CORPORATEINFORMATIONBOARD OF TRUSTEESANNUAL SHAREHOLDERS MEETINGThe annual meeting of shareholders will be held at 11:00 a.m. (CST), May 13, 2015, in the Company’s office at 909 Walnut, Suite 200, Kansas City, MO.INVESTOR RELATIONSFor further information regarding EPR Properties, lease direct inquiries to:EPR PropertiesInvestor Relations Department909 Walnut, Suite 200Kansas City, MO 64106brianm@eprkc.comSTOCK MARKETINFORMATIONThe Company’s common shares of beneficial interest are traded on the New York Stock Exchange under the symbol EPR.ROBERT J. DRUTENChairman of the Board of TrusteesBARRETT BRADYTrusteeJACK A. NEWMAN, JR.TrusteePETER C. BROWNTrusteeTHOMAS M. BLOCHTrusteeROBIN P. STERNECKTrusteeGREGORY K. SILVERSTrusteePresident & Chief Executive OfficerTRANSFER AGENT AND REGISTRARComputershare Trust Company, N.A.P.O. Box 43078Providence, RI 02940-3078INDEPENDENT AUDITORSKPMG LLP1000 Walnut StreetSuite 1000Kansas City, MO 64106EXECUTIVE OFFICERSGREGORY K. SILVERSPresident & Chief Executive OfficerMARK A. PETERSONSenior Vice President & Chief Financial OfficerMORGAN G. EARNEST IISenior Vice President & Chief Investment OfficerMICHAEL L. HIRONSVice President Strategic PlanningFOR ACCESS TO ADDITIONAL FINANCIAL INFORMATION, VISIT OUR WEBSITE AT WWW.EPRKC.COM Dear Fellow Shareholder:
I am honored to be writing this letter as the newly appointed President and CEO of EPR
Properties. I have been with the Company for 17 years, and am moving into this position at an
exciting time in EPR’s history - with a strong, capable team around me. We completed a year
of unprecedented growth, and we are extremely well positioned to continue this momentum.
2014 Milestones
In 2014 we achieved a number of milestones that illustrate the strength of our differentiated
investment strategy and the ongoing evolution of EPR:
1. Record Revenues & Investment Spending - We finished the year with record
revenues that were up 12% over the prior year, as we continue to benefit from healthy
tenant industries. This strong revenue growth translated into robust earnings growth.
We also reached record levels of investment spending, which positions us well for
ongoing earnings growth. In 2014 we invested approximately $613 million across our
primary investment segments: Entertainment, Education and Recreation. Our build-to
suit-financing program gives us a unique advantage by combining our access to
opportunities through our industry relationships with our deep knowledge of the
fundamentals of our tenants’ businesses. With both access and specialized knowledge,
we are able to deliver consistent and reliable results that have been the hallmark of our
core portfolio.
Our investments were mostly build-to-suit construction of: megaplex theatres, many of
which are enhanced amenity theatres; public charter schools, private schools and early
childhood education centers; and Topgolf golf entertainment facilities. We also invested
in ski and waterpark resort improvements.
2. Standard & Poor’s Ratings Upgrade – In July, Standard & Poor’s Rating Services
(S&P) announced that the Company had received an issue-level upgrade on its
unsecured debt to investment grade of BBB- from BB+. We are pleased to note that the
Company’s unsecured debt is now fully investment grade
3. Adelaar Resort – In December, we achieved a significant milestone toward activating
and unlocking the potential of our land holdings in the Catskills region of New York. Our
major tenant for our Adelaar project, Empire Resorts Inc.’s wholly owned subsidiary
(Montreign Operating Company), was selected by the New York Gaming Facility Location
Board to apply for a Class III gaming license. The Montreign Resort Casino is expected
serve as the anchor to Adelaar, a resort development that will also include a waterpark
hotel, retail and other amenities.
909 Walnut, Suite 200
Kansas City, MO 64106
816.472.1700
Toll Free: 888 EPR REIT
Fax: 816.472.5794
www.eprkc.com
4. Total Shareholder Return – We increased our common annual dividend by 8% over
the previous year, providing for an annual dividend level of $3.42. Our strong dividend
combined with our 2014 share price appreciation delivered a total shareholder return of
approximately 25%.
Portfolio Review
With a portfolio of more than 230 properties in 39 states, D.C., and Canada and more than 250
tenants, we are well diversified. Our investment segments remain healthy and growing.
1. Entertainment: Along with the proven long term durability of motion picture
exhibition, we see tremendous opportunity in the ongoing deployment of expanded
amenity theatres. These theatres, which offer luxury seating along with expanded food
and beverage options, have transformed the customer experience and translated to
increased movie-going frequency and higher food & beverage spend.
2. Education: In 2014 we expanded locations and operators in public charter schools,
early childhood education centers and private schools. In public charter schools, the
broad momentum across the US continues to grow. The 2014/2015 school year saw the
introduction of over 500 new schools with total enrollment in public charters schools at
approximately 3 million students, a year-over-year increase of approximately 14%.
The strong overall demand for quality education in all of our education segments
support our belief that investments in select education facilities create a consistent and
reliable investment platform.
3. Recreation: Our regional ski and waterpark facilities continued to perform very well,
and further benefited from lower gas prices during the year. Also, our Topgolf golf
entertainment complexes continued to demonstrate very strong performance and create
excitement with each new opening.
This performance is all supported by an ongoing improving economy and increased consumer
confidence. Furthermore, our balance sheet is in a formidable position, providing us with the
necessary support to achieve the strong growth that we forecast.
Looking Forward
We continue to realize the benefits of our focus on non-commodity asset classes. Specialized
focus affords us deeper knowledge to establish market leadership in new and non-commodity(cid:2)
segments. Our relationship driven growth model expands our deal flow potential and allows
for a yield premium relative to the asset’s risk profile, while reducing our exposure to the
bidding that often occurs in commodity asset classes.
Finally, our expertise and orientation toward build-to-suit projects enhances our opportunity for
outsized growth and lower market risk.
EPR Properties 909 Walnut, Suite 200 Kansas City, MO 64106 816.472.1700 Toll Free: 888 EPR REIT Fax: 816.472.5794
I am extremely proud of what we have accomplished and where we are going. We are a market
leader in our primary investment segments and are confident we will continue to be a
performance leader. EPR is tremendously well-positioned to continue this growth into 2015 and
beyond.
Lastly, I want to thank my friend and colleague David Brain, who was the President and CEO of
the Company for over 15 years. David inspired us through his energy, passion and desire to
achieve success by challenging conventional thinking. His contributions and leadership will leave
a lasting legacy with the Company.
Sincerely,
Gregory Silvers
President and CEO
EPR Properties 909 Walnut, Suite 200 Kansas City, MO 64106 816.472.1700 Toll Free: 888 EPR REIT Fax: 816.472.5794
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 001-13561
EPR PROPERTIES
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
909 Walnut Street, Suite 200
Kansas City, Missouri
(Address of principal executive offices)
43-1790877
(I.R.S. Employer
Identification No.)
64106
(Zip Code)
Registrant’s telephone number, including area code: (816) 472-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common shares of beneficial interest, par value $.01 per share
5.75% Series C cumulative convertible preferred shares of beneficial
interest, par value $.01 per share
9.00% Series E cumulative convertible preferred shares of beneficial interest,
par value $.01 per share
6.625% Series F cumulative redeemable preferred shares of beneficial
interest, par value $.01 per share
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
No
No
No
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the common shares of beneficial interest (“common shares”) of the registrant held by non-affiliates, based on the closing price
on the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was $3,186,927,713.
At February 24, 2015, there were 57,041,842 common shares outstanding.
No
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2015 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A are incorporated by reference in Part III of this Annual Report on Form 10-K.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of historical information, certain statements contained or incorporated by reference herein may
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as
those pertaining to our acquisition or disposition of properties, our capital resources, future expenditures for development
projects, and our results of operations and financial condition. Forward-looking statements involve numerous risks and
uncertainties and you should not rely on them as predictions of actual events. There is no assurance the events or
circumstances reflected in the forward-looking statements will occur. You can identify forward-looking statements by
use of words such as “will be,” “intend,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,”
“forecast,” “pipeline,” “anticipates,” “estimates,” “offers,” “plans,” “would,” or other similar expressions or other
comparable terms or discussions of strategy, plans or intentions in this Annual Report on Form 10-K. In addition,
references to our budgeted amounts and guidance are forward-looking statements.
Factors that could materially and adversely affect us include, but are not limited to, the factors listed below:
• General international, national, regional and local business and economic conditions;
• Volatility in the financial markets;
• Adverse changes in our credit ratings;
•
• The duration or outcome of litigation, or other factors outside of litigation such as casino licensing and project
financing, relating to our significant investment in a planned casino and resort development which may cause
the development to be indefinitely delayed or cancelled;
Fluctuations in interest rates;
• Defaults in the performance of lease terms by our tenants;
• Defaults by our customers and counterparties on their obligations owed to us;
• A borrower's bankruptcy or default;
• The obsolescence of older multiplex theatres owned by some of our tenants or by any overbuilding of megaplex
theatres in their markets;
• Our ability to renew maturing leases with theatre tenants on terms comparable to prior leases and/or our ability
to lease any re-claimed space from some of our larger theatres at economically favorable terms;
• Risks of operating in the entertainment industry;
• Our ability to compete effectively;
• Risks associated with a single tenant representing a substantial portion of our lease revenues;
• Risks associated with a single tenant leasing or being the mortgagor of a substantial portion of our investments
related to metro ski parks and a single tenant leasing a significant number of our public charter school properties;
• The ability of our public charter school tenants to comply with their charters and continue to receive funding
from local, state and federal governments, the approval by applicable governing authorities of substitute
operators to assume control of any failed public charter schools and our ability to negotiate the terms of new
leases with such substitute tenants on acceptable terms, and our ability to complete collateral substitutions as
applicable;
Financing arrangements that require lump-sum payments;
• Risks associated with use of leverage to acquire properties;
•
• Our ability to raise capital;
• Covenants in our debt instruments that limit our ability to take certain actions;
• The concentration and lack of diversification of our investment portfolio;
• Our continued qualification as a real estate investment trust for U.S. federal income tax purposes;
• The ability of our subsidiaries to satisfy their obligations;
•
• Risks associated with security breaches and other disruptions;
• Our reliance on a limited number of employees, the loss of which could harm operations;
•
• Risks relating to real estate ownership, leasing and development, including local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, competition from other available
space, whether tenants and users such as customers of our tenants consider a property attractive, changes in
Financing arrangements that expose us to funding or purchase risks;
Fluctuations in the value of real estate income and investments;
i
real estate taxes and other expenses, changes in market rental rates, the timing and costs associated with
property improvements and rentals, changes in taxation or zoning laws or other governmental regulation,
whether we are able to pass some or all of any increased operating costs through to tenants, and how well we
manage our properties;
• Our ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
• Risks involved in joint ventures;
• Risks in leasing multi-tenant properties;
• A failure to comply with the Americans with Disabilities Act or other laws;
• Risks of environmental liability;
• Risks associated with the relatively illiquid nature of our real estate investments;
• Risks with owning assets in foreign countries;
• Risks associated with owning, operating or financing properties for which the tenants', mortgagors' or our
operations may be impacted by weather conditions and climate change;
• Risks associated with the development, redevelopment and expansion of properties and the acquisition of
other real estate related companies.
Policy changes obtained without the approval of our shareholders;
• Our ability to pay dividends in cash or at current rates;
•
Fluctuations in the market prices for our shares;
• Certain limits on changes in control imposed under law and by our Declaration of Trust and Bylaws;
•
• Equity issuances that could dilute the value of our shares;
•
• Risks associated with changes in the Canadian exchange rate; and
• Changes in laws and regulations, including tax laws and regulations.
Future offerings of debt or equity securities, which may rank senior to our common shares;
Our forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous
assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to
control or predict. For further discussion of these factors see Item 1A - "Risk Factors" in this Annual Report on Form
10-K.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking
statements, which speak only as of the date of this Annual Report on Form 10-K 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.
We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events
or circumstances after the date of this Annual Report on Form 10-K.
ii
TABLE OF CONTENTS
Page
PART I .............................................................................................................................................................
1
Business .......................................................................................................................
Item 1.
Item 1A. Risk Factors .................................................................................................................
Item 1B. Unresolved Staff Comments ........................................................................................
Properties .....................................................................................................................
Item 2.
Legal Proceedings........................................................................................................
Item 3.
Item 4. Mine Safety Disclosures ..............................................................................................
1
10
25
25
34
35
PART II............................................................................................................................................................
36
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.....................................................................................
Selected Financial Data................................................................................................
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations ....................................................................................................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................
Financial Statements and Supplementary Data............................................................
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ....................................................................................................................
Item 9A. Controls and Procedures ..............................................................................................
Item 9B. Other Information ........................................................................................................
