M Occupancy at 97.3% 369 Properties * See investor supplemental for the applicable period for definitions and calculations of this Non-GAAP measure 5
EXPERIENTIAL PORTFOLIO PORTFOLIO HIGHLIGHTS $6.0B INVESTED* 97% OCCUPIED 284 PROPERTIES IN SERVICE THEATRES EAT & PLAY SKI ATTRACTIONS 3 PROPERTIES UNDER DEVELOPMENT EXPERIENTIAL GAMING CULTURAL FITNESS & LODGING WELLNESS 44 OPERATORS * See investor supplemental for the applicable period for definitions and calculations of this Non-GAAP measure 6
PORTFOLIO REOPENING Theatres Reopening – Expected to begin mid- to late-August but dependent on studio release schedule • Planned timing is state by state and city by city • Operators are diligently developing health & safety measures 7
PORTFOLIO REOPENING Theatres Film Slate – Strong titles scheduled for remainder of 2020 and 2021 Planned 2020 Releases Planned 2021 Releases 8
PORTFOLIO REOPENING Other Experiential and Education Reopening – 88% of non-theatre properties are open 9
COLLECTIONS AND DEFERRAL AGREEMENTS Collections • Collected 21% of Q2 & 28% of July 2020 pre-COVID contractual cash rent and interest payments Permanent Rent Adjustments • Anticipate permanent rent reductions, including AMC will total approximately 5-7% of annualized pre-COVID contractual cash rent and interest payments Deferral Agreements Scope • Worked closely with customers to structure agreements to ensure long- term health and protect our position as landlord • Addressed 85% of annualized pre-COVID contractual cash rent and interest payments Key Features • Agreements structured to ramp up through 2020 and beyond; vast majority provide repayment of all deferred rent • Where rent concessions were provided, we received greater or equal value through additional lease term, additional collateral, or other benefits 10
AMC RESTRUCTURING Restructured AMC Lease Agreements – Reduces risk, improves collateral and enhances our position in the event of a reorganization in exchange for rent reduction and deferrals Key Features • Entered into Master Lease for 46 of our 53 AMC theatres o Extended our average lease term by 9 years to 15.5 years o Rent Escalator: 7.5% every five years o Master Lease divided into four tranches with staggered initial terms • 7 Transitional Property Leases o Opportunity to reduce exposure to AMC through termination and re- leasing or selling • Rent Reduction and Deferrals o Reduced total annual fixed cash rent by approx. 21% or $26M to $96M o Master Lease deferred rent repaid in equal monthly installments over first 14 years of lease term o Transitional Leases deferred rent repaid over term of each lease 11
FINANCIAL REVIEW 12
DEFERRAL INFORMATION Classification of Customers and Deferral Information ($ in millions) For the three months ended June 30, 2020 Deferrals Projected Annualized Deferrals Not Total Revenue1 Recognized Recognized Deferrals $ $ No Payment Deferral $ 115 18% $ - - - Payments Deferred and Recognized as 310 50% 64 - 131 Revenue During Deferral Period Payments Deferred But Not Recognized 25 4% - 4 11 as Revenue During Deferral Period Cash Basis/Lease Restructurings2 166 27% - 37 n/a3 New Vacancies 8 1% - - - Total $ 624 100% $ 64 $ 41 $ 142 (1) Represents annualized pre-COVID contractual revenue which includes cash rent (including tenant reimbursements) and interest payments. (2) Includes leases for tenants accounted for on a cash basis and/or leases for tenants that have been or are expected to be restructured which generally have a ramp up in cash rent and some permanent reduction in rent after the ramp up period. This category includes AMC. n/a (3) (3) Projected amounts not shown for this category as tenants are on a cash basis and/or agreements have been or are expected to be restructured. 13
DEFERRAL INFORMATION Statistics for the $142M of projected total deferrals and the status of all agreements based on annualized pre-COVID contractual revenue: Average deferral period 12 months Average months deferred 5 months Average collection period 32 months Projected Total Annualized Deferrals Revenue1 No Deferral n/a 18% Executed 86% 67% Sub-total 86% 85% Approved - 1% Pending 14% 13% Vacant n/a 1% Total 100% 100% n/a (3) 14
FINANCIAL HIGHLIGHTS Financial Performance* Quarter ended June 30, 2020 2019(1) $ Change % Change Total Revenue (Continuing Ops) $106.4 $161.7 ($55.3) (34%) Net Income - Common (69.0) 60.6 (129.6) (214%) FFO as adj. – Common* 31.4 105.2 (73.8) (70%) AFFO – Common* 33.3 105.6 (72.3) (68%) Net Income/share – Common (0.90) 0.79 (1.69) (214%) FFO/share - Common, as adj.* 0.41 1.36 (0.95) (70%) AFFO/share - Common* 0.44 1.37 (0.93) (68%) (In millions except per-share data) (1) The operating results of the Company's public charter school portfolio for the three months ended June 30, 2019, include $6.5 million in termination fees, and are included in all metrics in this column except for total revenue from continuing operations. The remaining public charter school portfolio was sold subsequent to this period. * See investor supplementals for the applicable periods for definitions and calculations of these non-GAAP measures 15
CAPITAL MARKETS UPDATE Net Debt to Gross Assets was 41% at 6/30/20 • $3.9B total debt; $3.1B fixed rate or fixed through int. rate swaps at wtd. avg. = 4.50% • $750M drawn on $1B revolver • Weighted average debt maturity ~5 years; No scheduled debt maturities until revolver matures in 2022 • On 6/29/20, amended Credit Agreement and Note Purchase Agreements o Modified certain provisions and waived certain covenants in light of impacts of the COVID-19 pandemic Liquidity Position • $1.0B unrestricted cash • Implies six years of liquidity even at elevated Q2 cash burn rate (assuming no cash would be used for the repayment of principal on current indebtedness) Share Repurchase Plan • Repurchased 4.1M common shares for $106.0M at average price of $26.06 • Suspended program on effective date of covenant modifications 16
EXPECTED REVENUE RECOGNITION AND COLLECTIONS Last 2 Quarters Full Year of 2020 2020 % of pre-COVID contractual cash 65% - 75% 70% - 80% revenue to be recognized % of pre-COVID contractual cash 50% - 60% 55% - 65% revenue to be collected 17
CLOSING COMMENTS 18
EPR Properties 909 Walnut Street, Suite 200 Kansas City, MO 64106 www.eprkc.com 816-472-1700 info@eprkc.com
Exhibit 99.3
Supplemental Operating and Financial Data |
Second Quarter and Six Months Ended June 30, 2020 |
TABLE OF CONTENTS | ||||||||
SECTION | PAGE | |||||||
Company Profile | ||||||||
Investor Information | ||||||||
Selected Financial Information | ||||||||
Selected Balance Sheet Information | ||||||||
Selected Operating Data | ||||||||
Funds From Operations and Funds From Operations as Adjusted | ||||||||
Adjusted Funds From Operations | ||||||||
Capital Structure | ||||||||
Summary of Ratios | ||||||||
Summary of Mortgage Notes Receivable | ||||||||
Investment Spending and Disposition Summaries | ||||||||
Property Under Development - Investment Spending Estimates | ||||||||
Lease Expirations | ||||||||
Top Ten Customers by Total Revenue | ||||||||
Definitions-Non-GAAP Financial Measures | ||||||||
Appendix-Reconciliation of Certain Non-GAAP Financial Measures | ||||||||
 | ||
Q2 2020 Supplemental | Page 2 | |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS | ||||
The financial results in this document reflect preliminary, unaudited results, which are not final until the Company's Quarterly Report on Form 10-Q is filed. 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 COVID-19, our capital resources and liquidity, expected dividend payments, expected liquidity and performance of our customers, including AMC, future expenditures for development projects and our results of operations and financial condition. The estimates presented herein are based on the Company's current expectations and, given the current economic uncertainty, there can be no assurances that the Company will be able to continue paying dividends at expected levels, or at all, or continue to comply with applicable covenants under its debt agreements, which could materially impact actual performance. 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,” “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. 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission ("SEC") on May 11, 2020.
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.
NON-GAAP INFORMATION
This document contains certain non-GAAP measures. These non-GAAP measures, as calculated by the Company, are not necessarily comparable to similarly titled measures reported by other companies. Additionally, these non-GAAP measures are not measurements of financial performance or liquidity under GAAP and should not be considered alternatives to the Company's other financial information determined under GAAP. See pages 22 through 24 for definitions of certain non-GAAP financial measures used in this document and the reconciliations of certain non-GAAP measures on pages 9 and 10 and in the Appendix on pages 25 through 29.
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Q2 2020 Supplemental | Page 3 | |
COMPANY PROFILE | ||||
THE COMPANY | COMPANY STRATEGY | |
EPR Properties ("EPR" or the "Company") is a self-administered and self-managed real estate investment trust. EPR was formed in August 1997 as a Maryland real estate investment trust ("REIT"), and an initial public offering was completed on November 18, 1997. | EPR's primary business objective is to enhance shareholder value by achieving predictable growth in Funds from Operations As Adjusted ("FFOAA") and dividends per share. | |
Since that time, the Company has been a leading Experiential net lease REIT, specializing in select enduring experiential properties. We are focused on growing our Experiential portfolio with properties that offer a variety of enduring, congregate entertainment, recreation and leisure activities. Separately, our Education portfolio is a legacy investment that provides additional geographic and operator diversity. | Our strategic growth is focused on acquiring or developing experiential real estate venues which create value by facilitating out of home congregate entertainment, recreation and leisure experiences where consumers choose to spend their discretionary time and money. These are properties which make up the social infrastructure of society. | |
This focus is consistent with our depth of knowledge across each of our property types, creating a competitive advantage that allows us to more quickly identify key market trends. We deliberately apply information and our ingenuity to target properties that represent logical extensions within each of our existing property types or potential future investments. | ||
 | ||
As part of our strategic planning and portfolio management process we assess new opportunities against the following underwriting principles: | ||
 | ||
BUILDING THE PREMIER EXPERIENTIAL REAL ESTATE PORTFOLIO | ||||||
 |  |  |  | |||
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Q2 2020 Supplemental | Page 4 | |
INVESTOR INFORMATION | ||
SENIOR MANAGEMENT | ||
Greg Silvers | Mark Peterson | |
President and Chief Executive Officer | Executive Vice President and Chief Financial Officer | |
Craig Evans | Greg Zimmerman | |
Executive Vice President, General Counsel and Secretary | Executive Vice President and Chief Investment Officer | |
Tonya Mater | Mike Hirons | |
Senior Vice President and Chief Accounting Officer | Senior Vice President - Asset Management | |
COMPANY INFORMATION | ||
CORPORATE HEADQUARTERS | TRADING SYMBOLS | |
909 Walnut Street, Suite 200 | Common Stock: | |
Kansas City, MO 64106 | EPR | |
888-EPR-REIT | Preferred Stock: | |
www.eprkc.com | EPR-PrC | |
EPR-PrE | ||
STOCK EXCHANGE LISTING | EPR-PrG | |
New York Stock Exchange | ||
EQUITY RESEARCH COVERAGE | ||
Bank of America Merrill Lynch | Jeffrey Spector/Joshua Dennerlein | 646-855-1363 |
Citi Global Markets | Michael Bilerman/Nick Joseph | 212-816-4471 |
Janney Montgomery Scott | Rob Stevenson | 646-840-3217 |
J.P. Morgan | Anthony Paolone/Nikita Bely | 212-622-6682 |
Kansas City Capital Associates | Jonathan Braatz | 816-932-8019 |
Keybanc Capital Markets | Jordan Sadler/Craig Mailman | 917-368-2280 |
Ladenburg Thalmann | John Massocca | 212-409-2056 |
Raymond James & Associates | Collin Mings | 727-567-2585 |
RBC Capital Markets | Michael Carroll | 440-715-2649 |
Stifel | Simon Yarmak | 443-224-1345 |
SunTrust Robinson Humphrey | Ki Bin Kim | 212-303-4124 |
EPR Properties is followed by the analysts identified above. Please note that any opinions, estimates, forecasts or recommendations regarding EPR Properties’ performance made by these analysts are theirs alone and do not represent opinions, estimates, forecasts or recommendations of EPR Properties or its management. EPR Properties does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions or recommendations.
