- Total Investments: $6.9 billion with 354 properties, 99% leased.
- Investment Spending: $46.9 million for the quarter, $132.7 million year-to-date.
- Experiential Portfolio: 284 properties, 51 operators, 93% of total investments ($6.4 billion), 99% leased.
- Education Portfolio: 70 properties, 8 operators, 100% leased.
- Overall Portfolio Coverage: 2.2 times, unchanged from last quarter.
- Theater Coverage: 1.7 times, box office at $8.8 billion for the trailing 12-month period.
- North American Box Office: $1.9 billion for Q2, $3.6 billion for the first half of the year.
- Revenue: $173.1 million for the quarter, compared to $172.9 million in the prior year.
- FFO as Adjusted: $1.22 per share for the quarter, compared to $1.28 in the prior year.
- AFFO: $1.20 per share for the quarter, compared to $1.31 in the prior year.
- Percentage Rents: $2 million for the quarter, compared to $2.1 million in the prior year.
- G&A Expense: $12 million for the quarter, compared to $15.2 million in the prior year.
- Impairment Charges: $11.8 million related to one operating theater property intended for sale.
- Interest Expense Net: Increased by $1.2 million compared to the prior year.
- Fixed Charge Coverage: 3.2 times.
- Interest and Debt Service Coverage Ratios: 3.8 times.
- Net Debt to Adjusted EBITDAre: 5.2 times for the quarter.
- Net Debt to Gross Assets: 39% on a book basis at June 30th.
- Common Dividend AFFO Payout Ratio: 71% for the second quarter.
- Consolidated Debt: $2.8 billion, all fixed rate or fixed through interest rate swaps, blended coupon of 4.3%.
- Cash on Hand: $33.7 million at quarter-end.
- 2024 FFO as Adjusted Guidance: $4.76 to $4.96 per share.
- Investment Spending Guidance: $200 million to $300 million.
- Disposition Proceeds Guidance: Updated to $60 million to $75 million.
- Percentage Rent and Participating Interest Guidance: $12 million to $16 million.
- General and Administrative Guidance: Lowered to $49 million to $52 million.
Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EPR Properties (EPR, Financial) reported solid Q2 2024 results, demonstrating continued momentum and progress in building a diversified experiential REIT.
- The company's experiential portfolio, comprising 284 properties, accounts for 93% of total investments and is 99% leased.
- AMC's recent refinancing transactions extend the majority of their 2026 debt maturities to 2029 and 2030, mitigating near-term debt maturity risk.
- EPR Properties (EPR) has strong liquidity and significant financial flexibility, with no balance drawn on their $1 billion revolver.
- The company is optimistic about the potential for multiple expansion and strong total shareholder returns as perceived risks are mitigated.
Negative Points
- FFO as adjusted for the quarter was $1.22 per share, down from $1.28 in the prior year, and AFFO was $1.20 per share, down from $1.31.
- The impact of the actors and writers strikes led to a 19% decrease in North American box office for the first half of 2024 compared to the same period in 2023.
- Expense pressures in experiential lodging and operating theaters are negatively impacting EBITDAre.
- The company recognized impairment charges of $11.8 million related to one operating theater property intended for sale.
- There is some industry weakness impacting experiential lodging, particularly in ADR and insurance costs, especially in Florida.
Q & A Highlights
Q: How are you seeing the current investment pipeline and competition in the market, as well as cap rates going forward?
A: We are still seeing not a tremendous amount of competition in our acquisition range of $25 million to $125 million in the experiential area. Our operators are being thoughtful about their growth, and cap rates are solid in the 8s. We are also good at finding deals that others might not, such as acquiring a waterpark in upstate New York.
Q: Are you seeing any impact on your tenant base from consumer pressures, especially on the lower end?
A: We are not seeing significant impact yet. Our properties generally cater to a solid middle-class demographic. While there are cost pressures like insurance and wages, these are starting to dissipate. Theaters, which are value-oriented, are still seeing strong attendance, as evidenced by the recent success of Deadpool & Wolverine.
Q: Can you elaborate on the Regal percentage rents falling short and how you plan to make up the shortfall?
A: The shortfall is due to the lease year for Regal running from August 1st to July 31st, which was impacted by the strikes. We are seeing recovery in June and July. We have other percentage rent sources, such as from our ski industry, that are performing well, so we have not changed our guidance.
Q: What are your thoughts on AMC's recent refinancing transactions?
A: The refinancing gives AMC breathing room by extending debt maturities to 2029 and 2030. While their balance sheet is still leveraged, this mitigates the immediate risk of debt maturity. AMC continues to raise capital and meet debt obligations, which is positive for us.
Q: Have you seen any changes in the transaction market as we approach potential Fed rate cuts?
A: People are definitely thinking about the impact of potential rate cuts. However, strong projects with tenant commitment are still moving forward. Marginal projects are more challenging. We have executed three deals this year, showing that growth is still happening despite caution in the market.
Q: What is driving the drop in other income and other expenses this quarter?
A: The drop is primarily due to lower box office results and expense pressures in our consolidated operating properties, including theaters and Kartrite Resort. Theaters operated by new operators post-Regal are spending to regain market share. Kartrite has faced cost pressures on insurance and utilities.
Q: What is the next bucket of dispositions you may be targeting?
A: We are looking at our education portfolio and reducing exposure to theaters. These are not strategic long-term for us, and we will consider recycling these assets.
Q: Does AMC's refinancing take any risk off the table with AMC's escalator slated to hit next year?
A: We did not think there was any risk to the escalator anyway. The refinancing removes concerns about bankruptcy risk or a wall of maturity hitting, which is positive.
Q: Who is buying the vacant theaters, and what are the plans for that space?
A: About a third of the sold theaters are being used as theaters by smaller local operators. Others are being redeveloped for industrial, office, multifamily, or retail uses. The market decides the highest and best use for the theaters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