Item 9.
36
38
40
58
60
125
125
127
PART III...........................................................................................................................................................
127
Item 10. Directors, Executive Officers and Corporate Governance...........................................
Executive Compensation .............................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .....................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence ............
Principal Accountant Fees and Services ......................................................................
Item 14.
Item 12.
127
127
127
127
127
PART IV ..........................................................................................................................................................
128
Item 15.
Exhibits and Financial Statement Schedules ...............................................................
128
iii
Item 1. Business
General
PART I
EPR Properties (“we,” “us,” “our,” “EPR” or the “Company”) was formed on August 22, 1997 as a Maryland real estate
investment trust (“REIT”), and an initial public offering of our common shares of beneficial interest (“common shares”)
was completed on November 18, 1997. Since that time, the Company has grown into a leading specialty REIT with an
investment portfolio that includes primarily entertainment, education and recreation properties. The underwriting of
our investments is centered on key industry and property cash flow criteria. As further explained under “Growth
Strategies” below, our investments are also guided by a focus on inflection opportunities that are associated with or
support enduring uses, excellent executions, attractive economics and an advantageous market position.
We are a self-administered REIT. As of December 31, 2014, our total assets exceeded $4.1 billion (before accumulated
depreciation of approximately $0.5 billion). Our investments are generally structured as long-term triple-net leases
that require the tenants to pay substantially all expenses associated with the operation and maintenance of the property,
or as long-term mortgages with economics similar to our triple-net lease structure.
Our total investments were approximately $4.0 billion at December 31, 2014. Total investments is defined herein as
the sum of the carrying values of rental properties (before accumulated depreciation), land held for development,
property under development, mortgage notes receivable (including related accrued interest receivable), net, investment
in a direct financing lease, net, investment in joint ventures, intangible assets (before accumulated amortization) and
notes receivable and related accrued interest receivable, net. Below is a reconciliation of the carrying value of total
investments to the constituent items in the consolidated balance sheet at December 31, 2014 (in thousands):
Rental properties, net of accumulated depreciation
Add back accumulated depreciation on rental properties
Land held for development
Property under development
Mortgage notes and related accrued interest receivable, net
Investment in a direct financing lease, net
Investment in joint ventures
Intangible assets, gross(1)
Notes receivable and related accrued interest receivable, net(1)
Total investments
$
$
2,451,534
465,660
206,001
181,798
507,955
199,332
5,738
20,796
2,069
4,040,883
(1) Included in other assets in the accompanying consolidated balance
sheet. Other assets includes the following:
Intangible assets, gross
Less: accumulated amortization on intangible assets
Notes receivable and related accrued interest receivable, net
Prepaid expenses and other current assets
Total other assets
$
$
20,796
(12,290)
2,069
55,516
66,091
Management believes that total investments is a useful measure for management and investors as it illustrates across
which asset categories the Company’s funds have been invested. Total investments is a non-GAAP financial measure
and is not a substitute for total assets under GAAP. It is most directly comparable to the GAAP measure, “Total assets”.
Furthermore, total investments may not be comparable to similarly titled financial measures reported by other companies
due to differences in the way the Company calculates this measure. Below is a reconciliation of total investments to
“Total assets” in the consolidated balance sheet at December 31, 2014 (in thousands):
1
Total investments
Cash and cash equivalents
Restricted cash
Deferred financing costs, net
Account receivable, net
Less: accumulated depreciation on rental properties
Less: accumulated amortization on intangible assets
Prepaid expenses and other current assets
Total assets
$
$
4,040,883
3,336
13,072
19,909
47,282
(465,660)
(12,290)
55,516
3,702,048
For financial reporting purposes, we group our investments into four reportable operating segments: Entertainment,
Education, Recreation and Other. Our total investments of approximately $4.0 billion at December 31, 2014 consisted
of interests in the following:
•
•
•
•
$2.4 billion or 60% related to entertainment properties which includes megaplex theatres, entertainment retail
centers (centers typically anchored by an entertainment component such as a megaplex theatre or live
performance venue and containing other entertainment-related or retail properties), family entertainment
centers and other retail parcels;
$728.0 million or 18% related to education properties which consists of investments in public charter schools,
early education centers and K-12 private schools;
$695.7 million or 17% related to recreation properties which includes metro ski parks, water-parks and golf
entertainment complexes; and
$206.6 million or 5% related to other properties, consisting primarily of $201.6 million related to the Adelaar
casino and resort project in Sullivan County, New York.
As further described in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K,
during the year ended December 31, 2014, $40.2 million, or approximately 10% of our total revenue was derived from
our four entertainment retail centers in Ontario, Canada. The Company’s wholly owned subsidiaries that hold the
Canadian entertainment retail centers represent approximately $211.4 million or 11% of the Company’s equity as of
December 31, 2014.
We believe destination entertainment, education and recreation are highly enduring sectors of the real estate industry
and that, as a result of our focus on properties in these sectors, industry knowledge and the industry relationships of
our management, we have a competitive advantage in providing capital to operators of these types of properties. We
believe this focused niche approach offers the potential for higher growth and better yields.
We believe our management’s knowledge and industry relationships have facilitated favorable opportunities for us to
acquire, finance and lease properties. Historically, our primary challenges have been locating suitable properties,
negotiating favorable lease or financing terms, and managing our real estate portfolio as we have continued to grow.
We are particularly focused on property categories which allow us to use our experience to mitigate some of the risks
inherent in the current economic environment. We cannot provide any assurance that any such potential investment or
acquisition opportunities will arise in the near future, or that we will actively pursue any such opportunities.
Although we are primarily a long-term investor, we may also sell assets if we believe that it is in the best interest of
our shareholders.
2
Entertainment
As of December 31, 2014, our Entertainment segment consisted of investments in megaplex theatres, entertainment
retail centers, family entertainment centers and other retail parcels totaling approximately $2.4 billion with interests
in:
•
•
•
•
•
•
126 megaplex theatre properties located in 34 states and Ontario, Canada;
nine entertainment retail centers (which include eight additional megaplex theatre properties and one live
performance venue) located in Westminster, Colorado; New Rochelle, New York; Burbank, California;
Suffolk, Virginia; Charlotte, North Carolina; and Ontario, Canada;
six family entertainment centers located in Illinois, Indiana and Florida;
land parcels leased to restaurant and retail operators adjacent to several of our theatre properties;
$25.3 million in construction in progress for real estate development for three megaplex theatres and seven
other retail redevelopment projects; and
$4.5 million in undeveloped land inventory.
As of December 31, 2014, our owned real estate portfolio of megaplex theatre properties consisted of approximately
9.8 million square feet and was 100% leased and our remaining owned entertainment real estate portfolio consisted of
1.9 million square feet and was 93% leased. The combined owned entertainment real estate portfolio consisted of
11.7 million square feet and was 99% leased. Our owned theatre properties are leased to 16 different leading theatre
operators. For the year ended December 31, 2014, approximately 23% of our total revenue was derived from rental
payments by American Multi-Cinema, Inc. ("AMC").
A significant portion of our assets consist of megaplex theatres. Megaplex theatres typically are multi-screen with
stadium-style seating (seating with elevation between rows to provide unobstructed viewing) and are equipped with
amenities that significantly enhance the audio and visual experience of the patron. We believe the development of new
generation megaplex theatres, including the introduction of new digital cinema and 3-D technology, has accelerated
the obsolescence of many of the previous generation of multiplex theatres by setting new standards for moviegoers,
who, in our experience, have demonstrated their preference for the more attractive surroundings, wider variety of films,
enhanced quality of visual presentation and superior customer service typical of megaplex theatres.
We expect the development of megaplex theatres to continue in the United States and abroad over the long-term. With
the development of the stadium style megaplex theatre as the preeminent format for cinema exhibition, the older
generation of smaller sloped theatres has generally experienced a significant downturn in attendance and performance.
As a result of the significant capital commitment involved in building megaplex theatres and the experience and industry
relationships of our management, we believe we will continue to have opportunities to provide capital to exhibition
businesses for development of new megaplex theatres.
The success of several of our larger 24 and 30 screen properties has resulted in other exhibitors building properties that
have reduced the 20 to 25 mile customer drawing range that these properties previously enjoyed. As a result of this and
other competitive pressures, in some cases we have, at the expiration of the primary term of a lease, reduced the rental
rate per square foot and/or reduced the number of screens at a property to better reflect the existing market demands.
Such screen reductions may occur in the future as well but these reductions do create an opportunity to reclaim a portion
of the former theatre or parking lot for conversion to another use, while retaining the majority of the building for the
newly re-configured theatre. In addition to positioning expiring theatre assets for continued success, the redevelopment
of these assets creates an opportunity to diversify the Company's tenant base.
The theatre box office continues to reflect solid performance. Box office revenues reached a record high during 2013
and were moderately down in 2014, according to Box Office Analyst. Many theatre operators are expanding their food
and beverage offerings, including the introduction of in-theatre dining options and alcohol availability. In addition, as
exhibitors further increase their focus on enhancing the customer experience, new seating formats continue to be
introduced. Select exhibitors are introducing more spacious and comfortable seating options, including fully reclining
seats. The introduction of these seating options has required theatre operators to make physical changes to the existing
3
seating arrangements that can result in a significant loss of existing seats. Despite the seat loss, early customer response
to this format indicates that increased ticket sales are overcoming the loss of seats, creating a net positive for the theatre
operator.
We believe the introduction of enhanced food and beverage offerings as well as premium seating, along with the
technological improvements of digital projection, large-format and 3-D presentation, should continue to drive future
growth and create opportunities to deploy capital both in the U.S. and abroad.
We also continue to seek opportunities for the development of additional restaurant, retail and other entertainment
venues around our existing portfolio. The opportunity to capitalize on the traffic generation of our market-dominant
theatres to create entertainment retail centers (“ERCs”) not only strengthens the execution of the megaplex theatre but
adds diversity to our tenant and asset base. We have and will continue to evaluate our existing portfolio for additional
development of retail and entertainment density, and we will also continue to evaluate the purchase or financing of
existing ERCs that have demonstrated strong financial performance and meet our quality standards. The leasing and
property management requirements of our ERCs are generally met through the use of third-party professional service
providers.
Our family entertainment center operators offer a variety of entertainment options including live performance, bowling
and bocce ball as well as an observation deck on the 94th floor of the John Hancock building in downtown Chicago,
Illinois. We will continue to evaluate the development, purchase or financing of family entertainment centers.
Education
As of December 31, 2014, our Education segment consisted of investments in public charter schools, early education
centers and K-12 private schools totaling approximately $728.0 million with interests in:
•
•
•
•
62 public charter school properties located in 16 states and the District of Columbia;
five early education centers located in Arizona, Nevada and Oklahoma;
one K-12 private school located in New York and one 5-12 private school located in California; and
$86.4 million in construction in progress for real estate development of three public charter schools, eight
early education centers and one K-12 private school.
As of December 31, 2014, our owned education real estate portfolio consisted of approximately 3.3 million square feet
and was 100% leased. We have 33 different operators for our owned public charter schools. For the year ended
December 31, 2014, approximately 7% of our total revenue was derived from rental payments by Imagine.
Public charter schools are tuition-free, independent schools that are publicly funded by local, state and federal tax
dollars based on enrollment. Driven by the need to improve the quality of public education and provide more school
choice in the U.S., public charter schools are one of the fastest growing segments of the multi-billion dollar educational
facilities sector, and we believe a critical need exists for the financing of new and refurbished educational facilities. To
meet this need, we have established relationships with public charter school operators and developers across the country
and expect to continue to develop our leadership position in providing real estate financing in this area. Public charter
schools are operated pursuant to charters granted by various state or other regulatory authorities and are dependent
upon funding from local, state and federal tax dollars. Like public schools, public charter schools are required to meet
both state and federal academic standards.
Various government bodies that provide educational funding have pressure to reduce their spending budgets and have
reduced educational funding in some cases and may continue to reduce educational funding in the future. This can
impact our tenants' operations and potentially their ability to pay our scheduled rent. However, these reductions differ
state by state and have historically been more significant at the post-secondary education level than at the K-12 level
that our tenants serve. Furthermore, while there can be no assurance as to the level of these cuts, we analyze each state's
fiscal situation and commitment to the charter school movement before providing financing in a new state, and also
factor in anticipated reductions (as applicable) in the states in which we do decide to do business.
4
Many of our public charter school and private school lease and mortgage agreements contain purchase or prepayment
options whereby the tenant can acquire the property or prepay the mortgage loan for a premium over the total
development cost at certain points during the terms of the agreements. We do not anticipate that all of these options
will be exercised but cannot determine at this time the amount or timing of such option exercises. The number of
properties potentially impacted by option exercises, the total development cost and the amount of the premium by year
are as follows (dollars in thousands):
Year Option
First
Exercisable
Number of
Education
Properties
Total
Development
Cost
Premium in
First Option
Period
2015
2016
2017
2018
2019
Thereafter
—
2
8
10
8
9
$
— $
24,802
100,142
70,283
76,184
94,415
—
4,491
22,828
11,808
14,497
19,059
As with public charter schools, the Company's expansion into both early childhood education centers and private schools
is supported by strong unmet demand, and we expect to increase our investment in both of these areas.