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Q2 2020 Supplemental | Page 5 | |
SELECTED FINANCIAL INFORMATION | |||||||||||||||
(UNAUDITED, DOLLARS AND SHARES IN THOUSANDS) | |||||||||||||||
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | ||||||||||||||
Operating Information: | 2020 | 2019 | 2020 | 2019 | |||||||||||
Revenue (1) | $ | 106,360 | $ | 161,740 | $ | 257,372 | $ | 312,267 | |||||||
Net (loss) income available to common shareholders of EPR Properties | (68,999 | ) | 60,560 | (37,915 | ) | 119,875 | |||||||||
EBITDAre (2) | 58,537 | 133,683 | 173,667 | 265,179 | |||||||||||
Adjusted EBITDA (2) | 77,801 | 140,606 | 207,730 | 276,745 | |||||||||||
Interest expense, net (1) | 38,340 | 36,458 | 73,093 | 70,421 | |||||||||||
Capitalized interest | 242 | 1,530 | 504 | 4,667 | |||||||||||
Straight-lined rental revenue | 2,229 | 3,223 | (7,479 | ) | 5,637 | ||||||||||
Dividends declared on preferred shares | 6,034 | 6,034 | 12,068 | 12,068 | |||||||||||
Dividends declared on common shares | 30,081 | 86,097 | 119,077 | 170,440 | |||||||||||
General and administrative expense | 10,432 | 12,230 | 21,420 | 24,360 | |||||||||||
JUNE 30, | |||||||||||||||
Balance Sheet Information: | 2020 | 2019 | |||||||||||||
Total assets | $ | 7,002,978 | $ | 6,746,655 | |||||||||||
Accumulated depreciation | 1,034,771 | 954,806 | |||||||||||||
Cash and cash equivalents | 1,006,981 | 6,927 | |||||||||||||
Total assets before accumulated depreciation less cash and cash equivalents (gross assets) | 7,030,768 | 7,694,534 | |||||||||||||
Debt | 3,854,088 | 3,216,623 | |||||||||||||
Deferred financing costs, net | 35,907 | 31,957 | |||||||||||||
Net debt (2) | 2,883,014 | 3,241,653 | |||||||||||||
Equity | 2,736,257 | 3,044,898 | |||||||||||||
Common shares outstanding | 74,613 | 77,556 | |||||||||||||
Total market capitalization (using EOP closing price) | 5,725,973 | 9,397,591 | |||||||||||||
Net debt/gross assets | 41 | % | 42 | % | |||||||||||
Net debt/Adjusted EBITDA ratio (3) | Footnote 6 | 5.8 | |||||||||||||
Adjusted net debt/Annualized adjusted EBITDA ratio (2)(4)(5) | Footnote 6 | 5.5 | |||||||||||||
(1) Excludes discontinued operations. | |||||||||||||||
(2) See pages 22 through 24 for definitions. See calculation as applicable on page 28. | |||||||||||||||
(3) Adjusted EBITDA in this calculation is for the quarter multiplied times four. See pages 22 through 24 for definitions. See calculation on page 28. | |||||||||||||||
(4) Adjusted net debt is net debt less 40% times property under development. See pages 22 through 24 for definitions. | |||||||||||||||
(5) Annualized adjusted EBITDA is adjusted EBITDA for the quarter further adjusted for in-service and disposed projects, percentage rent and participating interest and other non-recurring items which is then multiplied times four. These calculations can be found on page 28 under the reconciliation of Adjusted EBITDA and Annualized Adjusted EBITDA. See pages 22 through 24 for definitions. | |||||||||||||||
(6) Not presented as this ratio is not meaningful given the temporary disruption caused by COVID-19 and the associated accounting for tenant rent deferrals and other lease modifications. | |||||||||||||||
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Q2 2020 Supplemental | Page 6 | |
SELECTED BALANCE SHEET INFORMATION | ||||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | ||||||||||||||||||||||||
ASSETS | 2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3ND QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | ||||||||||||||||||
Real estate investments | $ | 6,144,830 | $ | 6,208,685 | $ | 6,186,562 | $ | 6,558,790 | $ | 6,553,052 | $ | 5,992,707 | ||||||||||||
Less: accumulated depreciation | (1,034,771 | ) | (1,023,993 | ) | (989,254 | ) | (989,480 | ) | (954,806 | ) | (920,409 | ) | ||||||||||||
Land held for development | 26,244 | 28,080 | 28,080 | 28,080 | 28,080 | 28,080 | ||||||||||||||||||
Property under development | 39,039 | 30,063 | 36,756 | 31,825 | 80,695 | 315,237 | ||||||||||||||||||
Operating lease right-of-use assets | 189,058 | 207,605 | 211,187 | 219,459 | 220,758 | 211,299 | ||||||||||||||||||
Mortgage notes and related accrued interest receivable | 357,668 | 356,666 | 357,391 | 413,695 | 550,131 | 527,627 | ||||||||||||||||||
Investment in direct financing leases, net | — | — | — | 20,727 | 20,675 | 20,616 | ||||||||||||||||||
Investment in joint ventures | 28,925 | 33,897 | 34,317 | 35,222 | 35,658 | 35,188 | ||||||||||||||||||
Cash and cash equivalents | 1,006,981 | 1,225,122 | 528,763 | 115,839 | 6,927 | 11,116 | ||||||||||||||||||
Restricted cash | 2,615 | 4,583 | 2,677 | 5,929 | 5,010 | 11,166 | ||||||||||||||||||
Accounts receivable | 134,774 | 72,537 | 86,858 | 99,190 | 108,433 | 111,146 | ||||||||||||||||||
Other assets | 107,615 | 112,095 | 94,174 | 94,014 | 92,042 | 87,458 | ||||||||||||||||||
Total assets | $ | 7,002,978 | $ | 7,255,340 | $ | 6,577,511 | $ | 6,633,290 | $ | 6,746,655 | $ | 6,431,231 | ||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 96,454 | $ | 112,167 | $ | 122,939 | $ | 121,351 | $ | 126,015 | $ | 117,746 | ||||||||||||
Operating lease liabilities | 229,030 | 232,343 | 235,650 | 244,358 | 245,372 | 235,612 | ||||||||||||||||||
Common dividends payable | 19 | 30,063 | 29,424 | 29,340 | 29,084 | 28,306 | ||||||||||||||||||
Preferred dividends payable | 6,034 | 6,034 | 6,034 | 6,034 | 6,034 | 6,034 | ||||||||||||||||||
Unearned rents and interest | 81,096 | 84,190 | 74,829 | 89,797 | 78,629 | 85,012 | ||||||||||||||||||
Line of credit | 750,000 | 750,000 | — | — | 240,000 | 70,000 | ||||||||||||||||||
Deferred financing costs, net | (35,907 | ) | (35,933 | ) | (37,165 | ) | (38,384 | ) | (31,957 | ) | (32,838 | ) | ||||||||||||
Other debt | 3,139,995 | 3,139,995 | 3,139,995 | 3,139,995 | 3,008,580 | 3,008,580 | ||||||||||||||||||
Total liabilities | 4,266,721 | 4,318,859 | 3,571,706 | 3,592,491 | 3,701,757 | 3,518,452 | ||||||||||||||||||
Equity: | ||||||||||||||||||||||||
Common stock and additional paid-in-capital | 3,849,803 | 3,845,911 | 3,835,674 | 3,815,278 | 3,759,032 | 3,597,916 | ||||||||||||||||||
Preferred stock at par value | 148 | 148 | 148 | 148 | 148 | 148 | ||||||||||||||||||
Treasury stock | (260,351 | ) | (154,357 | ) | (147,435 | ) | (147,435 | ) | (147,143 | ) | (146,906 | ) | ||||||||||||
Accumulated other comprehensive income | (4,331 | ) | (5,289 | ) | 7,275 | 4,659 | 5,174 | 8,397 | ||||||||||||||||
Distributions in excess of net income | (849,012 | ) | (749,932 | ) | (689,857 | ) | (631,851 | ) | (572,313 | ) | (546,776 | ) | ||||||||||||
Total equity | 2,736,257 | 2,936,481 | 3,005,805 | 3,040,799 | 3,044,898 | 2,912,779 | ||||||||||||||||||
Total liabilities and equity | $ | 7,002,978 | $ | 7,255,340 | $ | 6,577,511 | $ | 6,633,290 | $ | 6,746,655 | $ | 6,431,231 | ||||||||||||
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Q2 2020 Supplemental | Page 7 | |
SELECTED OPERATING DATA | |||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||||||||||||||
2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | ||||||||||||||||||
Rental revenue | $ | 97,531 | $ | 135,043 | $ | 154,765 | $ | 150,962 | $ | 147,003 | $ | 140,292 | |||||||||||
Other income | 416 | 7,573 | 8,386 | 11,464 | 5,726 | 344 | |||||||||||||||||
Mortgage and other financing income | 8,413 | 8,396 | 7,195 | 6,930 | 9,011 | 9,891 | |||||||||||||||||
Total revenue | 106,360 | 151,012 | 170,346 | 169,356 | 161,740 | 150,527 | |||||||||||||||||
Property operating expense | 15,329 | 13,093 | 16,097 | 14,494 | 14,597 | 15,551 | |||||||||||||||||
Other expense | 2,798 | 9,534 | 10,173 | 11,403 | 8,091 | — | |||||||||||||||||
General and administrative expense | 10,432 | 10,988 | 10,831 | 11,600 | 12,230 | 11,710 | |||||||||||||||||
Severance expense | — | — | 423 | 1,521 | — | 420 | |||||||||||||||||
Costs associated with loan refinancing or payoff | 820 | — | — | 38,269 | — | — | |||||||||||||||||
Interest expense, net | 38,340 | 34,753 | 34,914 | 36,667 | 36,458 | 33,963 | |||||||||||||||||
Transaction costs | 771 | 1,075 | 5,784 | 5,959 | 6,923 | 5,123 | |||||||||||||||||