We believe early childhood education centers continue to see demand due to the proliferation of dual income families
and the increasing emphasis on early childhood education, beyond traditional daycare. Within this property type, larger
centers with more amenities are emerging and enjoying enhanced economies of scale.
Within private schools, we believe K-12 private education has significant growth potential for schools that have
differentiated, high quality offerings. Many private schools in large urban and suburban areas have constrained access
with large waiting lists.
Recreation
As of December 31, 2014, our Recreation segment consisted of investments in metro ski parks, resorts, water-parks
and golf entertainment complexes totaling approximately $695.7 million with interests in:
•
•
•
•
nine metro ski parks located in Ohio, Maryland and Pennsylvania
four water-parks located in Kansas, Texas and Pennsylvania;
ten golf entertainment complexes in Texas, Georgia, Arizona and Florida; and
$70.0 million in construction in progress for nine golf entertainment complexes.
As of December 31, 2014, our owned recreation real estate portfolio was 100% leased.
Our metro ski parks are leased to or we have mortgages receivable from three different operators, the largest operator
of which is Peak Resorts, Inc. ("Peak"). For the year ended December 31, 2014, approximately 5% of our total revenue
related to Peak.
During 2013, we acquired the Camelback Mountain Ski Resort ("Camelback") which consists of 160 acres of skiable
terrain and includes an outdoor water-park, an outdoor adventure park, a 40 lane tubing facility and a base lodge. In
addition, we have agreed to finance an additional $110.7 million to construct a water-park hotel on the property of
which $70.1 million has been funded through December 31, 2014, and the water-park hotel is expected to open in 2015.
Our daily attendance ski park model provides a sustainable advantage for the value conscious consumer, providing
outdoor entertainment during the winter. All of the ski parks that serve as collateral for our mortgage notes in this area,
5
as well as our three owned properties, offer snowmaking capabilities and provide a variety of terrains and vertical drop
options. We believe that the primary appeal of our ski parks lies in the convenient, low cost and reliable experience
consumers can expect. Given that all of our ski parks are located near major metropolitan areas, they offer skiing and
snowboarding without the expense, travel, or lengthy preparations of remote ski resorts. Furthermore, advanced
snowmaking capabilities increase the reliability of the experience versus other ski areas that do not have such capabilities.
We expect to continue to pursue opportunities in this area.
Three of our water-parks are located in Kansas and Texas and offer innovative attractions that attract a diverse segment
of customers. These three water-parks serve as collateral for our mortgage notes and are operated by Schlitterbahn
Waterparks and Resorts, an industry leader. One of our water-parks, located in Pennsylvania, is leased to the operator
of Camelback and includes an outdoor water-park as well as an adventure park. Nine of our golf entertainment complexes
are leased to, and one is under mortgage with, Topgolf, which combines golf with entertainment, competition and food
and beverage service. By combining an interactive entertainment and food and beverage experience with a long-lived
recreational activity, we believe Topgolf provides an innovative, enjoyable and repeatable customer experience. We
expect to continue to pursue opportunities with Topgolf.
Other
As of December 31, 2014, our Other segment consisted of investments in land held for development and mortgage
financing on winery properties totaling approximately$206.6 million with interests in:
•
•
$201.6 million related to the land held for development related to the Adelaar casino and resort project in
Sullivan County, New York; and
$5.0 million in mortgage financing related to two sold winery properties.
We continue to progress with the development of the Adelaar casino and resort project in Sullivan County, New York.
The proposed ground lease tenant for a portion of our Sullivan County, New York property, Empire Resorts, Inc.
("Empire Resorts"), announced on June 30, 2014 that it submitted an application to the New York State Gaming Facility
Location Board (“FLB”) for a Class III gaming license to operate a full-scale casino to be named Montreign Resort
Casino ("Montreign"). On December 17, 2014, the FLB announced its recommendation for a license for Montreign.
With this recommendation, Empire Resorts is now applying to the New York State Gaming Commission for the official
gaming license. If the casino license is granted and the parties proceed with the development of the project as set forth
in the Master Plan submitted to Sullivan County, New York, the total combined investment in the Adelaar casino and
resort project could be in excess of $1.0 billion, which may include land held for development ($201.5 million at
December 31, 2014), and additional investments outside of the casino by the Company and others in excess of $200.0
million for infrastructure, a waterpark hotel, a redesign of the existing golf course and retail, restaurant, shopping and
entertainment properties. In addition to the Company, sources of this additional investment may include funding by
tenants, joint venture partners, developers and purchasers of the land. Empire Resorts has reported that they plan to
invest up to $630.0 million for the casino project. The Adelaar casino and resort project also has been approved for
up to $75.0 million in industrial development bonds to fund portions of the project. The size of the overall project,
including the amount of capital necessary to complete it, will vary based upon a number of contingencies. We have
received from Empire Resorts non-refundable option payments totaling $3.8 million through December 31, 2014 which
have been deferred and are expected to be recognized in income in the future as a part of lease accounting should a
lease agreement be finalized with Empire Resorts.
During 2014, we completed the sale of our remaining vineyard and winery properties for $8.0 million and recognized
a gain of $0.9 million. We have two mortgage loans outstanding at December 31, 2014 that total $5.0 million and are
secured by winery properties that were previously sold.
6
Business Objectives and Strategies
Our long-term primary business objective is to enhance shareholder value by achieving predictable and increasing
Funds From Operations (“FFO”) and dividends per share (See Item 7 – “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Funds From Operations” for a discussion of FFO, which is a non-
GAAP measure). Our prevailing strategy is to focus on long-term investments in a limited number of categories in
which we maintain a depth of knowledge and relationships, and which we believe offer sustained performance
throughout all economic cycles. We intend to achieve this objective by continuing to execute the Growth Strategies,
Operating Strategies and Capitalization Strategies described below.
Growth Strategies
As a part of our growth strategy, we will consider acquiring or developing additional entertainment, education, recreation
or other specialty properties. We may also pursue opportunities to provide mortgage financing for these same property
types in certain situations where this structure is more advantageous than owning the underlying real estate.
Our investing strategy centers on five guiding principles which we call our Five Star Investment Strategy:
Inflection Opportunity
We look for a new generation of facilities emerging as a result of age, technology, or change in the lifestyle of consumers
which create development, renewal or restructuring opportunities requiring significant capital.
Enduring Value
We look for real estate that supports activities that are commercially successful and have a reasonable basis for continued
and sustainable customer demand in the future. Further, we seek circumstances where the magnitude of change in the
new generation of facilities adds substantially to the customer experience.
Excellent Execution
We seek attractive locations and best-of-class executions that create market-dominant properties, which we believe
create a competitive advantage and enhance sustainable customer demand within the category despite a potential change
in tenant. We minimize the potential for turnover by seeking tenants with a reliable track record of customer service
and satisfaction.
Attractive Economics
We seek investments that provide accretive returns initially and increasing returns over time with rent escalators and
percentage rent features that allow participation in the financial performance of the property. Further, we are interested
in investments that provide a depth of opportunity to invest sufficient capital to be meaningful to our total financial
results and also provide diversity by market, geography or tenant operator.
Advantageous Position
In combination with the preceding principles, when investing we look for a competitive advantage such as unique
knowledge of the category, access to industry information, a preferred tenant relationship or other relationships that
provide access to sites and development projects.
Operating Strategies
Lease Risk Minimization
To avoid initial lease-up risks and produce a predictable income stream, we typically acquire or develop single-tenant
properties that are leased under long-term leases. We believe our willingness to make long-term investments in properties
offers our tenants financial flexibility and allows tenants to allocate capital to their core businesses. Although we will
continue to emphasize single-tenant properties, we have acquired or developed, and may continue to acquire or develop,
multi-tenant properties we believe add shareholder value.
7
Lease Structure
We have structured our leasing arrangements to achieve a positive spread between our cost of capital and the rentals
paid by our tenants. We typically structure leases on a triple-net basis under which the tenants bear the principal portion
of the financial and operational responsibility for the properties. During each lease term and any renewal periods, the
leases typically provide for periodic increases in rent and/or percentage rent based upon a percentage of the tenant’s
gross sales over a pre-determined level. In our multi-tenant property leases and some of our theatre leases, we generally
require the tenant to pay a common area maintenance (“CAM”) charge to defray its pro rata share of insurance, taxes
and maintenance costs.
Mortgage Structure
We have structured our mortgages to achieve economics similar to our triple-net lease structure with a positive spread
between our cost of capital and the interest paid by our tenants. During each mortgage term and any renewal periods,
the notes typically provide for periodic increases in interest and/or participating features based upon a percentage of
the tenant’s gross sales over a pre-determined level.
Development
We intend to continue developing properties that meet our guiding principles. We generally do not begin development
of a single-tenant property without a signed lease providing for rental payments during the development period that
are commensurate with our level of capital investment. In the case of a multi-tenant development, we generally require
a significant amount of the development to be pre-leased prior to construction to minimize lease-up risks. In addition,
to minimize overhead costs and to provide the greatest amount of flexibility, we generally outsource construction
management to third-party firms.
We believe our build-to-suit development program is a competitive advantage. First, we believe our strong relationships
with our tenants and developers drive new investment opportunities that are often exclusive to us, rather than bid
broadly, and with our deep knowledge of their businesses, we believe we are a value-added partner in the underwriting
of each new investment. Second, we offer financing from start to finish for a build-to-suit project such that there is no
need for a tenant to seek separate construction and permanent financing, which we believe makes us a more attractive
partner. Third, we are actively developing strong relationships with tenants in our select segments leading to multiple
investments without strict investment portfolio allocations. Finally, multiple investments with the same tenant allows
us in most cases to include cross-default provisions in our lease or financing contracts, meaning a default in an obligation
to us at one location is a default under all obligations with that tenant.
Tenant and Customer Relationships
We intend to continue developing and maintaining long-term working relationships with entertainment, education,
recreation and other specialty business operators and developers by providing capital for multiple properties on an
international, national or regional basis, thereby creating efficiency and value for both the operators and the Company.
Portfolio Diversification
We will endeavor to further diversify our asset base by property type, geographic location and tenant or customer. In
pursuing this diversification strategy, we will target entertainment, education, recreation and other specialty business
operators that we view as leaders in their market segments and have the ability to compete effectively and perform
under their agreements with the Company.
Capitalization Strategies
Debt and Equity Financing
Our debt to gross assets ratio (i.e. debt of the Company as a percentage of total assets plus accumulated depreciation)
was 39% at December 31, 2014. We expect to maintain a debt to gross assets ratio of between 35% and 45% going
forward. While maintaining lower leverage mitigates the growth in per share results, we believe lower leverage and an
emphasis on liquidity are prudent during the current economic environment.
Prior to 2010, we relied primarily on secured debt financings. Since that time we have moved our revolving credit line
from secured to unsecured, completed three public senior unsecured note offerings as well as an unsecured term loan,
8
and paid off significant secured debt. These steps are consistent with the implementation of our strategy to migrate to
an unsecured debt structure. In the future, while we may obtain secured debt from time to time or assume secured debt
financing obligations in acquisitions, we intend to issue primarily unsecured debt securities to satisfy our debt financing
needs. We believe this strategy will increase our access to capital and permit us to more efficiently match available
debt and equity financing to our ongoing capital requirements.
Our sources of equity financing consist of the issuance of common shares as well as the issuance of preferred shares
(including convertible preferred shares). In addition to larger underwritten registered public offerings of both common
and preferred shares, we have also offered shares pursuant to registered public offerings through the direct share purchase
component of our Dividend Reinvestment and Direct Share Purchase Plan (“DSP Plan”). While such offerings are
generally smaller than a typical underwritten public offering, issuing common shares under the direct share purchase
component of our DSP Plan allows us to access capital on a more frequent basis in a cost-effective manner. We expect
to opportunistically access the equity markets in the future and, depending primarily on the size and timing of our equity
capital needs, may continue to issue shares under the direct share purchase component of our DSP Plan. Furthermore,
we may issue shares in connection with acquisitions in the future.
Joint Ventures
We will examine and may pursue potential additional joint venture opportunities with institutional investors or
developers if the investments to which they relate meet our guiding principles discussed above. We may employ higher
leverage in joint ventures.
Payment of Regular Dividends
We began paying dividend distributions to our common shareholders on a monthly basis (as opposed to a quarterly
basis) in the second quarter of 2013 and expect to continue to do so in the future. We expect to continue to pay dividend
distributions to our preferred shareholders on a quarterly basis. Our Series C cumulative convertible preferred shares
(“Series C preferred shares”) have a dividend rate of 5.75%, our Series E cumulative convertible preferred shares
(“Series E preferred shares”) have a dividend rate of 9.00% and our Series F cumulative redeemable preferred shares
("Series F preferred shares") have a dividend rate of 6.625%. Among the factors the Company’s board of trustees
(“Board of Trustees”) considers in setting the common share dividend rate are the applicable REIT tax rules and
regulations that apply to dividends, the Company’s results of operations, including FFO per share, and the Company’s
Cash Available for Distribution (defined as net cash flow available for distribution after payment of operating expenses,
debt service, preferred dividends and other obligations).
Competition
We compete for real estate financing opportunities with other companies that invest in real estate, as well as traditional
financial sources such as banks and insurance companies. REITs have financed and may continue to seek to finance
entertainment, education, recreation and other specialty properties as new properties are developed or become available
for acquisition.
Employees
As of December 31, 2014, we had 40 full time employees.
Principal Executive Offices
The Company’s principal executive offices are located at 909 Walnut Street, Suite 200, Kansas City, Missouri 64106;
telephone (816) 472-1700.
9
Materials Available on Our Website
Our internet website address is www.eprkc.com. We make available, free of charge, through our website copies of our
Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after
we electronically file such material with, or furnish it to the Securities and Exchange Commission (the “Commission”
or “SEC”). You may also view our Code of Business Conduct and Ethics, Company Governance Guidelines,
Independence Standards for Trustees and the charters of our Audit, Nominating/Company Governance, Finance and
Compensation and Human Capital Committees on our website. Copies of these documents are also available in print
to any person who requests them. We do not intend for information contained in our website to be part of this Annual
Report on Form 10-K.
Item 1A. Risk Factors
There are many risks and uncertainties that can affect our current or future business, operating results, financial
performance or share price. The following discussion describes important factors which could adversely affect our
current or future business, operating results, financial condition or share price. This discussion includes a number of
forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements.”
Risks That May Impact Our Financial Condition or Performance
Continued global economic uncertainty and disruptions in the financial markets may impair our ability to refinance
existing obligations or obtain new financing for acquisition or development of properties.
There continues to be global economic uncertainty, lower participation rates in the job market, reduced levels of
economic activity, and it is uncertain as to when and to what extent economic conditions will improve. Although the
U.S. economy has improved and appears to have emerged from the worst aspects of the recent recession, there can be
no assurances that the U.S. economy will continue to improve or that a future recession will not occur. Negative
economic conditions in our markets and the markets of our tenants, and other events or factors that adversely affect
demand for our properties, could adversely affect our business. We have also relied in part on debt financing to finance
our investments and development. To the extent that turmoil in the financial markets returns or intensifies, it has the
potential to adversely affect our ability to refinance our existing obligations as they mature or obtain new financing for
acquisition or development of properties and adversely affect the value of our investments. If we are not able to refinance
existing indebtedness on attractive terms at its maturity, we may be forced to dispose of some of our assets. Continued
uncertain economic conditions and further disruptions in the financial markets could also result in a substantial decrease
in the value of our investments, which could also make it more difficult to refinance existing obligations or obtain new
financing.
Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on
favorable terms, if at all, and negatively impact the market price of our securities, including our common shares.
The credit ratings of our senior unsecured debt and preferred equity securities are based on our operating performance,
liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their
rating analyses of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms
of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings
and in the event that our current credit ratings deteriorate, we would likely incur a higher cost of capital and it may be
more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. Also, a
downgrade in our credit ratings would trigger additional costs or other potentially negative consequences under our
current and future credit facilities and debt instruments.
An increase in interest rates could increase interest cost on new debt, and could materially adversely impact our
ability to refinance existing debt, sell assets and limit our acquisition and development activities.
If interest rates increase, so could our interest costs for any new debt. This increased cost could make the financing of
any acquisition and development activity more costly. Rising interest rates could limit our ability to refinance existing
debt when it matures, or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced
indebtedness. In addition, an increase in interest rates could decrease the amount third parties are willing to pay for our
10
assets, thereby limiting our ability to reposition our portfolio promptly in response to changes in economic or other
conditions.
We previously made a significant investment in a planned casino and resort development, which is now the subject
of ongoing litigation. We cannot predict the duration or outcome of this litigation. In the event of prolonged litigation
or an unfavorable outcome, or other factors outside of the litigation, the casino project and resort development may
be indefinitely delayed or canceled, which, individually or together with an unfavorable outcome in the litigation,
could have a material adverse effect on the casino project and resort development and/or our financial condition
and results of operations.
In 2010, we reached a settlement agreement with the developer of the planned casino and resort project in Sullivan
County, New York and certain related affiliates, pursuant to which we acquired certain land at the project. Entities
affiliated with the developer of the casino property subsequently commenced litigation against us and certain of our
subsidiaries regarding matters addressed by the settlement agreement. In addition, entities affiliated with the developer
commenced additional litigation against us and certain of our subsidiaries relating to our potential relationship with
certain parties, including Empire Resorts, Inc. and one of its subsidiaries. The plaintiffs in each of the foregoing cases
are seeking significant monetary damages. In September 2013, a federal district court dismissed the complaint relating
to some of this litigation. However, the court's dismissal of the related state claims was without prejudice, meaning
the plaintiffs could further pursue such claims in state court, and the plaintiffs filed a motion for reconsideration of the
dismissal as well as a notice of appeal. The court denied the motion for reconsideration in November 2014, but the
plaintiffs perfected their appeal in the U.S. Court of Appeals for the Second Circuit in December 2014. We believe we
have meritorious defenses to this litigation and intend to defend it vigorously. There can be no assurances, however,
as to the duration or ultimate outcome of this litigation, nor can there be any assurances as to the costs we may incur
in defending against and/or resolving this litigation. In the event of prolonged litigation or an unfavorable outcome, or
simply as a result of economic, regulatory or other conditions, the planned casino and resort development may be
indefinitely delayed or canceled. There can be no assurance that such an indefinite delay or cancellation would not
have a material adverse effect on our investment, which could cause us to record an impairment charge with respect
to our interest in such property, and which could result in a material adverse effect on our financial condition and results
of operations. In addition, if the outcome of the litigation is unfavorable to us, it could result in a material adverse effect
on our financial condition and results of operations.
We previously made a significant investment in a planned casino and resort development, which is dependent upon
the official award of a gaming license by the New York State Gaming Commission. In the event of a prolonged
regulatory process or an unfavorable outcome, or other factors outside of the regulatory process, including the
financing of the gaming operator, the casino project and resort development may be indefinitely delayed or canceled,
and if we are unable to identify suitable alternative uses for the property, this could lead to a material adverse effect
on our financial condition and results of operations.
On November 5, 2013, New York State approved Proposition One, a constitutional amendment authorizing a limited
number of full scale casino gaming licenses at certain locations to be determined by a commission jointly appointed
by the governor and the legislature. The proposed tenant for a portion of our Sullivan County, New York property,
Empire Resorts, which currently has a license to operate slot machines, electronic table games and a harness racing
facility at a nearby location, announced on June 30, 2014 that it submitted an application to the New York State Gaming
Facility Location Board ("FLB") for a Class III gaming license to operate a full-scale casino on the site. On December
17, 2014, the FLB announced its recommendation for a license for this site. With this recommendation, Empire Resorts
is now applying for the official gaming license with the New York State Gaming Commission. There can be no assurance,
however, that Empire Resorts or any other gaming operator will be successful in obtaining a license to operate a full-
scale casino or, alternatively, relocating an existing license, or that either process will not be prolonged. There can also
be no assurance that adequate financing for the project will be obtained by Empire Resorts. Furthermore, there is no
assurance that a suitable alternate use for the property, whether involving gaming or otherwise, will be identified which
could result in a material adverse effect on our investment and on our financial condition and results of operations.
We depend on leasing space to tenants on economically favorable terms and collecting rent from our tenants, who
may not be able to pay.
At any time, a tenant may experience a downturn in its business that may weaken its financial condition. Similarly, a
general decline in the economy may result in a decline in demand for space at our commercial properties. Our financial
11
results depend significantly on leasing space at our properties to tenants on economically favorable terms. In addition,
because a majority of our income comes from leasing real property, our income, funds available to pay indebtedness
and funds available for distribution to our shareholders will decrease if a significant number of our tenants cannot pay
their rent or if we are not able to maintain our levels of occupancy on favorable terms. If our tenants cannot pay their
rent or we are not able to maintain our levels of occupancy on favorable terms, there is also a risk that the fair value of
the underlying property will be considered less than its carrying value and we may have to take a charge against earnings.
In addition, if a tenant does not pay its rent, we might not be able to enforce our rights as landlord without delays and
might incur substantial legal costs.
If a tenant becomes bankrupt or insolvent, that could diminish or eliminate the income we expect from that tenant's
leases. If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant
promptly or from a trustee or debtor-in-possession in a bankruptcy proceeding relating to the tenant. On the other hand,
a bankruptcy court might authorize the tenant to terminate its leases with us. If that happens, our claim against the
bankrupt tenant for unpaid future rent would be subject to statutory limitations that might be substantially less than the
remaining rent owed under the leases. In addition, any claim we have for unpaid past rent would likely not be paid in
full and we would also have to take a charge against earnings for any accrued straight-line rent receivable related to
the leases.
We are exposed to the credit risk of our customers and counterparties and their failure to meet their financial
obligations could adversely affect our business.
Our business is subject to credit risk. There is a risk that a customer or counterparty will fail to meet its obligations
when due. Customers and counterparties that owe us money may default on their obligations to us due to bankruptcy,
lack of liquidity, operational failure or other reasons. Although we have procedures for reviewing credit exposures to
specific customers and counterparties to address present credit concerns, default risk may arise from events or
circumstances that are difficult to detect or foresee. Some of our risk management methods depend upon the evaluation
of information regarding markets, clients or other matters that are publicly available or otherwise accessible by us. That
information may not, in all cases, be accurate, complete, up-to-date or properly evaluated. In addition, concerns about,
or a default by, one customer or counterparty could lead to significant liquidity problems, losses or defaults by other
customers or counterparties, which in turn could adversely affect us. We may be materially and adversely affected in
the event of a significant default by our customers and counterparties.
We could be adversely affected by a borrower's bankruptcy or default.
If a borrower becomes bankrupt or insolvent or defaults under its loan, that could force us to declare a default and
foreclose on any available collateral. As a result, future interest income recognition related to the applicable note
receivable could be significantly reduced or eliminated. There is also a risk that the fair value of the collateral, if any,
will be less than the carrying value of the note and accrued interest receivable at the time of a foreclosure and we may
have to take a charge against earnings. If a property serves as collateral for a note, we may experience costs and delays
in recovering the property in foreclosure or finding a substitute operator for the property. If a mortgage we hold is
subordinated to senior financing secured by the property, our recovery would be limited to any amount remaining after
satisfaction of all amounts due to the holder of the senior financing. In addition, to protect our subordinated investment,
we may desire to refinance any senior financing. However, there is no assurance that such refinancing would be available
or, if it were to be available, that the terms would be attractive.
Our theatre tenants may be adversely affected by the obsolescence of any older multiplex theatres they own or by
any overbuilding of megaplex theatres in their markets.
The development of megaplex theatres has rendered many older multiplex theatres obsolete. To the extent our tenants
own a substantial number of multiplexes, they have been, or may in the future be, required to take significant charges
against their earnings resulting from the impairment of these assets. Megaplex theatre operators have also been and
could in the future be adversely affected by any overbuilding of megaplex theatres in their markets and the cost of
financing, building and leasing megaplex theatres.
The base term of some of our original theatre leases are expiring and there is no assurance that such leases will be
renewed at existing lease terms or that we can lease any re-claimed space from some of our larger theatres at
economically favorable terms.
12
The base term of some of our original theatre leases are expiring. For theatres that are not performing as well as they
did in the past, the tenants have and may continue to seek rent or other concessions or not renew at all. Furthermore,
some tenants of our larger megaplex theatres desire to down-size the theatres they lease to respond to market trends.
As a result, these tenants have and may continue to seek rent or other concessions from us, including requiring us to
down-size the theatres or otherwise modify the properties in order to renew their leases. Furthermore, while any such
screen reductions would likely create opportunities to reclaim a portion of the former theatres for conversion to other
uses, there is no guarantee that we can re-lease such space or that such leases would be at economically favorable terms.
Operating risks in the entertainment industry may affect the ability of our tenants to perform under their leases.
The ability of our tenants to operate successfully in the entertainment industry and remain current on their lease
obligations depends on a number of factors, including the availability and popularity of motion pictures, the performance
of those pictures in tenants' markets, the allocation of popular pictures to tenants, the release window (represents the
time that elapses from the date of a picture's theatrical release to the date it is available on other mediums) and the terms
on which the pictures are licensed. Neither we nor our tenants control the operations of motion picture distributors.