Credit loss expense | 3,484 | 1,192 | — | — | — | — | |||||||||||||||||
Impairment charges | 51,264 | — | 2,206 | — | — | — | |||||||||||||||||
Depreciation and amortization | 42,450 | 43,810 | 42,398 | 41,644 | 38,790 | 36,002 | |||||||||||||||||
(Loss) income before equity in (loss) income from joint ventures, other items and discontinued operations | (59,328 | ) | 36,567 | 47,520 | 7,799 | 44,651 | 47,758 | ||||||||||||||||
Equity in (loss) income from joint ventures | (1,724 | ) | (420 | ) | (905 | ) | (435 | ) | 470 | 489 | |||||||||||||
Impairment charges on joint ventures | (3,247 | ) | — | — | — | — | — | ||||||||||||||||
Gain (loss) on sale of real estate | 22 | 220 | 3,717 | 845 | — | (388 | ) | ||||||||||||||||
Income tax benefit | 1,312 | 751 | 530 | 600 | 1,300 | 605 | |||||||||||||||||
(Loss) income from continuing operations | (62,965 | ) | 37,118 | 50,862 | 8,809 | 46,421 | 48,464 | ||||||||||||||||
Discontinued operations: | |||||||||||||||||||||||
Income from discontinued operations before other items | — | — | 4,937 | 11,736 | 10,399 | 10,169 | |||||||||||||||||
Impairment on public charter school portfolio sale | — | — | (21,433 | ) | — | — | — | ||||||||||||||||
Gain on sale of real estate from discontinued operations | — | — | 1,931 | 13,458 | 9,774 | 6,716 | |||||||||||||||||
(Loss) income from discontinued operations | — | — | (14,565 | ) | 25,194 | 20,173 | 16,885 | ||||||||||||||||
Net (loss) income | (62,965 | ) | 37,118 | 36,297 | 34,003 | 66,594 | 65,349 | ||||||||||||||||
Preferred dividend requirements | (6,034 | ) | (6,034 | ) | (6,034 | ) | (6,034 | ) | (6,034 | ) | (6,034 | ) | |||||||||||
Net (loss) income available to common shareholders of EPR Properties | $ | (68,999 | ) | $ | 31,084 | $ | 30,263 | $ | 27,969 | $ | 60,560 | $ | 59,315 | ||||||||||
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Q2 2020 Supplemental | Page 8 | |
FUNDS FROM OPERATIONS AND FUNDS FROM OPERATIONS AS ADJUSTED | ||||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION) | ||||||||||||||||||||||||
FUNDS FROM OPERATIONS ("FFO") (1): | 2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | ||||||||||||||||||
Net (loss) income available to common shareholders of EPR Properties | $ | (68,999 | ) | $ | 31,084 | $ | 30,263 | $ | 27,969 | $ | 60,560 | $ | 59,315 | |||||||||||
Gain on sale of real estate | (22 | ) | (220 | ) | (5,648 | ) | (14,303 | ) | (9,774 | ) | (6,328 | ) | ||||||||||||
Impairment of real estate investments, net (2) | 36,255 | — | 23,639 | — | — | — | ||||||||||||||||||
Real estate depreciation and amortization | 42,151 | 43,525 | 44,242 | 44,863 | 42,098 | 39,514 | ||||||||||||||||||
Allocated share of joint venture depreciation | 378 | 383 | 551 | 553 | 554 | 555 | ||||||||||||||||||
Impairment charges on joint ventures | 3,247 | — | — | — | — | — | ||||||||||||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 74,772 | $ | 93,047 | $ | 59,082 | $ | 93,438 | $ | 93,056 | ||||||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 74,772 | $ | 93,047 | $ | 59,082 | $ | 93,438 | $ | 93,056 | ||||||||||||
Add: Preferred dividends for Series C preferred shares | — | 1,939 | 1,937 | — | 1,939 | 1,939 | ||||||||||||||||||
Add: Preferred dividends for Series E preferred shares | — | 1,939 | 1,939 | — | 1,939 | 1,939 | ||||||||||||||||||
Diluted FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 78,650 | $ | 96,923 | $ | 59,082 | $ | 97,316 | $ | 96,934 | ||||||||||||
FUNDS FROM OPERATIONS AS ADJUSTED ("FFOAA") (1): | ||||||||||||||||||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 74,772 | $ | 93,047 | $ | 59,082 | $ | 93,438 | $ | 93,056 | ||||||||||||
Costs associated with loan refinancing or payoff | 820 | — | 43 | 38,407 | — | — | ||||||||||||||||||
Transaction costs | 771 | 1,075 | 5,784 | 5,959 | 6,923 | 5,123 | ||||||||||||||||||
Severance expense | — | — | 423 | 1,521 | — | 420 | ||||||||||||||||||
Termination fee included in gain on sale | — | — | 1,217 | 11,324 | 6,533 | 5,001 | ||||||||||||||||||
Impairment of operating lease right-of-use assets (2) | 15,009 | — | — | — | — | — | ||||||||||||||||||
Credit loss expense | 3,484 | 1,192 | — | — | — | — | ||||||||||||||||||
Deferred income tax benefit | (1,676 | ) | (1,113 | ) | (847 | ) | (984 | ) | (1,675 | ) | (609 | ) | ||||||||||||
FFO as adjusted available to common shareholders of EPR Properties | $ | 31,418 | $ | 75,926 | $ | 99,667 | $ | 115,309 | $ | 105,219 | $ | 102,991 | ||||||||||||
FFO as adjusted available to common shareholders of EPR Properties | $ | 31,418 | $ | 75,926 | $ | 99,667 | $ | 115,309 | $ | 105,219 | $ | 102,991 | ||||||||||||
Add: Preferred dividends for Series C preferred shares | — | 1,939 | 1,937 | 1,939 | 1,939 | 1,939 | ||||||||||||||||||
Add: Preferred dividends for Series E preferred shares | — | 1,939 | 1,939 | 1,939 | 1,939 | 1,939 | ||||||||||||||||||
Diluted FFO as adjusted available to common shareholders of EPR Properties | $ | 31,418 | $ | 79,804 | $ | 103,543 | $ | 119,187 | $ | 109,097 | $ | 106,869 | ||||||||||||
FFO per common share: | ||||||||||||||||||||||||
Basic | $ | 0.17 | $ | 0.95 | $ | 1.19 | $ | 0.76 | $ | 1.23 | $ | 1.25 | ||||||||||||
Diluted | 0.17 | 0.95 | 1.18 | 0.76 | 1.22 | 1.23 | ||||||||||||||||||
FFO as adjusted per common share: | ||||||||||||||||||||||||
Basic | $ | 0.41 | $ | 0.97 | $ | 1.27 | $ | 1.49 | $ | 1.38 | $ | 1.38 | ||||||||||||
Diluted | 0.41 | 0.97 | 1.26 | 1.46 | 1.36 | 1.36 | ||||||||||||||||||
Shares used for computation (in thousands): | ||||||||||||||||||||||||
Basic | 76,310 | 78,467 | 78,456 | 77,632 | 76,164 | 74,679 | ||||||||||||||||||
Diluted | 76,310 | 78,476 | 78,485 | 77,664 | 76,199 | 74,725 | ||||||||||||||||||
Effect of dilutive Series C preferred shares | — | 2,232 | 2,184 | 2,170 | 2,158 | 2,145 | ||||||||||||||||||
Effect of dilutive Series E preferred shares | — | 1,664 | 1,640 | 1,634 | 1,628 | 1,622 | ||||||||||||||||||
Adjusted weighted-average shares outstanding-diluted Series C and Series E | 76,310 | 82,372 | 82,309 | 81,468 | 79,985 | 78,492 | ||||||||||||||||||
(1) See pages 22 through 24 for definitions. | ||||||||||||||||||||||||
(2) Impairment charges recognized during the three months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets. | ||||||||||||||||||||||||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of (loss) income. | ||||||||||||||||||||||||
| ||
Q2 2020 Supplemental | Page 9 | |
ADJUSTED FUNDS FROM OPERATIONS | ||||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION) | ||||||||||||||||||||||||
ADJUSTED FUNDS FROM OPERATIONS ("AFFO") (1): | 2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | ||||||||||||||||||
FFO available to common shareholders of EPR Properties | $ | 13,010 | $ | 74,772 | $ | 93,047 | $ | 59,082 | $ | 93,438 | $ | 93,056 | ||||||||||||
Adjustments: | ||||||||||||||||||||||||
Costs associated with loan refinancing or payoff | 820 | — | 43 | 38,407 | — | — | ||||||||||||||||||
Transaction costs | 771 | 1,075 | 5,784 | 5,959 | 6,923 | 5,123 | ||||||||||||||||||
Impairment of operating lease right-of-use assets (2) | 15,009 | — | — | — | — | — | ||||||||||||||||||
Credit loss expense | 3,484 | 1,192 | — | — | — | — | ||||||||||||||||||
Severance expense | — | — | 423 | 1,521 | — | 420 | ||||||||||||||||||
Termination fees included in gain on sale | — | — | 1,217 | 11,324 | 6,533 | 5,001 | ||||||||||||||||||
Deferred income tax benefit | (1,676 | ) | (1,113 | ) | (847 | ) | (984 | ) | (1,675 | ) | (609 | ) | ||||||||||||
Non-real estate depreciation and amortization | 299 | 285 | 288 | 271 | 257 | 229 | ||||||||||||||||||
Deferred financing fees amortization | 1,651 | 1,634 | 1,621 | 1,552 | 1,517 | 1,502 | ||||||||||||||||||
Share-based compensation expense to management and trustees | 3,463 | 3,509 | 3,349 | 3,372 | 3,283 | 3,177 | ||||||||||||||||||
Amortization of above/below market leases, net and tenant allowances | (108 | ) | (152 | ) | (119 | ) | (107 | ) | (58 | ) | (59 | ) | ||||||||||||