There can be no assurances that motion picture distributors will continue to rely on theatres as the primary means of
distributing first-run films, and motion picture distributors may in the future consider alternative film delivery methods.
For instance, in response to cyber terrorism, one such motion picture distributor recently chose to distribute a first-run
film online, rather than through a traditional release in theatres. The success of “out-of-home” entertainment venues
such as megaplex theatres, entertainment retail centers and recreational properties also depends on general economic
conditions and the willingness of consumers to spend time and money on out-of-home entertainment.
Real estate is a competitive business.
Our business operates in highly competitive environments. We compete with a large number of real estate property
owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors
of competition are rent or interest charged, attractiveness of location, the quality of the property and breadth and quality
of services provided. If our competitors offer space at rental rates below the rental rates we are currently charging our
tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently
charge in order to retain tenants when our tenants' leases expire. Our success depends upon, among other factors, trends
of the national and local economies, financial condition and operating results of current and prospective tenants and
customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations,
legislation and population trends.
A single tenant represents a substantial portion of our lease revenues.
For the year ended December 31, 2014, approximately 23% of our total revenue was derived from rental payments by
AMC, one of the nation's largest movie exhibition companies, under leases for megaplex theatre properties. AMCE
Entertainment, Inc. (“AMCE”) has guaranteed AMC's performance under substantially all of their leases. We have
diversified and expect to continue to diversify our real estate portfolio by entering into lease transactions with a number
of other leading operators. Nevertheless, our revenues and our continuing ability to service our debt and pay shareholder
dividends are currently substantially dependent on AMC's performance under its leases and AMCE's performance under
its guarantee.
We believe AMC occupies a strong position in the industry and we intend to continue acquiring and leasing back or
developing new AMC theatres. However, AMC and AMCE are susceptible to the same risks as our other tenants
described herein. If for any reason AMC failed to perform under its lease obligations and AMCE did not perform under
its guarantee, we could be required to reduce or suspend our shareholder dividends and may not have sufficient funds
to support operations or service our debt until substitute tenants are obtained. If that happened, we cannot predict when
or whether we could obtain substitute quality tenants on acceptable terms.
A single tenant leases or is the mortgagor of a substantial portion of our investments related to metro ski parks and
a single tenant leases a significant number of our public charter school properties.
Peak is the lessee of our metro ski park in Ohio and is the mortgagor on four notes receivable secured by six metro ski
parks. Similarly, Imagine is the lessee of a significant number of our public charter school properties. If Peak failed to
perform under its lease and mortgage loan obligations, and/or Imagine failed to perform under its master lease, we may
need to reduce our shareholder dividends and may not have sufficient funds to support operations or service our debt
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until substitute operators are obtained. If that happened, we cannot predict when or whether we could obtain quality
substitute tenants or mortgagors on acceptable terms.
Public charter schools are operated pursuant to charters granted by various state or other regulatory authorities
and are dependent upon compliance with the terms of such charters in order to obtain funding from local, state and
federal governments. We could be adversely affected by a public charter school's failure to comply with its charter,
non-renewal of a charter upon expiration or by its reduction or loss of funding.
Our public charter school properties operate pursuant to charters granted by various state or other regulatory authorities,
which are generally shorter than our lease terms, and most of the schools have undergone or expect to undergo compliance
audits or reviews by such regulatory authorities. Such audits and reviews examine the financial as well as the academic
performance of the school. Adverse audit or review findings could result in non-renewal or revocation of a public
charter school's charter, or in some cases, a reduction in the amount of state funding, repayment of previously received
state funding or other economic sanctions. Our public charter school tenants are also dependent upon funding from
local, state and federal governments, which are currently experiencing budgetary constraints, and any reduction or loss
of such funding could adversely affect a public charter school's ability to comply with its charter and/or pay its
obligations.
Imagine, an operator of public charter schools, is a lessee of a substantial number of our public charter school properties.
In the past, some of the Company's public charter school properties operated by Imagine have been subject to compliance
audits or reviews that resulted in probationary actions and, in some cases, charter revocation. As of December 31,
2014, six of the Company's public charter school properties operated by Imagine have had their charters revoked. We
are currently in the process of resolving these issues with Imagine; however, there can be no assurances that any such
solutions will satisfy either the respective regulatory body or the Company, and could result in the Company pursuing
its remedies under the lease.
Our master lease agreement with Imagine provides certain contractual protections designed to mitigate risk, such as
risk arising from the revocation of a charter of one or more Imagine schools. For instance, Imagine is required to
maintain irrevocable letters of credit to secure a portion of their annual lease payment owed to us under the master
lease agreement. Subject to our approval and certain other terms and conditions, the master lease agreement also allows
Imagine to repurchase from us the public charter school properties that are causing technical defaults. Imagine may,
in substitution for such properties, sell to us public charter school properties that would otherwise comply with the
lease agreement. Through December 31, 2014, Imagine has exercised this right with respect to six properties that
suffered a charter revocation and such repurchases have been completed. In addition, three schools have been sub-
leased by Imagine. However, with respect to other schools without charters for which Imagine is still paying rent, there
is no guarantee that acceptable schools will be available for substitutions or that such substitutions or repurchases will
be completed. In addition, while governing authorities may approve substitute operators for failed public charter schools
to ensure continuity for students, we cannot predict when or whether applicable governing authorities would approve
such substitute operators, nor can we predict whether we could reach lease agreements with such substitute tenants on
acceptable terms. If Imagine or any other operator is unable to provide adequate substitute collateral under its lease
with us, and/or is unable to pay its obligations, we may be required to record an impairment loss or sell schools for less
than their net book value.
There are risks inherent in having indebtedness and the use of such indebtedness to fund acquisitions.
We currently use debt to fund portions of our operations and acquisitions. In a rising interest rate environment, the cost
of our variable rate debt and any new variable rate debt will increase. We have used leverage to acquire properties and
expect to continue to do so in the future. Although the use of leverage is common in the real estate industry, our use of
debt exposes us to some risks. If a significant number of our tenants fail to make their lease payments and we don't
have sufficient cash to pay principal and interest on the debt, we could default on our debt obligations. A substantial
amount of our debt financing is secured by mortgages on our properties. If we fail to meet our mortgage payments, the
lenders could declare a default and foreclose on those properties.
Most of our debt instruments contain balloon payments which may adversely impact our financial performance and
our ability to pay dividends.
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Most of our financing arrangements require us to make a lump-sum or "balloon" payment at maturity. There can be no
assurance that we will be able to refinance such debt on favorable terms or at all. To the extent we cannot refinance
such debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay
higher interest rates, either of which would have an adverse impact on our financial performance and ability to pay
dividends to our shareholders.
We must obtain new financing in order to grow.
As a REIT, we are required to distribute at least 90% of our taxable net income to shareholders in the form of dividends.
Other than deciding to make these dividends in our common shares, we are limited in our ability to use internal capital
to acquire properties and must continually raise new capital in order to continue to grow and diversify our investment
portfolio. Our ability to raise new capital depends in part on factors beyond our control, including conditions in equity
and credit markets, conditions in the industries in which our tenants are engaged and the performance of real estate
investment trusts generally. We continually consider and evaluate a variety of potential transactions to raise additional
capital, but we cannot assure that attractive alternatives will always be available to us, nor that our share price will
increase or remain at a level that will permit us to continue to raise equity capital publicly or privately.
Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and
development activities.
The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior
consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured
revolving credit facility, term loan facility, senior notes and other loans that we may obtain in the future contain certain
cross-default provisions as well as customary restrictions, requirements and other limitations on our ability to incur
indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to
total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense and fixed charges. Our
ability to borrow under both our unsecured revolving credit facility and our term loan facility is also subject to compliance
with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable
debt instrument, and we may then be required to repay such debt with capital from other sources. Under those
circumstances, other sources of capital may not be available to us, or be available only on unattractive terms. Additionally,
our ability to satisfy current or prospective lenders' insurance requirements may be adversely affected if lenders generally
insist upon greater insurance coverage against acts of terrorism than is available to us in the marketplace or on
commercially reasonable terms.
We rely on debt financing, including borrowings under our unsecured revolving credit facility, term loan facility,
issuances of debt securities and debt secured by individual properties, to finance our acquisition and development
activities and for working capital. If we are unable to obtain financing from these or other sources, or to refinance
existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected.
Our real estate investments are concentrated in entertainment, education and recreation properties and a significant
portion of those investments are in megaplex theatre properties, making us more vulnerable economically than if
our investments were more diversified.
We acquire, develop or finance entertainment, education and recreation properties. A significant portion of our
investments are in megaplex theatre properties. Although we are subject to the general risks inherent in concentrating
investments in real estate, the risks resulting from a lack of diversification become even greater as a result of investing
primarily in entertainment, education and recreation properties. These risks are further heightened by the fact that a
significant portion of our investments are in megaplex theatre properties. Although a downturn in the real estate industry
could significantly adversely affect the value of our properties, a downturn in the entertainment, education and recreation
industries could compound this adverse effect. These adverse effects could be more pronounced than if we diversified
our investments to a greater degree outside of entertainment, education and recreation properties or, more particularly,
outside of megaplex theatre properties.
If we fail to qualify as a REIT, we would be taxed as a corporation, which would substantially reduce funds available
for payment of dividends to our shareholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be taxed as a corporation. We are organized
and believe we qualify as a REIT, and intend to operate in a manner that will allow us to continue to qualify as a REIT.
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However, we cannot provide any assurance that we have always qualified and will remain qualified in the future. This
is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal
Revenue Code of 1986, as amended, on which there are only limited judicial and administrative interpretations, and
depends on facts and circumstances not entirely within our control. In addition, future legislation, new regulations,
administrative interpretations or court decisions may significantly change the tax laws, the application of the tax laws
to our qualification as a REIT or the federal income tax consequences of that qualification.
If we were to fail to qualify as a REIT in any taxable year (including any prior taxable year for which the statute of
limitations remains open) we would face tax consequences that could substantially reduce the funds available for the
service of our debt and payment of dividends:
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•
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we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income
and would be subject to federal income tax at regular corporate rates;
we could be subject to the federal alternative minimum tax and possibly increased state and local taxes;
unless we are entitled to relief under statutory provisions, we could not elect to be treated as a REIT for four
taxable years following the year in which we were disqualified; and
we could be subject to tax penalties and interest.
In addition, if we fail to qualify as a REIT, we will no longer be required to pay dividends. As a result of these factors,
our failure to qualify as a REIT could adversely affect the market price for our shares.
We will depend on distributions from our direct and indirect subsidiaries to service our debt and pay dividends to
our shareholders. The creditors of these subsidiaries, and our direct creditors, are entitled to amounts payable to
them before we pay any dividends to our shareholders.
Substantially all of our assets are held through our subsidiaries. We depend on these subsidiaries for substantially all
of our cash flow. The creditors of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary's
obligations to them, when due and payable, before distributions may be made by that subsidiary to us. In addition, our
creditors, whether secured or unsecured, are entitled to amounts payable to them before we may pay any dividends to
our shareholders. Thus, our ability to service our debt obligations and pay dividends to holders of our common and
preferred shares depends on our subsidiaries' ability first to satisfy their obligations to their creditors and then to pay
distributions to us and our ability to satisfy our obligations to our direct creditors. Our subsidiaries are separate and
distinct legal entities and have no obligations, other than guaranties of our debt, to make funds available to us.
Our development financing arrangements expose us to funding and purchase risks.
Our ability to meet our construction financing obligations which we have undertaken or may enter into in the future
depends on our ability to obtain equity or debt financing in the required amounts. There is no assurance we can obtain
this financing or that the financing rates available will ensure a spread between our cost of capital and the rent or interest
payable to us under the related leases or mortgage notes receivable. As a result, we could fail to meet our construction
financing obligations which, in turn, could result in failed projects and related foreclosures and penalties, each of which
could have a material adverse impact on our results of operations and business.
We have a limited number of employees and loss of personnel could harm our operations and adversely affect the
value of our shares.
We had 40 full-time employees as of December 31, 2014 and, therefore, the impact we may feel from the loss of an
employee may be greater than the impact such a loss would have on a larger organization. We are dependent on the
efforts of the following individuals: Gregory K. Silvers, our President and Chief Executive Officer; Mark A. Peterson,
our Senior Vice President and Chief Financial Officer; Morgan G. Earnest, our Senior Vice President and Chief
Investment Officer; and Michael L. Hirons, our Vice President - Strategic Planning. While we believe that we could
find replacements for our personnel, the loss of their services could harm our operations and adversely affect the value
of our shares.
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Security breaches and other disruptions could compromise our information and expose us to liability, which would
cause our business and reputation to suffer. Our service providers and our tenants and their business partners are
exposed to similar risks.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information
and that of our tenants and clients and personally identifiable information of our employees, in our facility and on our
network. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks
by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise
our network and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access,
disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our
reputation, and cause a loss of confidence, which could adversely affect our business. Our service providers and our
tenants and their business partners are exposed to similar risks and the occurrence of a security breach or other disruption
with respect to their information technology and infrastructure could, in turn, have a material adverse impact on our
results of operations and business.
Risks That Apply to our Real Estate Business
Real estate income and the value of real estate investments fluctuate due to various factors.
The value of real estate fluctuates depending on conditions in the general economy and the real estate business. These
conditions may also limit our revenues and available cash.
The factors that affect the value of our real estate include, among other things:
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international, national, regional and local economic conditions;
consequences of any armed conflict involving, or terrorist attack against, the United States or Canada;
the threat of domestic terrorism or pandemic outbreaks, which could cause customers of our tenants to avoid
public places where large crowds are in attendance, such as megaplex theatres or recreational properties
operated by our tenants;
our ability to secure adequate insurance;
natural disasters, such as earthquakes, hurricanes and floods, which could exceed the aggregate limits of
insurance coverage;
local conditions such as an oversupply of space or a reduction in demand for real estate in the area;
competition from other available space;
• whether tenants and users such as customers of our tenants consider a property attractive;
•
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
• whether we are able to pass some or all of any increased operating costs through to tenants;
•
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how well we manage our properties;
fluctuations in interest rates;
changes in real estate taxes and other expenses;
changes in market rental rates;
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•
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the timing and costs associated with property improvements and rentals;
changes in taxation or zoning laws;
government regulation;
our failure to continue to qualify as a REIT for federal income tax purposes;
availability of financing on acceptable terms or at all;
potential liability under environmental or other laws or regulations; and
general competitive factors.
The rents and interest we receive and the occupancy levels at our properties may decline as a result of adverse changes
in any of these factors. If our revenues decline, we generally would expect to have less cash available to pay our
indebtedness and distribute to our shareholders. In addition, some of our unreimbursed costs of owning real estate may
not decline when the related rents decline.
There are risks associated with owning and leasing real estate.
Although our lease terms obligate the tenants to bear substantially all of the costs of operating the properties, investing
in real estate involves a number of risks, including:
•
•
the risk that tenants will not perform under their leases, reducing our income from the leases or requiring us
to assume the cost of performing obligations (such as taxes, insurance and maintenance) that are the tenant's
responsibility under the lease;
the risk that changes in economic conditions or real estate markets may adversely affect the value of our
properties;
•
the risk that local conditions could adversely affect the value of our properties;
• we may not always be able to lease properties at favorable rates or certain tenants may require significant
capital expenditures by us to conform existing properties to their requirements;
• we may not always be able to sell a property when we desire to do so at a favorable price; and
•
changes in tax, zoning or other laws could make properties less attractive or less profitable.
If a tenant fails to perform on its lease covenants, that would not excuse us from meeting any debt obligation secured
by the property and could require us to fund reserves in favor of our lenders, thereby reducing funds available for
payment of dividends. We cannot be assured that tenants will elect to renew their leases when the terms expire. If a
tenant does not renew its lease or if a tenant defaults on its lease obligations, there is no assurance we could obtain a
substitute tenant on acceptable terms. If we cannot obtain another quality tenant, we may be required to modify the
property for a different use, which may involve a significant capital expenditure and a delay in re-leasing the property.
Some potential losses are not covered by insurance.
Our leases require the tenants to carry comprehensive liability, casualty, workers' compensation, extended coverage
and rental loss insurance on our properties. We believe the required coverage is of the type, and amount, customarily
obtained by an owner of similar properties. We believe all of our properties are adequately insured. However, there are
some types of losses, such as catastrophic acts of nature, acts of war or riots, for which we or our tenants cannot obtain
insurance at an acceptable cost. If there is an uninsured loss or a loss in excess of insurance limits, we could lose both
the revenues generated by the affected property and the capital we have invested in the property. We would, however,
remain obligated to repay any mortgage indebtedness or other obligations related to the property. Since September 11,
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2001, the cost of insurance protection against terrorist acts has risen dramatically. There can be no assurance our tenants
will be able to obtain terrorism insurance coverage, or that any coverage they do obtain will adequately protect our
properties against loss from terrorist attack.
Joint ventures may limit flexibility with jointly owned investments.
We may continue to acquire or develop properties in joint ventures with third parties when those transactions appear
desirable. We would not own the entire interest in any property acquired by a joint venture. Major decisions regarding
a joint venture property may require the consent of our partner. If we have a dispute with a joint venture partner, we
may feel it necessary or become obligated to acquire the partner's interest in the venture. However, we cannot ensure
that the price we would have to pay or the timing of the acquisition would be favorable to us. If we own less than a
50% interest in any joint venture, or if the venture is jointly controlled, the assets and financial results of the joint
venture may not be reportable by us on a consolidated basis. To the extent we have commitments to, or on behalf of,
or are dependent on, any such “off-balance sheet” arrangements, or if those arrangements or their properties or leases
are subject to material contingencies, our liquidity, financial condition and operating results could be adversely affected
by those commitments or off-balance sheet arrangements.
Our multi-tenant properties expose us to additional risks.
Our entertainment retail centers in Westminster, Colorado, New Rochelle, New York, Burbank, California, Suffolk,
Virginia, Charlotte, North Carolina and Ontario, Canada, and similar properties we may seek to acquire or develop in
the future, involve risks not typically encountered in the purchase and lease-back of real estate properties which are
operated by a single tenant. The ownership or development of multi-tenant retail centers could expose us to the risk
that a sufficient number of suitable tenants may not be found to enable the centers to operate profitably and provide a
return to us. This risk may be compounded by the failure of existing tenants to satisfy their obligations due to various
factors, including the current economic crisis. These risks, in turn, could cause a material adverse impact to our results
of operations and business.
Retail centers are also subject to tenant turnover and fluctuations in occupancy rates, which could affect our operating
results. Multi-tenant retail centers also expose us to the risk of potential “CAM slippage,” which may occur when the
actual cost of taxes, insurance and maintenance at the property exceeds the CAM fees paid by tenants.
Failure to comply with the Americans with Disabilities Act and other laws could result in substantial costs.
Most of our properties must comply with the Americans with Disabilities Act (“ADA”). The ADA requires that public
accommodations reasonably accommodate individuals with disabilities and that new construction or alterations be
made to commercial facilities to conform to accessibility guidelines. Failure to comply with the ADA can result in
injunctions, fines, damage awards to private parties and additional capital expenditures to remedy noncompliance. Our
leases require the tenants to comply with the ADA.
Our properties are also subject to various other federal, state and local regulatory requirements. We do not know whether
existing requirements will change or whether compliance with future requirements will involve significant unanticipated
expenditures. Although these expenditures would be the responsibility of our tenants, if tenants fail to perform these
obligations, we may be required to do so.
Potential liability for environmental contamination could result in substantial costs.
Under federal, state and local environmental laws, we may be required to investigate and clean up any release of
hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or actual
responsibility, simply because of our current or past ownership of the real estate. If unidentified environmental problems
arise, we may have to make substantial payments, which could adversely affect our cash flow and our ability to service
our debt and pay dividends to our shareholders. This is because:
•
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as owner we may have to pay for property damage and for investigation and clean-up costs incurred in
connection with the contamination;
the law may impose clean-up responsibility and liability regardless of whether the owner or operator knew of
or caused the contamination;
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•
•
even if more than one person is responsible for the contamination, each person who shares legal liability under
environmental laws may be held responsible for all of the clean-up costs; and
governmental entities and third parties may sue the owner or operator of a contaminated site for damages and
costs.
These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The presence
of hazardous substances or petroleum products or the failure to properly remediate contamination may adversely affect
our ability to borrow against, sell or lease an affected property. In addition, some environmental laws create liens on
contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination. Most
of our loan agreements require the Company or a subsidiary to indemnify the lender against environmental liabilities.
Our leases require the tenants to operate the properties in compliance with environmental laws and to indemnify us
against environmental liability arising from the operation of the properties. We believe all of our properties are in
material compliance with environmental laws. However, we could be subject to strict liability under environmental
laws because we own the properties. There is also a risk that tenants may not satisfy their environmental compliance
and indemnification obligations under the leases. Any of these events could substantially increase our cost of operations,
require us to fund environmental indemnities in favor of our lenders, limit the amount we could borrow under our
unsecured revolving credit facility and term loan facility and reduce our ability to service our debt and pay dividends
to shareholders.
Real estate investments are relatively illiquid.
We may desire to sell a property in the future because of changes in market conditions, poor tenant performance or
default of any mortgage we hold, or to avail ourselves of other opportunities. We may also be required to sell a property
in the future to meet debt obligations or avoid a default. Specialty real estate projects such as megaplex theatres cannot
always be sold quickly, and we cannot assure you that we could always obtain a favorable price. In addition, the Internal
Revenue Code limits our ability to sell our properties. We may be required to invest in the restoration or modification
of a property before we can sell it. The inability to respond promptly to changes in the performance of our property
portfolio could adversely affect our financial condition and ability to service our debt and pay dividends to our
shareholders.
There are risks in owning assets outside the United States.
Our properties in Canada are subject to the risks normally associated with international operations. The rentals under
our Canadian leases are payable in Canadian dollars, which could expose us to losses resulting from fluctuations in
exchange rates to the extent we have not hedged our position. Canadian real estate and tax laws are complex and subject
to change, and we cannot assure you we will always be in compliance with those laws or that compliance will not
expose us to additional expense. We may also be subject to fluctuations in Canadian real estate values or markets or
the Canadian economy as a whole, which may adversely affect our Canadian investments.
Additionally, we have made investments in projects located in China and may enter other international markets, which
may have similar risks as described above as well as unique risks associated with a specific country.
There are risks in owning or financing properties for which the tenant's, mortgagor's or our operations may be
impacted by weather conditions and climate change.
We have acquired and financed metro ski parks and may continue to do so in the future. The operators of these properties,
our tenants or mortgagors, are dependent upon the operations of the properties to pay their rents and service their loans.
The ski area operator's ability to attract visitors is influenced by weather conditions and climate change in general, each
of which may impact the amount of snowfall during the ski season. Adverse weather conditions may discourage visitors
from participating in outdoor activities. In addition, unseasonably warm weather may result in inadequate natural
snowfall, which increases the cost of snowmaking, and could render snowmaking wholly or partially ineffective in
maintaining quality skiing conditions. Excessive natural snowfall may materially increase the costs incurred for
grooming trails and may also make it difficult for visitors to obtain access to the ski resorts. Prolonged periods of
adverse weather conditions, or the occurrence of such conditions during peak visitation periods, could have a material
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adverse effect on the operator's financial results and could impair the ability of the operator to make rental payments
or service our loans.
We face risks associated with the development, redevelopment and expansion of properties and the acquisition of
other real estate related companies.
We may develop, redevelop or expand new or existing properties or acquire other real estate related companies, and
these activities are subject to various risks. We may not be successful in pursuing such development or acquisition
opportunities. In addition, newly developed or redeveloped/expanded properties or newly acquired companies may not
perform as well as expected. We are subject to other risks in connection with any such development or acquisition
activities, including the following:
• we may not succeed in in completing developments or consummating desired acquisitions on time;
• we may face competition in pursuing development or acquisition opportunities, which could increase our
costs;
• we may face difficulties in integrating acquisitions, which may prove costly or time-consuming and could
divert management's attention;
• we may undertake developments or acquisitions in new markets or industries where we do not have the same
level of market knowledge, which may expose us to unanticipated risks in those markets and industries to
which we are unable to effectively respond, such as an inability to attract qualified personnel with knowledge
of such markets and industries;
• we may incur construction costs in connection with developments, which may be higher than projected,
potentially making the project unfeasible or unprofitable;
• we may be unable to obtain zoning, occupancy or other governmental approvals;
• we may experience delays in receiving rental payments for developments that are not completed on time;
•
our developments or acquisitions may not be profitable;
• we may need the consent of third parties such as anchor tenants, mortgage lenders and joint venture partners,
and those consents may be withheld;
• we may issue shares in connection with acquisitions resulting in dilution to our existing shareholders; and
• we may assume debt or other liabilities in connection with acquisitions.
In addition, there is no assurance that planned third party financing related to development and acquisition opportunities
will be provided on a timely basis or at all, thus increasing the risk that such opportunities are delayed or fail to be
completed as originally contemplated. We may also abandon development or acquisition opportunities that we have
begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a
matter not consummated. In some cases, we may agree to lease or other financing terms for a development project in
advance of completing and funding the project, in which case we are exposed to the risk of an increase in our cost of
capital during the interim period leading up to the funding, which can reduce, eliminate or result in a negative spread
between our cost of capital and the payments we expect to receive from the project. Furthermore, our acquisitions of
new properties or companies will expose us to the liabilities of those properties or companies, some of which we may
not be aware at the time of acquisition. In addition, development of our existing properties presents similar risks. If a
development or acquisition is unsuccessful, either because it is not meeting our expectations or was not completed
according to our plans, we could lose our investment in the development or acquisition.