Maintenance capital expenditures (3) | (1,291 | ) | (928 | ) | (2,276 | ) | (2,370 | ) | (510 | ) | (297 | ) | ||||||||||||
Straight-lined rental revenue | (2,229 | ) | 9,708 | (3,516 | ) | (4,399 | ) | (3,223 | ) | (2,414 | ) | |||||||||||||
Straight-lined ground sublease expense | 207 | 176 | 237 | 256 | 205 | 184 | ||||||||||||||||||
Non-cash portion of mortgage and other financing income | (97 | ) | (91 | ) | (91 | ) | (237 | ) | (1,069 | ) | (1,014 | ) | ||||||||||||
AFFO available to common shareholders of EPR Properties | $ | 33,313 | $ | 90,067 | $ | 99,160 | $ | 113,647 | $ | 105,621 | $ | 104,299 | ||||||||||||
AFFO available to common shareholders of EPR Properties | $ | 33,313 | $ | 90,067 | $ | 99,160 | $ | 113,647 | $ | 105,621 | $ | 104,299 | ||||||||||||
Add: Preferred dividends for Series C preferred shares | — | 1,939 | 1,937 | 1,939 | 1,939 | 1,939 | ||||||||||||||||||
Add: Preferred dividends for Series E preferred shares | — | 1,939 | 1,939 | 1,939 | 1,939 | 1,939 | ||||||||||||||||||
Diluted AFFO available to common shareholders of EPR Properties | $ | 33,313 | $ | 93,945 | $ | 103,036 | $ | 117,525 | $ | 109,499 | $ | 108,177 | ||||||||||||
Weighted average diluted shares outstanding (in thousands) | 76,310 | 78,476 | 78,485 | 77,664 | 76,199 | 74,725 | ||||||||||||||||||
Effect of dilutive Series C preferred shares | — | 2,232 | 2,184 | 2,170 | 2,158 | 2,145 | ||||||||||||||||||
Effect of dilutive Series E preferred shares | — | 1,664 | 1,640 | 1,634 | 1,628 | 1,622 | ||||||||||||||||||
Adjusted weighted-average shares outstanding-diluted | 76,310 | 82,372 | 82,309 | 81,468 | 79,985 | 78,492 | ||||||||||||||||||
AFFO per diluted common share | $ | 0.44 | $ | 1.14 | $ | 1.25 | $ | 1.44 | $ | 1.37 | $ | 1.38 | ||||||||||||
Dividends declared per common share | $ | 0.3825 | $ | 1.1325 | $ | 1.1250 | $ | 1.1250 | $ | 1.1250 | $ | 1.1250 | ||||||||||||
AFFO payout ratio (4) | 87 | % | 99 | % | 90 | % | 78 | % | 82 | % | 82 | % | ||||||||||||
(1) See pages 22 through 24 for definitions. | ||||||||||||||||||||||||
(2) Impairment charges recognized during the three months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets. | ||||||||||||||||||||||||
(3) Includes maintenance capital expenditures and certain second generation tenant improvements and leasing commissions. | ||||||||||||||||||||||||
(4) AFFO payout ratio is calculated by dividing dividends declared per common share by AFFO per diluted common share. The monthly cash dividend to common shareholders was suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. | ||||||||||||||||||||||||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of (loss) income. | ||||||||||||||||||||||||
| ||
Q2 2020 Supplemental | Page 10 | |
CAPITAL STRUCTURE AS OF JUNE 30, 2020 | |||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||||||||||
CONSOLIDATED DEBT | |||||||||||||||||||
PRINCIPAL PAYMENTS DUE ON DEBT: | |||||||||||||||||||
BONDS/TERM LOAN/OTHER (1) (2) | UNSECURED CREDIT FACILITY (3) | UNSECURED SENIOR NOTES | TOTAL | WEIGHTED AVG INTEREST RATE | |||||||||||||||
YEAR | |||||||||||||||||||
2020 | $ | — | $ | — | $ | — | $ | — | —% | ||||||||||
2021 | — | — | — | — | —% | ||||||||||||||
2022 | — | 750,000 | — | 750,000 | 2.25% | ||||||||||||||
2023 | 400,000 | — | 275,000 | 675,000 | 4.41% | ||||||||||||||
2024 | — | — | 148,000 | 148,000 | 5.00% | ||||||||||||||
2025 | — | — | 300,000 | 300,000 | 4.50% | ||||||||||||||
2026 | — | — | 642,000 | 642,000 | 4.89% | ||||||||||||||
2027 | — | — | 450,000 | 450,000 | 4.50% | ||||||||||||||
2028 | — | — | 400,000 | 400,000 | 4.95% | ||||||||||||||
2029 | — | — | 500,000 | 500,000 | 3.75% | ||||||||||||||
2030 | — | — | — | — | —% | ||||||||||||||
Thereafter | 24,995 | — | — | 24,995 | 1.39% | ||||||||||||||
Less: deferred financing costs, net | — | — | — | (35,907 | ) | —% | |||||||||||||
$ | 424,995 | $ | 750,000 | $ | 2,715,000 | $ | 3,854,088 | 4.06% | |||||||||||
BALANCE | WEIGHTED AVG INTEREST RATE | WEIGHTED AVG MATURITY | |||||||||||||||||
Fixed rate unsecured debt (1) | $ | 3,115,000 | 4.52 | % | 6.04 | ||||||||||||||
Fixed rate secured debt (2) | 24,995 | 1.39 | % | 27.09 | |||||||||||||||
Variable rate unsecured debt | 750,000 | 2.25 | % | 1.66 | |||||||||||||||
Less: deferred financing costs, net | (35,907 | ) | — | % | — | ||||||||||||||
Total | $ | 3,854,088 | 4.06 | % | 5.33 | ||||||||||||||
(1) Includes $400 million of term loan that has been fixed through interest rate swaps through February 7, 2022. | |||||||||||||||||||
(2) Includes $25 million of secured bonds that have been fixed through interest rate swaps through September 30, 2024. | |||||||||||||||||||
(3) Unsecured Revolving Credit Facility Summary: | |||||||||||||||||||
BALANCE | RATE | ||||||||||||||||||
COMMITMENT | AT 6/30/2020 | MATURITY | AT 6/30/2020 | ||||||||||||||||
$1,000,000 | $ | 750,000 | February 27, 2022 | 2.25% | |||||||||||||||
Note: This facility has a seven-month extension available at the Company's option (solely with respect to the unsecured revolving credit portion of the facility) and includes an accordion feature pursuant to which the maximum borrowing amount under the combined unsecured revolving credit and term loan facility can be increased from $1.4 billion to $2.4 billion, in each case, subject to certain terms and conditions. | |||||||||||||||||||
| ||
Q2 2020 Supplemental | Page 11 | |
CAPITAL STRUCTURE AS OF JUNE 30, 2020 AND DECEMBER 31, 2019 | ||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | ||||||||
CONSOLIDATED DEBT (continued) | ||||||||
SUMMARY OF DEBT: | June 30, 2020 | December 31, 2019 | ||||||
Unsecured revolving variable rate credit facility, LIBOR + 1.375% during covenant relief period, LIBOR + 1.00% thereafter, due February 27, 2022 (1)(2)(3) | $ | 750,000 | $ | — | ||||
Unsecured term loan payable, LIBOR + 1.75% during covenant relief period, LIBOR + 1.10% thereafter, $350,000 fixed at 3.80% and $50,000 fixed at 4.00% during the covenant relief period and 3.15% and 3.35%, respectively, thereafter, through February 7, 2022, due February 27, 2023 (1)(2) | 400,000 | 400,000 | ||||||
Senior unsecured notes payable, 5.25%, due July 15, 2023 | 275,000 | 275,000 | ||||||
Senior unsecured notes payable, 5.00% during covenant relief period, 4.35% thereafter, due August 22, 2024 (1) | 148,000 | 148,000 | ||||||
Senior unsecured notes payable, 4.50%, due April 1, 2025 | 300,000 | 300,000 | ||||||
Senior unsecured notes payable, 5.21% during covenant relief period, 4.56% thereafter, due August 22, 2026 (1) | 192,000 | 192,000 | ||||||
Senior unsecured notes payable, 4.75%, due December 15, 2026 | 450,000 | 450,000 | ||||||
Senior unsecured notes payable, 4.50%, due June 1, 2027 | 450,000 | 450,000 | ||||||
Senior unsecured notes payable, 4.95%, due April 15, 2028 | 400,000 | 400,000 | ||||||
Senior unsecured notes payable, 3.75%, due August 15, 2029 | 500,000 | 500,000 | ||||||
Bonds payable, variable rate, fixed at 1.39% through September 30, 2024, due August 1, 2047 | 24,995 | 24,995 | ||||||
Less: deferred financing costs, net | (35,907 | ) | (37,165 | ) | ||||
Total debt | $ | 3,854,088 | $ | 3,102,830 | ||||
(1) On June 29, 2020, the Company amended its Consolidated Credit Agreement and its Note Purchase Agreement governing its private placement notes. The amendments modified certain provisions and waived certain covenants of the revolving credit and term loan facilities and the private placement notes in light of the continuing financial and operational impacts of the COVID-19 pandemic on the Company and its tenants and borrowers. The changes are generally effective during the covenant relief period, which began at the execution of the amendments and end on the earlier of April 1, 2021 or when the Company provides notice that it elects to terminate the covenant relief period.
(2) The unsecured revolving credit facility and unsecured term loan have a LIBOR floor of 0.50% during the covenant relief period and a LIBOR floor of zero thereafter.
(3) The unsecured revolving credit facility is subject to a facility fee of 0.375% during the covenant relief period and 0.20% thereafter.