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Risks That May Affect the Market Price of our Shares
We cannot assure you we will continue paying cash dividends at current rates.
Our dividend policy is determined by our Board of Trustees. Our ability to continue paying dividends on our common
shares, to pay dividends on our preferred shares at their stated rates or to increase our common share dividend rate will
depend on a number of factors, including our liquidity, our financial condition and results of future operations, the
performance of lease and mortgage terms by our tenants and customers, our ability to acquire, finance and lease additional
properties at attractive rates, and provisions in our loan covenants. If we do not maintain or increase our common share
dividend rate, that could have an adverse effect on the market price of our common shares and possibly our preferred
shares. Furthermore, if the Board of Trustees decides to pay dividends on our common shares partially or substantially
all in common shares, that could have an adverse effect on the market price of our common shares and possibly our
preferred shares.
Market interest rates may have an effect on the value of our shares.
One of the factors that investors may consider in deciding whether to buy or sell our common shares or preferred shares
is our dividend rate as a percentage of our share price, relative to market interest rates. If market interest rates increase,
prospective investors may desire a higher dividend rate on our common shares or seek securities paying higher dividends
or interest.
Market prices for our shares may be affected by perceptions about the financial health or share value of our tenants
and mortgagors or the performance of REIT stocks generally.
To the extent any of our tenants or customers, or their competition, report losses or slower earnings growth, take charges
against earnings or enter bankruptcy proceedings, the market price for our shares could be adversely affected. The
market price for our shares could also be affected by any weakness in the performance of REIT stocks generally or
weakness in any of the sectors in which our tenants and customers operate.
Limits on changes in control may discourage takeover attempts which may be beneficial to our shareholders.
There are a number of provisions in our Declaration of Trust, Bylaws, Maryland law and agreements we have with
others which could make it more difficult for a party to make a tender offer for our shares or complete a takeover of
the Company which is not approved by our Board of Trustees. These include:
• a staggered Board of Trustees that can be increased in number without shareholder approval;
• a limit on beneficial ownership of our shares, which acts as a defense against a hostile takeover or acquisition
of a significant or controlling interest, in addition to preserving our REIT status;
•
the ability of the Board of Trustees to issue preferred or common shares, to reclassify preferred or common
shares, and to increase the amount of our authorized preferred or common shares, without shareholder approval;
•
limits on the ability of shareholders to remove trustees without cause;
•
requirements for advance notice of shareholder proposals at shareholder meetings;
• provisions of Maryland law restricting business combinations and control share acquisitions not approved by
the Board of Trustees;
• provisions of Maryland law protecting corporations (and by extension REITs) against unsolicited takeovers
by limiting the duties of the trustees in unsolicited takeover situations;
• provisions in Maryland law providing that the trustees are not subject to any higher duty or greater scrutiny
than that applied to any other director under Maryland law in transactions relating to the acquisition or potential
acquisition of control;
22
• provisions of Maryland law creating a statutory presumption that an act of the trustees satisfies the applicable
standards of conduct for trustees under Maryland law;
• provisions in loan or joint venture agreements putting the Company in default upon a change in control; and
• provisions of employment agreements and other compensation arrangements with our officers calling for
severance compensation and vesting of equity compensation upon a change in control.
Any or all of these provisions could delay or prevent a change in control of the Company, even if the change was in
our shareholders' interest or offered a greater return to our shareholders.
We may change our policies without obtaining the approval of our shareholders.
Our operating and financial policies, including our policies with respect to acquiring or financing real estate or other
companies, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our Board
of Trustees. Accordingly, our shareholders do not control these policies.
Dilution could affect the value of our shares.
Our future growth will depend in part on our ability to raise additional capital. If we raise additional capital through
the issuance of equity securities, the interests of holders of our common shares could be diluted. Likewise, our Board
of Trustees is authorized to cause us to issue preferred shares in one or more series, the holders of which would be
entitled to dividends and voting and other rights as our Board of Trustees determines, and which could be senior to or
convertible into our common shares. Accordingly, an issuance by us of preferred shares could be dilutive to or otherwise
adversely affect the interests of holders of our common shares. As of December 31, 2014, our Series C preferred shares
are convertible, at each of the holder's option, into our common shares at a conversion rate of 0.3700 common shares
per $25.00 liquidation preference, which is equivalent to a conversion price of approximately $67.57 per common share
(subject to adjustment in certain events). Additionally, as of December 31, 2014, our Series E preferred shares are
convertible, at each of the holder's option, into our common shares at a conversion rate of 0.4551 common shares per
$25.00 liquidation preference, which is equivalent to a conversion price of approximately $54.93 per common share
(subject to adjustment in certain events). Under certain circumstances in connection with a change in control of our
Company, holders of our Series F preferred shares may elect to convert some or all of their Series F preferred shares
into a number of our common shares per Series F preferred share equal to the lesser of (a) the $25.00 per share liquidation
preference, plus accrued and unpaid dividends divided by the market value of our common shares or (b) 1.1008 shares.
Depending upon the number of Series C, Series E and Series F preferred shares being converted at one time, a conversion
of Series C, Series E and Series F preferred shares could be dilutive to or otherwise adversely affect the interests of
holders of our common shares. In addition, we may issue a significant amount of equity securities in connection with
acquisitions or investments with or without seeking shareholder approval, which could result in significant dilution to
our existing shareholders.
Future offerings of debt or equity securities, which may rank senior to our common shares, may adversely affect
the market price of our common shares.
If we decide to issue debt securities in the future, which would rank senior to our common shares, it is likely that they
will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
Additionally, any equity securities or convertible or exchangeable securities that we issue in the future may have rights,
preferences and privileges more favorable than those of our common shares and may result in dilution to owners of
our common shares. We and, indirectly, our shareholders, will bear the cost of issuing and servicing such securities.
Because our decision to issue debt or equity securities in any future offering will depend on market conditions and
other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Thus, holders of our common shares will bear the risk of our future offerings reducing the market price of our common
shares and diluting the value of their share holdings in us.
Changes in foreign currency exchange rates may have an impact on the value of our shares.
The functional currency for our Canadian operations is the Canadian dollar. As a result, our future operating results
could be affected by fluctuations in the exchange rate between U.S. and Canadian dollars, which in turn could affect
our share price. We have attempted to mitigate our exposure to Canadian currency exchange risk by entering into foreign
23
currency exchange contracts to hedge in part our exposure to exchange rate fluctuations. Foreign currency derivatives
are subject to future risk of loss. We do not engage in purchasing foreign exchange contracts for speculative purposes.
Additionally, we have made investments in China and may enter other international markets which pose similar currency
fluctuation risks as described above.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares.
At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of
those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new U.S.
federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal
income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether
any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely
affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.
Tax reform could adversely affect the value of our shares.
There have been a number of proposals in Congress for major revision of the federal income tax laws, including
proposals to adopt a flat tax or replace the income tax system with a national sales tax or value-added tax. Any of these
proposals, if enacted, could change the federal income tax laws applicable to REITs, subject us to federal tax or reduce
or eliminate the current deduction for dividends paid to our shareholders, any of which could negatively affect the
market for our shares.
24
Item 1B. Unresolved Staff Comments
There are no unresolved comments from the staff of the SEC required to be disclosed herein as of the date of this Annual
Report on Form 10-K.
Item 2. Properties
As of December 31, 2014, our real estate portfolio (including properties securing our mortgage notes) consisted of
investments in each of our four operating segments. The Entertainment segment included investments in 126 megaplex
theatre properties, nine entertainment retail centers (which include eight additional megaplex theatre properties and
one live performance venue) and six family entertainment centers. The Education segment included investments in 62
public charter school properties, five early education centers and two private school properties. The Recreation segment
included investments in nine metro ski parks, four water-parks and ten golf entertainment complexes. The Other
segment consisted primarily of the land held for development related to the Adelaar casino and resort project in Sullivan
County, New York. Our properties are located in 37 states, the District of Columbia and Ontario, Canada. Except as
otherwise noted, all of the real estate investments listed below are owned or ground leased directly by us. The following
table lists our owned properties (excludes properties under development, land held for development and properties
securing our mortgage notes) listed by segment, their locations, acquisition dates, number of theatre screens (if
applicable), number of seats (if applicable), gross square footage, and the tenant.
25
Property
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
Entertainment Properties:
Huebner Oaks 14
Studio Movie Grill
First Colony 24 (1)(22)
Leawood Town Center 20 (23)
Oakview Plaza 24
Lennox Town Center 24 (1)
Mission Valley 20 (1)
Ontario Mills 30
Promenade 16
Studio 30
West Olive 16
Huebner Oaks Adjacent Retail
Gulf Pointe 30 (2)
South Barrington 30
Mesquite 30 (2)
Hampton Town Center 24
Raleigh Grande 16 (3)
Paradise 24 and XD (16)
Broward 18 (3)
Aliso Viejo Stadium 20 (15)
Boise Stadium 22 (1)(3)
Mesquite Retail Center
Woodridge 18 (2)
Starlight 20
Westminster Promenade 24 (5)
Cary Crossroads Stadium 20
Palm Promenade 24
Gulf Pointe Retail Center
Westminster Promenade
Clearview Palace 12 (1)
Elmwood Palace 20
Hammond Palace 10
Houma Palace 10
Westbank Palace 16
Cherrydale Stadium 16
Forum 30
Olathe Studio 30
Cherrydale Shops
Livonia 20
Hoffman Center 22 (1)
Colonel Glenn 18 (3)
AmStar 16-Macon (10)
Star Southfield 20
Star Southfield Center
South Wind 12 (21)
New Roc Stadium 18
New Roc City
Columbiana Grande Stadium 14
(7)
Harbour View Grande 16
Harbour View Marketplace
Cobb Grand 18
Deer Valley 30 (3)
Mesa Grand 14 (14)
Hamilton 24 (3)
Courtney Park 16 (32)
Kanata 24 (32)
Whitby 24 (32)
Winston Churchill 24 (32)
San Antonio, TX
Dallas, TX
Sugar Land, TX
Leawood, KS
Omaha, NE
Columbus, OH
San Diego, CA
Ontario, CA
Los Angeles, CA
Houston, TX
Creve Coeur, MO
San Antonio, TX
Houston, TX
South Barrington, IL
Mesquite, TX
Hampton, VA
Raleigh, NC
Davie, FL
Pompano Beach, FL
Aliso Viejo, CA
Boise, ID
Mesquite, TX
Woodridge, IL
Tampa, FL
Westminster, CO
Cary, NC
San Diego, CA
Houston, TX
Westminster, CO
Metairie, LA
Harahan, LA
Hammond, LA
Houma, LA
Harvey, LA
Greenville, SC
Sterling Heights, MI
Olathe, KS
Greenville, SC
Livonia, MI
Alexandria, VA
Little Rock, AR
Macon, GA
Southfield, MI
Southfield, MI
Lawrence, KS
New Rochelle, NY
New Rochelle, NY
Columbia, SC
Suffolk, VA
Suffolk, VA
Hialeah, FL
Phoenix, AZ
Mesa, AZ
Hamilton, NJ
Mississagua, ON
Kanata, ON
Whitby, ON
Oakville, ON
Subtotal Entertainment Properties, carried over to next page
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
2/98
3/98
4/98
6/98
8/98
11/98
11/98
12/98
12/98
1/99
6/99
6/99
6/99
12/99
2/00
5/00
12/01
3/02
3/02
3/02
3/02
3/02
6/02
6/02
6/02
6/02
8/02
10/02
12/02
3/03
5/03
5/03
6/03
10/03
10/03
11/03
11/03
11/03
12/03
3/04
3/04
3/04
3/04
3/04
3/04
3/04
26
14
14
24
20
24
24
20
30
16
30
16
—
30
30
30
24
16
24
18
20
22
—
18
20
24
20
24
—
—
12
20
10
10
16
16
30
28
—
20
22
18
16
20
—
12
18
—
14
2,576
2,962
4,684
962
4,668
4,461
4,173
5,454
2,628
4,925
1,029
—
5,701
5,687
3,095
4,673
2,596
4,180
3,424
4,238
4,883
—
4,397
3,928
4,693
3,883
3,192
—
—
2,424
4,334
1,530
1,766
3,053
2,814
4,925
4,191
—
3,604
3,839
3,997
2,950
5,962
—
2,386
4,893
—
2,938
Studio Movie Grill
53,583 Regal
56,430
107,690 AMC
75,224 AMC
107,402 AMC
98,261 AMC
84,352 AMC
131,534 AMC
129,822 AMC
136,154 AMC
60,418 AMC
27,485 Vacant
130,891 AMC
130,757 AMC
130,891 AMC
107,396 AMC
51,450 Carolina Cinemas
96,497 Cinemark
73,637 Carmike Cinemas, Inc.