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Q2 2020 Supplemental | Page 12 | |
CAPITAL STRUCTURE | |||||||
SENIOR NOTES | |||||||
SENIOR DEBT RATINGS AS OF JUNE 30, 2020 | |||||||
Moody's | Baa2 (negative) | ||||||
Fitch | BBB- (negative) | ||||||
Standard and Poor's | BBB- (negative) | ||||||
SUMMARY OF COVENANTS | |||||||
The Company has outstanding public senior unsecured notes with fixed interest rates of 3.75%, 4.50%, 4.75%, 4.95% and 5.25%. Interest on these notes is paid semiannually. These public senior unsecured notes contain various covenants, including: (i) a limitation on incurrence of any debt that would cause the Company's debt to adjusted total assets ratio to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause the Company’s secured debt to adjusted total assets ratio to exceed 40%; (iii) a limitation on incurrence of any debt which would cause the Company’s debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of total unencumbered assets not less than 150% of the Company’s outstanding unsecured debt. | |||||||
The following is a summary of the key financial covenants for the Company's 3.75%, 4.50%, 4.75%, 4.95% and 5.25% public senior unsecured notes, as defined and calculated per the terms of the notes. These calculations, which are not based on U.S. generally accepted accounting principles, or GAAP, measurements, are presented to investors to show the Company's ability to incur additional debt under the terms of the senior unsecured notes only and are not measures of the Company's liquidity or performance. The actual amounts as of June 30, 2020 and March 31, 2020 are: | |||||||
Actual | Actual | ||||||
NOTE COVENANTS | Required | 2nd Quarter 2020 (1) | 1st Quarter 2020 (1) | ||||
Limitation on incurrence of total debt (Total Debt/Total Assets) | ≤ 60% | 49% | 47% | ||||
Limitation on incurrence of secured debt (Secured Debt/Total Assets) | ≤ 40% | —% | —% | ||||
Limitation on incurrence of debt: Debt service coverage (Consolidated Income Available for Debt Service/Annual Debt Service) - trailing twelve months | ≥ 1.5 x | 3.4x | 3.8x | ||||
Maintenance of total unencumbered assets (Unencumbered Assets/Unsecured Debt) | ≥ 150% of unsecured debt | 192% | 200% | ||||
(1) See page 14 for details of calculations. | |||||||
| ||
Q2 2020 Supplemental | Page 13 | |
CAPITAL STRUCTURE | |||||||||||||||||||
SENIOR NOTES | |||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||||||||||
COVENANT CALCULATIONS | |||||||||||||||||||
TOTAL ASSETS: | June 30, 2020 | TOTAL DEBT: | June 30, 2020 | ||||||||||||||||
Total Assets per balance sheet | $ | 7,002,978 | Secured debt obligations | $ | 24,995 | ||||||||||||||
Add: accumulated depreciation | 1,034,771 | Unsecured debt obligations: | |||||||||||||||||
Less: intangible assets, net | (44,160 | ) | Unsecured debt | 3,865,000 | |||||||||||||||
Total Assets | $ | 7,993,589 | Outstanding letters of credit | — | |||||||||||||||
Guarantees | — | ||||||||||||||||||
Derivatives at fair market value, net, if liability | 5,837 | ||||||||||||||||||
Total unsecured debt obligations: | 3,870,837 | ||||||||||||||||||
TOTAL UNENCUMBERED ASSETS: | June 30, 2020 | Total Debt | $ | 3,895,832 | |||||||||||||||
Unencumbered real estate assets, gross | $ | 6,369,118 | |||||||||||||||||
Cash and cash equivalents | 1,006,981 | ||||||||||||||||||
Land held for development | 26,244 | ||||||||||||||||||
Property under development | 39,039 | ||||||||||||||||||
Total Unencumbered Assets | $ | 7,441,382 | |||||||||||||||||
CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE: | 2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | TRAILING TWELVE MONTHS | ||||||||||||||
Adjusted EBITDA per bond documents (1) | $ | 77,801 | $ | 117,397 | $ | 140,350 | $ | 147,196 | (2) | $ | 482,744 | ||||||||
Less: straight-line rental revenue | (2,229 | ) | 9,708 | (3,516 | ) | (4,399 | ) | (436 | ) | ||||||||||
CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE | $ | 75,572 | $ | 127,105 | $ | 136,834 | $ | 142,797 | $ | 482,308 | |||||||||
ANNUAL DEBT SERVICE: | |||||||||||||||||||
Interest expense, gross | $ | 39,281 | $ | 36,794 | $ | 36,442 | $ | 37,575 | $ | 150,092 | |||||||||
Less: deferred financing fees amortization | (1,651 | ) | (1,634 | ) | (1,621 | ) | (1,552 | ) | (6,458 | ) | |||||||||
ANNUAL DEBT SERVICE | $ | 37,630 | $ | 35,160 | $ | 34,821 | $ | 36,023 | $ | 143,634 | |||||||||
DEBT SERVICE COVERAGE | 2.0 | 3.6 | 3.9 | 4.0 | 3.4 | ||||||||||||||
(1) Includes straight-line rental revenue write-offs. | |||||||||||||||||||
(2) Includes prepayment fees. | |||||||||||||||||||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of (loss) income. | |||||||||||||||||||
| ||
Q2 2020 Supplemental | Page 14 | |
CAPITAL STRUCTURE AS OF JUNE 30, 2020 | ||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT SHARE INFORMATION) | ||||||||||||||
EQUITY | ||||||||||||||
SECURITY | SHARES OUTSTANDING | PRICE PER SHARE AT JUNE 30, 2020 | LIQUIDIATION PREFERENCE | DIVIDEND RATE | CONVERTIBLE | CONVERSION RATIO AT JUNE 30, 2020 | CONVERSION PRICE AT JUNE 30, 2020 | |||||||
Common shares | 74,612,838 | $33.13 | N/A | (1) | N/A | N/A | N/A | |||||||
Series C | 5,394,050 | $18.21 | $134,851 | 5.750% | Y | 0.4137 | $60.43 | |||||||
Series E | 3,447,381 | $25.77 | $86,185 | 9.000% | Y | 0.4826 | $51.80 | |||||||
Series G | 6,000,000 | $17.09 | $150,000 | 5.750% | N | N/A | N/A | |||||||
(1) Total monthly dividends declared in the second quarter of 2020 were $0.3825 per share. The monthly cash dividend to common shareholders was suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. | ||||||||||||||
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Q2 2020 Supplemental | Page 15 | |
SUMMARY OF RATIOS | |||||||||||
(UNAUDITED) | |||||||||||
2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | ||||||
Net debt to gross assets | 41% | 38% | 35% | 40% | 42% | 42% | |||||
Net debt/Adjusted EBITDA ratio (1)(2) | Footnote 9 | 5.1 | 4.7 | 5.2 | 5.8 | 5.6 | |||||
Adjusted net debt/Annualized adjusted EBITDA ratio (3)(4) | Footnote 9 | 4.9 | 4.8 | 5.2 | 5.5 | 5.4 | |||||
Interest coverage ratio (5) | Footnote 9 | 3.6 | 3.8 | 3.8 | 3.7 | 3.7 | |||||
Fixed charge coverage ratio (5) | Footnote 9 | 3.1 | 3.3 | 3.3 | 3.2 | 3.2 | |||||
Debt service coverage ratio (5) | Footnote 9 | 3.6 | 3.8 | 3.8 | 3.7 | 3.7 | |||||
FFO payout ratio (6) | 225% | 119% | 95% | 148% | 92% | 91% | |||||
FFO as adjusted payout ratio (7) | 93% | 117% | 89% | 77% | 83% | 83% | |||||
AFFO payout ratio (8) | 87% | 99% | 90% | 78% | 82% | 82% | |||||
(1) See pages 22 through 24 for definitions. | |||||||||||
(2) Adjusted EBITDA is for the quarter multiplied times four. See calculation on page 28. | |||||||||||
(3) Adjusted net debt is net debt less 40% times property under development. See pages 22 through 24 for definitions. | |||||||||||
(4) Annualized adjusted EBITDA is Adjusted EBITDA for the quarter further adjusted for in-service and disposed projects, percentage rent and participating interest and other non-recurring items which is then multiplied times four. These calculations can be found on page 28 under the reconciliation of Adjusted EBITDA and Annualized Adjusted EBITDA. See pages 22 through 24 for definitions. | |||||||||||
(5) See page 26 for detailed calculation. | |||||||||||
(6) FFO payout ratio is calculated by dividing dividends declared per common share by FFO per diluted common share. The monthly cash dividend to common shareholders was suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. | |||||||||||
(7) FFO as adjusted payout ratio is calculated by dividing dividends declared per common share by FFO as adjusted per diluted common share. The monthly cash dividend to common shareholders was suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. | |||||||||||
(8) AFFO payout ratio is calculated by dividing dividends declared per common share by AFFO per diluted common share. The monthly cash dividend to common shareholders was suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. | |||||||||||
(9) Not presented as ratio is not meaningful given the temporary disruption caused by COVID-19 and the associated accounting for tenant rent deferrals and other lease modifications. | |||||||||||
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Q2 2020 Supplemental | Page 16 | |
SUMMARY OF MORTGAGE NOTES RECEIVABLE | ||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | ||||||||||||
CARRYING AMOUNT AS OF (2) | ||||||||||||
DESCRIPTION | INTEREST RATE | PAYOFF DATE/MATURITY DATE | OUTSTANDING PRINCIPAL AMOUNT OF MORTGAGE | JUNE 30, 2020 | DECEMBER 31, 2019 (1) | |||||||
Attraction property Powells Point, North Carolina | 7.75% | 6/30/2025 | $ | 27,423 | $ | 26,480 | $ | 27,423 | ||||
Fitness & wellness property Omaha, Nebraska | 7.85% | 1/3/2027 | 10,905 | 11,002 | 10,977 | |||||||
Fitness & wellness property Merriam, Kansas | 7.55% | 7/31/2029 | 8,384 | 8,515 | 5,985 | |||||||
Ski property Girdwood, Alaska | 8.25% | 12/31/2029 | 37,000 | 36,975 | 37,000 | |||||||
Fitness & wellness property Omaha, Nebraska | 7.85% | 6/30/2030 | 5,773 | 5,889 | 5,803 | |||||||
Experiential lodging property Nashville, Tennessee | 6.99% | 9/30/2031 | 71,223 | 68,311 | 70,396 | |||||||
Eat & play property Austin, Texas | 11.31% | 6/1/2033 | 11,488 | 11,814 | 11,582 | |||||||
Ski property West Dover and Wilmington, Vermont | 11.78% | 12/1/2034 | 51,050 | 51,023 | 51,050 | |||||||
Four ski properties Ohio and Pennsylvania | 10.75% | 12/1/2034 | 37,562 | 37,392 | 37,562 | |||||||
Ski property Chesterland, Ohio | 11.21% | 12/1/2034 | 4,550 | 4,367 | 4,550 | |||||||
Ski property Hunter, New York | 8.57% | 1/5/2036 | 21,000 | 20,999 | 21,000 | |||||||
Eat & play property Midvale, Utah | 10.25% | 5/31/2036 | 17,505 | 17,952 | 17,505 | |||||||
Eat & play property West Chester, Ohio | 9.75% | 8/1/2036 | 18,068 | 18,498 | 18,068 | |||||||
Private school property Mableton, Georgia | 9.02% | 4/30/2037 | 4,674 | 5,055 | 5,048 | |||||||
Fitness & wellness property Fort Collins, Colorado | 7.85% | 1/31/2038 | 10,292 | 10,235 | 10,360 | |||||||
Early childhood education center Lake Mary, Florida | 7.87% | 5/9/2039 | 4,200 | 4,304 | 4,258 | |||||||
Eat & play property Eugene, Oregon | 8.13% | 6/17/2039 | 14,700 | 14,799 | 14,800 | |||||||
Early childhood education center Lithia, Florida | 8.25% | 10/31/2039 | 3,959 | 4,058 | 4,024 | |||||||
Total | $ | 359,756 | $ | 357,668 | $ | 357,391 | ||||||
(1) Balances as of December 31, 2019 are prior to the adoption of ASC Topic 326.
(2) Amounts include accrued interest.
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Q2 2020 Supplemental | Page 17 | |
INVESTMENT SPENDING AND DISPOSITION SUMMARIES | |||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||||||||||
INVESTMENT SPENDING THREE MONTHS ENDED JUNE 30, 2020 | |||||||||||||||||||
INVESTMENT TYPE | TOTAL INVESTMENT SPENDING | NEW DEVELOPMENT | RE-DEVELOPMENT | ASSET ACQUISITION | MORTGAGE NOTES OR NOTES RECEIVABLE | INVESTMENT IN JOINT VENTURES | |||||||||||||
Theatres | $ | 2,010 | $ | 50 | $ | 1,960 | $ | — | $ | — | $ | — | |||||||
Eat & Play | 7,718 | 7,028 | 690 | — | — | — | |||||||||||||
Attractions | 11 | — | 11 | — | — | — | |||||||||||||
Experiential Lodging | 1,309 | 1,128 | 181 | — | — | — | |||||||||||||
Cultural | 146 | — | 146 | — | — | — | |||||||||||||
Fitness & Wellness | 442 | — | — | — | 442 | — | |||||||||||||
Total Experiential | 11,636 | 8,206 | 2,988 | — | 442 | — | |||||||||||||
Early Childhood Education Centers | — | — | — | — | — | — | |||||||||||||
Total Education | — | — | — | — | — | — | |||||||||||||
Total Investment Spending | $ | 11,636 | $ | 8,206 | $ | 2,988 | $ | — | $ | 442 | $ | — | |||||||
INVESTMENT SPENDING SIX MONTHS ENDED JUNE 30, 2020 | |||||||||||||||||||
INVESTMENT TYPE | TOTAL INVESTMENT SPENDING | NEW DEVELOPMENT | RE-DEVELOPMENT | ASSET ACQUISITION | MORTGAGE NOTES OR NOTES RECEIVABLE | INVESTMENT IN JOINT VENTURES | |||||||||||||
Theatres | $ | 26,118 | $ | 700 | $ | 3,310 | $ | 22,108 | $ | — | $ | — | |||||||
Eat & Play | 12,791 | 12,013 | 778 | — | — | — | |||||||||||||
Attractions | 970 | — | 970 | — | — | — | |||||||||||||
Experiential Lodging | 11,106 | 10,708 | 398 | — | — | — | |||||||||||||
Cultural | 152 | — | 152 | — | — | — | |||||||||||||
Fitness & Wellness | 2,441 | — | — | — | 2,441 | — | |||||||||||||
Total Experiential | 53,578 | 23,421 | 5,608 | 22,108 | 2,441 | — | |||||||||||||
Early Childhood Education Centers | 3 | — | — | — | 3 | — | |||||||||||||
Total Education | 3 | — | — | — | 3 | — | |||||||||||||
Total Investment Spending | $ | 53,581 | $ | 23,421 | $ | 5,608 | $ | 22,108 | $ | 2,444 | $ | — | |||||||
2020 DISPOSITIONS | |||||||||||||||||||
THREE MONTHS ENDED JUNE 30, 2020 | SIX MONTHS ENDED JUNE 30, 2020 | ||||||||||||||||||
INVESTMENT TYPE | TOTAL DISPOSITIONS | NET PROCEEDS FROM SALE OF REAL ESTATE | NET PROCEEDS FROM PAYDOWN OF MORTGAGE NOTES | TOTAL DISPOSITIONS | NET PROCEEDS FROM SALE OF REAL ESTATE | NET PROCEEDS FROM PAYDOWN OF MORTGAGE NOTES | |||||||||||||
Early Childhood Education Centers | 932 | 932 | — | 3,839 | 3,839 | — | |||||||||||||
Total Dispositions | $ | 932 | $ | 932 | $ | — | $ | 3,839 | $ | 3,839 | $ | — | |||||||
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Q2 2020 Supplemental | Page 18 | |
PROPERTY UNDER DEVELOPMENT - INVESTMENT SPENDING ESTIMATES AT JUNE 30, 2020 (1) | |||||||||||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||||||||||||||||||||||
JUNE 30, 2020 | OWNED BUILD-TO-SUIT SPENDING ESTIMATES | ||||||||||||||||||||||||||||||
PROPERTY UNDER DEVELOPMENT | # OF PROJECTS | 3RD QUARTER 2020 | 4TH QUARTER 2020 | 1ST QUARTER 2021 | 2ND QUARTER 2021 | THEREAFTER | TOTAL EXPECTED COSTS (2) | % LEASED | |||||||||||||||||||||||
Total Build-to-Suit (3) | $ | 22,632 | 6 | $ | 14,226 | $ | 11,965 | $ | 9,700 | $ | 8,900 | $ | 4,000 | $ | 71,423 | 100 | % | ||||||||||||||
Non Build-to-Suit Development | 16,407 | ||||||||||||||||||||||||||||||
Total Property Under Development | $ | 39,039 | |||||||||||||||||||||||||||||
JUNE 30, 2020 | OWNED BUILD-TO-SUIT IN-SERVICE ESTIMATES | ||||||||||||||||||||||||||||||
# OF PROJECTS | 3RD QUARTER 2020 | 4TH QUARTER 2020 | 1ST QUARTER 2021 | 2ND QUARTER 2021 | THEREAFTER | TOTAL IN-SERVICE (2) | ACTUAL IN-SERVICE 2ND QUARTER 2020 | ||||||||||||||||||||||||
Total Build-to-Suit | 6 | $ | — | $ | 21,165 | $ | 21,624 | $ | 28,634 | $ | — | $ | 71,423 | $ | — | ||||||||||||||||
JUNE 30, 2020 | MORTGAGE BUILD-TO-SUIT SPENDING ESTIMATES | ||||||||||||||||||||||||||||||
MORTGAGE NOTES RECEIVABLE | # OF PROJECTS | 3RD QUARTER 2020 | 4TH QUARTER 2020 | 1ST QUARTER 2021 | 2ND QUARTER 2021 | THEREAFTER | TOTAL EXPECTED COSTS (2) | ||||||||||||||||||||||||
Total Build-to-Suit Mortgage Notes | $ | 51,379 | 3 | $ | 3,044 | $ | 4,133 | $ | 4,133 | $ | 2,500 | $ | 11,243 | $ | 76,432 | ||||||||||||||||
Non Build-to-Suit Mortgage Notes | 306,289 | ||||||||||||||||||||||||||||||
Total Mortgage Notes Receivable | $ | 357,668 | |||||||||||||||||||||||||||||
(1) This schedule includes only those properties for which the Company has commenced construction as of June 30, 2020 | |||||||||||||||||||||||||||||||
(2) "Total Expected Costs" and "Total In-Service" each reflect the total capital costs expected to be funded by the Company through completion (including capitalized interest or accrued interest as applicable). | |||||||||||||||||||||||||||||||
(3) Total Build-to-Suit excludes property under development related to the Company's two unconsolidated real estate joint ventures that own recreation anchored lodging properties in St. Petersburg, Florida. The Company's spending estimates for this are estimated at $14.6 million for 2020. | |||||||||||||||||||||||||||||||
Note: This schedule includes future estimates for which the Company can give no assurance as to timing or amounts. Development projects have risks. See Item 1A - "Risk Factors" in the Company's most recent Annual Report on Form 10-K and, to the extent applicable, the Company's Quarterly Reports on Form 10-Q. | |||||||||||||||||||||||||||||||
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Q2 2020 Supplemental | Page 19 | |
LEASE EXPIRATIONS | |||||||||||
AS OF JUNE 30, 2020 | |||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||
YEAR | TOTAL NUMBER OF PROPERTIES | RENTAL REVENUE FOR THE TRAILING TWELVE MONTHS ENDED JUNE 30, 2020 (1)(2) | % OF TOTAL REVENUE (2) | ||||||||
2020 | — | $ | — | — | % | ||||||
2021 | — | — | — | % | |||||||
2022 | 2 | 2,465 | — | % | |||||||
2023 | 3 | 1,737 | — | % | |||||||
2024 | 6 | 8,955 | 2 | % | |||||||
2025 | 2 | 2,680 | — | % | |||||||
2026 | 10 | 17,621 | 3 | % | |||||||
2027 | 13 | 26,875 | 5 | % | |||||||
2028 | 11 | 19,322 | 3 | % | |||||||
2029 | 13 | 19,603 | 3 | % | |||||||
2030 | 22 | 27,886 | 5 | % | |||||||
2031 | 17 | 13,957 | 2 | % | |||||||
2032 | 22 | 27,102 | 5 | % | |||||||
2033 | 10 | 12,513 | 2 | % | |||||||
2034 | 47 | 80,503 | 13 | % | |||||||
2035 | 28 | 67,944 | 11 | % | |||||||
2036 | 21 | 39,256 | 7 | % | |||||||
2037 | 34 | 62,877 | 11 | % | |||||||
2038 | 14 | 24,851 | 4 | % | |||||||
2039 | 24 | 16,278 | 3 | % | |||||||
Thereafter | 37 | 28,455 | 5 | % | |||||||
336 | $ | 500,880 | 84 | % | |||||||
Note: This schedule excludes non-theatre tenant leases within the Company's entertainment districts, properties under development, land held for development, properties operated by the Company and investments in mortgage notes receivable. This schedule reflects lease extensions related to Regal and AMC that occurred subsequent to June 30, 2020. | |||||||||||
(1) Rental revenue for the trailing twelve months ended June 30, 2020 includes lease revenue related to the Company's existing operating ground leases (leases in which the Company is a sub-lessor) as well as the gross-up of tenant reimbursed expenses recognized during the trailing twelve months ended June 30, 2020 in accordance with Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842). | |||||||||||
(2) Excludes revenue from discontinued operations and includes the write-offs of straight line rent receivables of $13.0 million against rental revenue during the six months ended June 30, 2020. | |||||||||||
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Q2 2020 Supplemental | Page 20 | |
TOP TEN CUSTOMERS BY PERCENTAGE OF TOTAL REVENUE | |||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||
PERCENTAGE OF TOTAL REVENUE | PERCENTAGE OF TOTAL REVENUE | ||||
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||
CUSTOMERS | JUNE 30, 2020 | JUNE 30, 2020 | |||
1. | Topgolf | 18.9% | 15.6% | ||
2. | Regal Entertainment Group | 16.7% | 15.2% | ||
3. | Cinemark | 9.9% | 8.1% | ||
4. | Vail Resorts | 6.5% | 5.3% | ||
5. | Basis Independent Schools | 5.2% | 4.3% | ||
6. | Camelback Resort | 4.9% | 4.0% | ||
7. | Six Flags | 3.8% | 3.1% | ||
8. | Endeavor Schools | 3.5% | 2.9% | ||
9. | Empire Resorts | 2.1% | 2.2% | ||
10. | AMC Theatres (1) | 1.9% | 8.6% | ||
Total | 73.4% | 69.3% | |||
(1) During the six months ended June 30, 2020, the Company wrote-off $9.2 million of straight-line receivables to straight-line rental revenue classified in rental revenue in the consolidated statements of (loss) income. The Company began recognizing revenue on a cash basis for AMC in the first quarter of 2020 and cash payments have been reduced due to the impact of COVID-19.
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Q2 2020 Supplemental | Page 21 | |
DEFINITIONS - NON-GAAP FINANCIAL MEASURES | ||||
EBITDAre
The National Association of Real Estate Investment Trusts (“NAREIT”) developed EBITDAre as a relative non-GAAP financial measure of REITs, independent of a company's capital structure, to provide a uniform basis to measure the enterprise value of a company. Pursuant to the definition of EBITDAre by the Board of Governors of NAREIT, the Company calculates EBITDAre as net income, computed in accordance with GAAP, 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. Management provides EBITDAre herein because it believes this information is useful to investors as a supplemental performance measure as it can help facilitate comparisons of operating performance between periods and with other REITs. The Company's method of calculating EBITDAre may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. EBITDAre is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations or cash flows or liquidity as defined by GAAP.
ADJUSTED EBITDA AND ANNUALIZED ADJUSTED EBITDA
Management uses Adjusted EBITDA in its analysis of the performance of the business and operations of the Company. Management believes Adjusted EBITDA is useful to investors because it excludes various items that management believes are not indicative of operating performance, and that it is an informative measure to use in computing various financial ratios to evaluate the Company. The Company defines Adjusted EBITDA as EBITDAre (defined above) for the quarter excluding severance expense, credit loss expense, transaction costs, impairment losses on operating lease right-of-use assets and prepayment fees. This number for the quarter is then multiplied by four to get an annual amount. Annualized Adjusted EBITDA is Adjusted EBITDA for the quarter further adjusted for in-service and disposed projects, percentage rent and participating interest and other non-recurring items including removing any impact from operating properties, which is then multiplied by four to get an annual amount. For the three months ended March 31, 2020, Adjusted EBITDA was further adjusted to reflect the write-offs of straight line rent receivables against rental revenue of $12.5 million related to the impact of the COVID-19 disruption.
The Company's method of calculating Adjusted EBITDA and Annualized Adjusted EBITDA may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Adjusted EBITDA and Annualized Adjusted EBITDA are not measures of performance under GAAP, do not represent cash generated from operations as defined by GAAP and are not indicative of cash available to fund all cash needs, including distributions. These measures should not be considered as an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations or cash flows or liquidity as defined by GAAP.
NET DEBT AND ADJUSTED NET DEBT
Net Debt represents debt (reported in accordance with GAAP) adjusted to exclude deferred financing costs, net and reduced for cash and cash equivalents. By excluding deferred financing costs, net and reducing debt for cash and cash equivalents on hand, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. The Company believes this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding its financial condition. Adjusted net debt is net debt less 40% times property under development to remove the estimated portion of property under development that has been financed with debt but has not yet produced earnings. The Company's method of calculating Net Debt and Adjusted Net Debt may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
NET DEBT TO ADJUSTED EBITDA RATIO AND ADJUSTED NET DEBT TO ANNUALIZED ADJUSTED EBITDA RATIO
Net Debt to Adjusted EBITDA ratio and Adjusted Net Debt to Annualized Adjusted EBITDA ratio are supplemental measures derived from non-GAAP financial measures that the Company uses to evaluate its capital structure and the magnitude of its debt against its operating performance. The Company believes that investors commonly
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Q2 2020 Supplemental | Page 22 | |
use versions of these ratios in a similar manner. In addition, financial institutions use versions of these ratios in connection with debt agreements to set pricing and covenant limitations. The Company's method of calculating both ratios may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
FUNDS FROM OPERATIONS (“FFO”) AND FFO AS ADJUSTED
NAREIT developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP and management provides FFO herein because it believes this information is useful to investors in this regard. FFO is a widely used measure of the operating performance of real estate companies and is provided here as a supplemental measure to GAAP net income available to common shareholders and earnings per share. Pursuant to the definition of FFO by the Board of Governors of NAREIT, the Company calculates FFO as net income available to common shareholders, computed in accordance with GAAP, 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. Adjustments for unconsolidated partnerships, joint ventures and other affiliates are calculated to reflect FFO on the same basis. The Company has calculated FFO for all periods presented in accordance with this definition. In addition, the Company presents FFO as adjusted. Management believes it is useful to provide FFO as adjusted as a supplemental measure to GAAP net income available to common shareholders and earnings per share. FFO as adjusted is FFO plus costs associated with loan refinancing or payoff, transaction costs, severance expense, preferred share redemption costs, impairment of operating lease right-of-use assets, termination fees associated with tenants' exercises of public charter school buy-out options and credit loss expense, and by subtracting deferred income tax (benefit) expense. FFO and FFO as adjusted are non-GAAP financial measures. FFO and FFO as adjusted do not represent cash flows from operations as defined by GAAP and are not indicative that cash flows are adequate to fund all cash needs and are not to be considered an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations, cash flows or liquidity as defined by GAAP. It should also be noted that not all REITs calculate FFO and FFO as adjusted the same way so comparisons with other REITs may not be meaningful.
ADJUSTED FUNDS FROM OPERATIONS (“AFFO”)
In addition to FFO, the Company presents AFFO by adding to FFO costs associated with loan refinancing or payoff, transaction costs, credit loss expense, severance expense, preferred share redemption costs, termination fees associated with tenants' exercises of public charter school buy-out options, non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense to management and trustees and amortization of above and below market leases, net and tenant allowances and by subtracting maintenance capital expenditures (including second generation tenant improvements and leasing commissions), straight-lined rental revenue (removing impact of straight-line ground sublease expense), non-cash portion of mortgage and other financing income and deferred income tax (benefit) expense. AFFO is a widely used measure of the operating performance of real estate companies and is provided here as a supplemental measure to GAAP net income available to common shareholders and earnings per share and management provides AFFO herein because it believes this information is useful to investors in this regard. AFFO is a non-GAAP financial measure. AFFO does not represent cash flows from operations as defined by GAAP and is not indicative that cash flows are adequate to fund all cash needs and is not to be considered an alternative to net income or any other GAAP measure as a measurement of the results of the Company's operations or its cash flows or liquidity as defined by GAAP. It should also be noted that not all REITs calculate AFFO the same way so comparisons with other REITs may not be meaningful.
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Q2 2020 Supplemental | Page 23 | |
INTEREST COVERAGE RATIO
The interest coverage ratio is calculated as the interest coverage amount divided by interest expense, gross. The Company calculates the interest coverage amount by adding to net income impairment charges, credit loss expense, transaction costs, interest expense, gross (including interest expense in discontinued operations), severance expense, depreciation and amortization, share-based compensation expense to management and trustees and costs associated with loan refinancing or payoff; subtracting interest cost capitalized, straight-line rental revenue, gain on early extinguishment of debt, gain (loss) on sale of real estate from continuing and discontinued operations, gain on previously held equity interest, gain on early extinguishment of debt, prepayment fees and deferred income tax benefit (expense). The Company calculated interest expense, gross, by adding to interest expense, net, interest income and interest cost capitalized. The Company considers the interest coverage ratio to be an appropriate supplemental measure of a company’s ability to meet its interest expense obligations and management believes it is useful to investors in this regard. The Company's calculation of the interest coverage ratio may be different from the calculation used by other companies, and therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures.
FIXED CHARGE COVERAGE RATIO
The fixed charge coverage ratio is calculated in exactly the same manner as the interest coverage ratio, except that interest expense, gross and preferred share dividends are also added to the denominator. The Company considers the fixed charge coverage ratio to be an appropriate supplemental measure of a company’s ability to make its interest and preferred share dividend payments and management believes it is useful to investors in this regard. The Company's calculation of the fixed charge coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures.
DEBT SERVICE COVERAGE RATIO
The debt service coverage ratio is calculated in exactly the same manner as the interest coverage ratio, except that interest expense, gross and recurring principal payments are also added to the denominator. The Company considers the debt service coverage ratio to be an appropriate supplemental measure of a company’s ability to make its debt service payments and management believes it is useful to investors in this regard. The Company's calculation of the debt service coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures.
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Q2 2020 Supplemental | Page 24 | |
Appendix to Supplemental Operating and Financial Data | ||||||||
Reconciliation of Certain Non-GAAP Financial Measures | ||||||||
Second Quarter and Six Months Ended June 30, 2020 | ||||||||
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Q2 2020 Supplemental | Page 25 | |
CALCULATION OF INTEREST, FIXED CHARGE AND DEBT SERVICE COVERAGE RATIOS | |||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | |||||||||||||||||||||||
INTEREST COVERAGE RATIO (1): | 2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | |||||||||||||||||
Net (loss) income | $ | (62,965 | ) | $ | 37,118 | $ | 36,297 | $ | 34,003 | $ | 66,594 | $ | 65,349 | ||||||||||
Impairment charges | 51,264 | — | 23,639 | — | — | — | |||||||||||||||||
Impairment charges on joint ventures | 3,247 | — | — | — | — | — | |||||||||||||||||
Transaction costs | 771 | 1,075 | 5,784 | 5,959 | 6,923 | 5,123 | |||||||||||||||||
Credit loss expense | 3,484 | 1,192 | — | — | — | — | |||||||||||||||||
Interest expense, gross | 39,281 | 36,794 | 36,442 | 37,575 | 37,999 | 37,138 | |||||||||||||||||
Severance expense | — | — | 423 | 1,521 | — | 420 | |||||||||||||||||
Depreciation and amortization | 42,450 | 43,810 | 44,530 | 45,134 | 42,355 | 39,743 | |||||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
to management and trustees | 3,463 | 3,509 | 3,348 | 3,372 | 3,283 | 3,177 | |||||||||||||||||
Costs associated with loan refinancing or payoff | 820 | — | 43 | 38,407 | — | — | |||||||||||||||||
Interest cost capitalized | (242 | ) | (262 | ) | (273 | ) | (386 | ) | (1,530 | ) | (3,137 | ) | |||||||||||
Straight-line rental revenue | (2,229 | ) | 9,708 | (3,516 | ) | (4,399 | ) | (3,223 | ) | (2,414 | ) | ||||||||||||
Gain on sale of real estate | (22 | ) | (220 | ) | (5,648 | ) | (14,303 | ) | (9,774 | ) | (6,328 | ) | |||||||||||
Prepayment fees | — | — | — | (1,760 | ) | — | (900 | ) | |||||||||||||||
Deferred income tax benefit | (1,676 | ) | (1,113 | ) | (847 | ) | (984 | ) | (1,675 | ) | (609 | ) | |||||||||||
Interest coverage amount | $ | 77,646 | $ | 131,611 | $ | 140,222 | $ | 144,139 | $ | 140,952 | $ | 137,562 | |||||||||||
Interest expense, net | $ | 38,340 | $ | 34,753 | $ | 34,907 | $ | 36,640 | $ | 36,278 | $ | 33,826 | |||||||||||
Interest income | 699 | 1,779 | 1,262 | 549 | 191 | 175 | |||||||||||||||||
Interest cost capitalized | 242 | 262 | 273 | 386 | 1,530 | 3,137 | |||||||||||||||||
Interest expense, gross | $ | 39,281 | $ | 36,794 | $ | 36,442 | $ | 37,575 | $ | 37,999 | $ | 37,138 | |||||||||||
Interest coverage ratio | Footnote 2 | 3.6 | 3.8 | 3.8 | 3.7 | 3.7 | |||||||||||||||||
FIXED CHARGE COVERAGE RATIO (1): | |||||||||||||||||||||||
Interest coverage amount | $ | 77,646 | $ | 131,611 | $ | 140,222 | $ | 144,139 | $ | 140,952 | $ | 137,562 | |||||||||||
Interest expense, gross | $ | 39,281 | $ | 36,794 | $ | 36,442 | $ | 37,575 | $ | 37,999 | $ | 37,138 | |||||||||||
Preferred share dividends | 6,034 | 6,034 | 6,034 | 6,034 | 6,034 | 6,034 | |||||||||||||||||
Fixed charges | $ | 45,315 | $ | 42,828 | $ | 42,476 | $ | 43,609 | $ | 44,033 | $ | 43,172 | |||||||||||
Fixed charge coverage ratio | Footnote 2 | 3.1 | 3.3 | 3.3 | 3.2 | 3.2 | |||||||||||||||||
DEBT SERVICE COVERAGE RATIO (1): | |||||||||||||||||||||||
Interest coverage amount | $ | 77,646 | $ | 131,611 | $ | 140,222 | $ | 144,139 | $ | 140,952 | $ | 137,562 | |||||||||||
Interest expense, gross | $ | 39,281 | $ | 36,794 | $ | 36,442 | $ | 37,575 | $ | 37,999 | $ | 37,138 | |||||||||||
Recurring principal payments | — | — | — | — | — | — | |||||||||||||||||
Debt service | $ | 39,281 | $ | 36,794 | $ | 36,442 | $ | 37,575 | $ | 37,999 | $ | 37,138 | |||||||||||
Debt service coverage ratio | Footnote 2 | 3.6 | 3.8 | 3.8 | 3.7 | 3.7 | |||||||||||||||||
(1) See pages 22 through 24 for definitions. | |||||||||||||||||||||||
(2) Not presented as this ratio is not meaningful given the temporary disruption caused by COVID-19 and the associated accounting for tenant rent deferrals and other lease modifications. | |||||||||||||||||||||||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of (loss) income. | |||||||||||||||||||||||
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Q2 2020 Supplemental | Page 26 | |
RECONCILIATION OF INTEREST COVERAGE AMOUNT TO NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | ||||||||||||||||||||||||
The interest coverage amount per the table on page 26 is a non-GAAP financial measure and should not be considered an alternative to any GAAP liquidity measures. It is most directly comparable to the GAAP liquidity measure, “Net cash provided by operating activities,” and is not directly comparable to the GAAP liquidity measures, “Net cash used by investing activities” and “Net cash provided by financing activities.” The interest coverage amount can be reconciled to “Net cash provided by operating activities” per the consolidated statements of cash flows as follows: | ||||||||||||||||||||||||
2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | |||||||||||||||||||
Net cash (used) provided by operating activities | $ | (31,631 | ) | $ | 89,044 | $ | 102,268 | $ | 127,506 | $ | 87,372 | $ | 122,384 | |||||||||||
Equity in (loss) income from joint ventures | (1,724 | ) | (420 | ) | (905 | ) | (435 | ) | 470 | 489 | ||||||||||||||
Distributions from joint ventures | — | — | — | — | — | (112 | ) | |||||||||||||||||
Amortization of deferred financing costs | (1,651 | ) | (1,634 | ) | (1,621 | ) | (1,552 | ) | (1,517 | ) | (1,502 | ) | ||||||||||||
Amortization of above and below market leases, net and tenant allowances | 108 | 152 | 119 | 107 | 58 | 59 | ||||||||||||||||||
Changes in assets and liabilities, net: | ||||||||||||||||||||||||
Amortization of operating lease assets and liabilities | (287 | ) | (273 | ) | (161 | ) | (1,323 | ) | 735 | (445 | ) | |||||||||||||
Mortgage notes and related accrued interest receivable | 2,613 | 512 | (8 | ) | (1,155 | ) | 1,409 | 135 | ||||||||||||||||
Accounts receivable | 62,163 | (14,149 | ) | 14,320 | (500 | ) | 2,234 | (14,669 | ) | |||||||||||||||
Direct financing lease receivable | — | — | 17 | 52 | 59 | 58 | ||||||||||||||||||
Other assets | 819 | 4,454 | (1,888 | ) | (2,245 | ) | (239 | ) | 5,673 | |||||||||||||||
Accounts payable and accrued liabilities | 6,555 | 13,517 | (21,851 | ) | (5,639 | ) | 4,634 | (4,684 | ) | |||||||||||||||
Unearned rents and interest | 3,100 | (6,907 | ) | 11,132 | (8,769 | ) | 5,568 | (5,951 | ) | |||||||||||||||
Straight-line rental revenue | (2,229 | ) | 9,708 | (3,516 | ) | (4,399 | ) | (3,223 | ) | (2,414 | ) | |||||||||||||
Interest expense, gross | 39,281 | 36,794 | 36,442 | 37,575 | 37,999 | 37,138 | ||||||||||||||||||
Interest cost capitalized | (242 | ) | (262 | ) | (273 | ) | (386 | ) | (1,530 | ) | (3,137 | ) | ||||||||||||
Transaction costs | 771 | 1,075 | 5,784 | 5,959 | 6,923 | 5,123 | ||||||||||||||||||
Severance expense (cash portion) | — | — | 363 | 1,103 | — | 317 | ||||||||||||||||||
Prepayment fees | — | — | — | (1,760 | ) | — | (900 | ) | ||||||||||||||||
Interest coverage amount (1) | $ | 77,646 | $ | 131,611 | $ | 140,222 | $ | 144,139 | $ | 140,952 | $ | 137,562 | ||||||||||||
Net cash (used) provided by investing activities | $ | (13,219 | ) | $ | (39,759 | ) | $ | 381,255 | $ | 176,446 | $ | (333,363 | ) | $ | (127,833 | ) | ||||||||
Net cash (used) provided by financing activities | $ | (175,358 | ) | $ | 649,237 | $ | (73,886 | ) | $ | (194,098 | ) | $ | 235,607 | $ | 9,154 | |||||||||
(1) See pages 22 through 24 for definitions. | ||||||||||||||||||||||||
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Q2 2020 Supplemental | Page 27 | |
RECONCILIATION OF EBITDAre, ADJUSTED EBITDA, ANNUALIZED ADJUSTED EBITDA AND ANNUALIZED ADJUSTED REVENUE | ||||||||||||||||||||||||
(UNAUDITED, DOLLARS IN THOUSANDS) | ||||||||||||||||||||||||
ADJUSTED EBITDA (3): | 2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | ||||||||||||||||||
Net (loss) income | $ | (62,965 | ) | $ | 37,118 | $ | 36,297 | $ | 34,003 | $ | 66,594 | $ | 65,349 | |||||||||||
Interest expense, net | 38,340 | 34,753 | 34,907 | 36,640 | 36,278 | 33,826 | ||||||||||||||||||
Income tax benefit | (1,312 | ) | (751 | ) | (530 | ) | (600 | ) | (1,300 | ) | (605 | ) | ||||||||||||
Depreciation and amortization | 42,450 | 43,810 | 44,530 | 45,134 | 42,355 | 39,743 | ||||||||||||||||||
Gain on sale of real estate | (22 | ) | (220 | ) | (5,648 | ) | (14,303 | ) | (9,774 | ) | (6,328 | ) | ||||||||||||
Impairment of real estate investments, net (2) | 36,255 | — | 23,639 | — | — | — | ||||||||||||||||||
Costs associated with loan refinancing or payoff | 820 | — | 43 | 38,407 | — | — | ||||||||||||||||||
Equity in loss (income) from joint ventures | 1,724 | 420 | 905 | 435 | (470 | ) | (489 | ) | ||||||||||||||||
Impairment charges on joint ventures | 3,247 | — | — | — | — | — | ||||||||||||||||||
EBITDAre | $ | 58,537 | $ | 115,130 | $ | 134,143 | $ | 139,716 | $ | 133,683 | $ | 131,496 | ||||||||||||
Severance expense | — | — | 423 | 1,521 | — | 420 | ||||||||||||||||||
Transaction costs | 771 | 1,075 | 5,784 | 5,959 | 6,923 | 5,123 | ||||||||||||||||||
Credit loss expense | 3,484 | 1,192 | — | — | — | — | ||||||||||||||||||
Straight-line rental revenue write-offs (1) | — | 12,532 | — | — | — | — | ||||||||||||||||||
Impairment of operating lease right-of-use assets (2) | 15,009 | — | — | — | — | — | ||||||||||||||||||
Prepayment fees | — | — | — | (1,760 | ) | — | (900 | ) | ||||||||||||||||
Adjusted EBITDA (for the quarter) | $ | 77,801 | $ | 129,929 | $ | 140,350 | $ | 145,436 | $ | 140,606 | $ | 136,139 | ||||||||||||
Adjusted EBITDA (4) | Footnote 9 | $ | 519,716 | $ | 561,400 | $ | 581,744 | $ | 562,424 | $ | 544,556 | |||||||||||||
ANNUALIZED ADJUSTED EBITDA (3): | ||||||||||||||||||||||||
Adjusted EBITDA (for the quarter) | Footnote 9 | $ | 129,929 | $ | 140,350 | $ | 145,436 | $ | 140,606 | $ | 136,139 | |||||||||||||
Corporate/unallocated and other NOI | (145 | ) | 403 | (2,173 | ) | (1,855 | ) | (1,925 | ) | |||||||||||||||
In-service and disposition adjustments (5) | 1,351 | (4,580 | ) | 528 | 5,591 | 252 | ||||||||||||||||||
Percentage rent/participation adjustments (6) | 979 | (2,947 | ) | 206 | (856 | ) | 1,335 | |||||||||||||||||
Non-recurring adjustments (7) | 3,999 | 1,170 | 213 | 2,668 | (72 | ) | ||||||||||||||||||
Annualized Adjusted EBITDA (for the quarter) | $ | 136,113 | $ | 134,396 | $ | 144,210 | $ | 146,154 | $ | 135,729 | ||||||||||||||
Annualized Adjusted EBITDA (8) | $ | 544,452 | $ | 537,584 | $ | 576,840 | $ | 584,616 | $ | 542,916 | ||||||||||||||
See footnotes on following page. | ||||||||||||||||||||||||
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Q2 2020 Supplemental | Page 28 | |
(1) Included in rental revenue from continuing operations in the consolidated statements of (loss) income in the Company's Annual Reports on Form 10-K and the Company's Quarterly Reports on Form 10-Q. Reconciliation is as follows: | ||||||||||||||||||||||||
2ND QUARTER 2020 | 1ST QUARTER 2020 | 4TH QUARTER 2019 | 3RD QUARTER 2019 | 2ND QUARTER 2019 | 1ST QUARTER 2019 | |||||||||||||||||||
Minimum rent | $ | 89,589 | $ | 138,219 | $ | 139,529 | $ | 139,844 | $ | 134,409 | $ | 130,497 | ||||||||||||
Tenant reimbursements | 4,169 | 3,698 | 5,790 | 5,129 | 5,843 | 6,102 | ||||||||||||||||||
Percentage rent | 1,454 | 2,757 | 6,428 | 3,032 | 4,147 | 1,355 | ||||||||||||||||||
Straight-line rental revenue | 2,229 | 2,824 | 2,926 | 2,866 | 2,520 | 2,245 | ||||||||||||||||||
Straight-line rental revenue write-offs | — | (12,532 | ) | — | — | — | — | |||||||||||||||||
Other rental revenue | 90 | 77 | 92 | 91 | 84 | 93 | ||||||||||||||||||
Rental revenue | $ | 97,531 | $ | 135,043 | $ | 154,765 | $ | 150,962 | $ | 147,003 | $ | 140,292 | ||||||||||||
(2) Impairment charges recognized during the three months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets. | ||||||||||||||||||||||||
(3) See pages 22 through 24 for definitions. | ||||||||||||||||||||||||
(4) Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount. | ||||||||||||||||||||||||
(5) Adjustments for properties commencing or terminating GAAP net operating income during the quarter and adjustments to revenue from mortgage notes receivable to be consistent with end of quarter balance, for continuing properties only. | ||||||||||||||||||||||||
(6) To adjust percentage rents and participating interest income from the actual latest quarterly amount to the trailing twelve month amount divided by four. | ||||||||||||||||||||||||
(7) Non-recurring adjustments relate to properties under operating agreements with third parties, as applicable, and COVID-19 related adjustments. | ||||||||||||||||||||||||
(8) Annualized Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount. | ||||||||||||||||||||||||
(9) Not presented as this metric is not meaningful given the temporary disruption caused by COVID-19 and the associated accounting for tenant rent deferrals and other lease modifications. | ||||||||||||||||||||||||
Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of (loss) income. | ||||||||||||||||||||||||
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Q2 2020 Supplemental | Page 29 | |