98,557 Regal
140,300 Regal
27,201 Various
82,000 AMC
84,000 Carmike Cinemas, Inc.
89,260 AMC
77,475 Regal
88,610 AMC
24,008 Various
134,226 Various
70,000 AMC
90,391 AMC
39,850 AMC
44,450 AMC
71,607 AMC
52,830 Regal
107,712 AMC
100,251 AMC
10,000 Various
75,106 AMC
132,903 AMC
79,330 Cinemark
66,400
Southern
112,119 AMC
48,093 Various
42,497 Regal
102,267 Regal
343,809 Various
56,705 Regal
16
—
18
30
14
24
16
24
24
24
1,024
3,036
—
4,900
3,824
2,956
4,183
3,856
4,764
4,688
4,772
189,677
61,500 Regal
96,624 Various
77,400 Cobb
113,768 AMC
94,774 AMC
95,466 AMC
92,971 Cineplex
89,290
89,290
89,290 Cineplex
Landmark Cinemas
Landmark Cinemas
5,182,204
Property
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
Entertainment Properties:
Subtotal from previous page
Mississauga Entertainment
Centrum (32)
Kanata Entertainment Centrum
(32)
Whitby Entertainment Centrum
(32)
Oakville Entertainment Centrum
(32)
The Grand 16-Layafette (1)(11)
Grand Prairie 18
Cantera Retail Shops
North East Mall 18 (13)
The Grand 18-D'lberville (17)
Avenue 16
Mayfaire Stadium 16 (8)
East Ridge 18 (24)
Burbank 16 (6)
Burbank Village (6)
The Grand 14-Conroe
Washington Square 12 (19)
The Grand 18-Hattiesburg (20)
Arroyo Grand Staduim 10 (12)
Auburn Stadium 10 (4)
Manchester Stadium 16 (18)
Modesto Stadium 10 (1)(9)
Columbia 14 (1)
Firewheel 18 (25)
White Oak Stadium 14
The Grand 18 - Winston Salem
(1)
Valley Bend 18
Cityplace 14
n/a
Mississagua, ON
Kanata, ON
Whitby, ON
Oakville, ON
Lafayette, LA
Peoria, IL
Warrenville, IL
Hurst, TX
D'Iberville, MS
Melbourne, FL
Wilmington, NC
Chattanooga, TN
Burbank, CA
Burbank, CA
Conroe, TX
Indianapolis, IN
Hattiesurg, MS
Arroyo Grande, CA
Auburn, CA
Fresno, CA
Modesto, CA
Columbia, MD
Garland, TX
Garner, NC
Winston Salem, NC
Huntsville, AL
Kalamazoo, MI
The Grand 16-Slidell (1)(26)
Pensacola Bayou 15
The Grand 16 - Pier Park
Austell Promenade
Stadium 14 Cinema
The Grand 18 - Four Seasons
Stations (1)
Glendora 12 (1)
Harbour View Station
Ann Arbor 20
Buckland Hills 18
Centreville 12
Davenport 18
Fairfax Corner 14
Flint West 14
Hazlet 12
Huber Heights 16
North Haven 12
Preston Crossing 16
Ritz Center 16
Stonybrook 20
The Greene 14
West Springfield 15
Western Hills 14
Tinseltown 15
Tinseltown USA and XD
Tinseltown USA 20
Slidell, LA
Pensacola, FL
Panama City Beach, FL
Austell, GA
Kalispell, MT
Greensboro, NC
Glendora, CA
Suffolk, VA
Ypsilanti, MI
Manchester, CT
Centreville, VA
Davenport, IA
Fairfax, VA
Flint, MI
Hazlet, NJ
Huber Heights, OH
North Haven, CT
Okolona, KY
Voorhees, NJ
Louisville, KY
Beaver Creek, OH
West Springfield, MA
Cincinnati, OH
Beaumont, TX
Colorado Springs, CO
El Paso, TX
Subtotal Entertainment Properties, carried over to next page
n/a
3/04
3/04
3/04
3/04
7/04
7/04
7/04
11/04
12/04
12/04
2/05
3/05
3/05
3/05
6/05
6/05
9/05
12/05
12/05
12/05
12/05
3/06
3/06
4/06
7/06
8/06
11/06
12/06
12/06
5/07
7/07
8/07
11/07
10/08
6/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
12/09
6/10
6/10
6/10
27
1,024
—
189,677
—
5,182,204
115,934 Various
—
—
—
16
18
—
18
18
16
16
18
16
—
14
12
18
10
10
16
10
14
18
14
18
18
10
16
15
16
—
14
18
—
—
—
2,744
4,063
—
3,914
2,802
3,600
2,907
4,133
3,749
—
2,403
2,070
2,542
1,714
1,563
3,866
1,889
2,459
3,143
2,619
3,496
4,150
1,007
2,695
3,361
3,636
—
2,088
3,320
12
—
20
18
12
18
14
14
12
16
12
16
16
20
14
15
14
15
20
20
1,719
2,186
—
5,602
4,317
3,094
3,772
3,544
3,493
3,000
3,511
2,704
3,264
3,098
3,194
3,211
3,775
3,152
2,805
4,597
4,742
332,671
384,373 Various
145,048 Various
140,830 Various
Southern
61,579
82,330 Carmike Cinemas, Inc.
19,255 Various
98,250 Cinemark
59,533
Southern
75,850 Carmike Cinemas, Inc.
57,338 Regal
82,330 Carmike Cinemas, Inc.
86,551 AMC
34,818 Various
Southern
45,000
45,700 AMC
57,367
35,760 Regal
35,089 Regal
80,600 Regal
38,873 Regal
63,306 AMC
75,252 AMC
50,810 Regal
75,605
Southern
Southern
90,200 Carmike Cinemas, Inc.
65,525 Alamo Draft House
Cinemas
Southern
62,300
74,400 Carmike Cinemas, Inc.
75,605
Southern
18,410 Various
44,650 Cinemark
Southern
74,517
50,710 AMC
21,406 Various
131,098 Cinemark
87,700 Cinemark
73,500 Cinemark
93,755 Cinemark
74,689 Cinemark
85,911 Cinemark
58,300 Cinemark
95,830 Cinemark
70,195 Cinemark
79,453 Cinemark
62,658 Carmike Cinemas, Inc.
84,202 Carmike Cinemas, Inc.
73,634 Cinemark
111,166 Cinemark
63,829 Cinemark
63,352 Cinemark
109,986 Cinemark
109,030 Cinemark
9,335,596
Property
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
Entertainment Properties:
n/a
Grand Prairie, TX
Houston, TX
McKinney, TX
Mishawaka, IN
Pasadena, TX
Pflugerville, TX
Plano, TX
Pueblo, CO
Redding, CA
Virginia Beach, VA
Dallas, TX
Merrimack, NH
Subtotal from previous page
Movies 16
Tinseltown 290
Movies 14
Movies 14-Mishawaka
Hollywood Movies 20
Tinseltown 20
Movies 10
Tinseltown
Redding 14
Beach Movie Bistro (1)
Dallas Retail
Cinemagic in Merrimack (29)
Cinemagic & IMAX in Hooksett Hooksett, NH
Cinemagic & IMAX in Saco
Cinemagic in Westbrook
Magic Valley Mall Theatre (1)
Pinstripes - Northbrook (1)
Latitude 30
Latitude 39
Look Cinemas-Prestonwood (1)
Pinstripes - Oakbrook (1)
Sandhills 10
Regal Winrock (1)
Alamo Draft House-Austin
Saco, ME
Westbrook, ME
Twin Falls, ID
Northbrook, IL
Jacksonville, FL
Indianapolis, IN
Dallas, TX
Oakbrook, IL
Southern Pines, NC
Albuquerque, NM
Austin, TX
Carmike Champaign (1)
Regal Virginia Gateway (1)
The Ambassador Theatre (1)(27)
New Iberia Theatre (1)(27)
Hollywood 16 Theatre (1)(28)
Cantera Stadium 17 (2)
Tampa Veterans 24
Cantera FEC
Tiger 13
Bedford Theater 7 (30)
Seymour Stadium 8 (30)
Wilder Stadium 14 (30)
Bowling Green Stadium 12 (30)
New Albany Stadium 12 (30)
Clarksville Stadium 16 (30)
Lycoming Mall 12 (30)
Noblesville Stadium 10 (30)
Moline Stadium 14 (30)
O'Fallon Stadium 14 (30)
McDonough Stadium 16 (30)
Marketplace Digital Cinema 20
Champaign, IL
Gainesville, VA
Lafayette, LA
New Iberia, LA
Tuscaloosa, AL
Warrenville, IL
Tampa, FL
Warrenville, IL
Opelika, AL
Bedford, IN
Seymour, IN
Wilder, KY
Bowling Green, KY
New Albany, IN
Clarksville, TN
Williamsport, PA
Noblesville, IN
Moline, IL
O'Fallon, MO
McDonough, GA
Sterling Heights, VA
Subtotal Entertainment Properties
Education Properties:
Academy of Columbus
East Mesa Charter Elementary
Imagine Rosefield
100 Academy of Excellence
Groveport Community School
Harvard Avenue Charter School
Hope Community Charter
Subtotal Education Properties, carried over to next page
Columbus, OH
Mesa, AZ
Surprise, AZ
Las Vegas, NV
Groveport, OH
Cleveland, OH
Washington, DC
1,719
15
16
14
14
20
20
10
14
14
7
—
12
15
13
16
13
—
—
—
11
—
10
16
10
13
10
14
10
16
17
24
—
13
7
8
14
12
16
16
12
10
14
14
16
—
2,235
—
—
—
—
—
—
—
—
332,671
2,654
4,369
2,603
2,999
3,156
4,654
1,612
2,649
2,101
640
—
1,810
2,248
2,256
2,292
2,100
—
—
—
1,672
—
1,696
3,033
946
2,896
2,906
2,267
1,384
2,912
3,866
4,344
—
2,896
1,009
1,216
2,047
1,803
2,824
2,824
1,872
1,303
2,270
2,114
2,602
—
423,516
—
—
—
—
—
—
—
—
9,335,596
53,880 Cinemark
100,656 Cinemark
56,088 Cinemark
62,088 Cinemark
77,324 Cinemark
103,250 Cinemark
34,046 Cinemark
55,231 Cinemark
46,793 Cinemark
20,745 Beach Cinema Bistro
33,250 GMBG
42,400 Cinemagic
55,000 Cinemagic
54,000 Cinemagic
53,000 Cinemagic
38,736 Cinema West
39,289
46,000
65,000
62,684
66,442
36,180
71,297 Regal
36,000 Alamo Draft House
Cinemas
Pinstripes
Latitude Global, Inc.
Latitude Global, Inc.
LOOK Cinemas
Pinstripes
Frank Theatres, LLC
Southern
Southern
55,063 Carmike Cinemas, Inc.
57,943 Regal
52,957
32,760
65,442 Cobb
70,000 Regal
94,774 AMC
35,000 Main Event
55,063 Carmike Cinemas, Inc.
22,152 Regal
24,905 Regal
54,645 Regal
48,658 Regal
68,575 Regal
73,208 Regal
44,608 Regal
33,892 Regal
54,817 Regal
51,958 Regal
57,941 Regal
— MJR Group LLC
11,699,336
71,949
45,214
45,578
59,060
66,420
57,652
34,962
380,835
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
n/a
6/10
6/10
6/10
6/10
6/10
6/10
6/10
6/10
6/10
12/10
12/10
3/11
3/11
3/11
3/11
4/11
7/11
2/12
2/12
3/12
3/12
6/12
6/12
9/12
9/12
2/13
8/13
8/13
9/13
10/13
10/13
10/13
11/12
4/14
4/14
4/14
4/14
4/14
4/14
4/14
4/14
4/14
4/14
4/14
12/14
9/07
9/07
9/07
10/07
10/07
10/07
10/07
28
Property
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
n/a
Phoenix, AZ
Marietta, GA
St. Louis, MO
Mableton, GA
Fort Wayne, IN
Education Properties:
Subtotal from previous page
Imagine Charter Elementary
Marietta Charter School
Academy of Environmental
Int'l Academy of Mableton
Master Academy
Romig Road Community School Akron, OH
Atlanta, GA
Wesley International Academy
Groveport, OH
Imagine Groveport Prep
Indianapolis, IN
Imagine Indiana Life Sciences
Academy East
Imagine Indiana Life Sciences
Academy West
Mentorship Academy of Digital
Arts and Science
Ben Franklin Academy (1)
Indianapolis, IN
Baton Rouge, LA
Highlands Ranch, CO
Bradley Academy of Excellence
Goodyear, AZ
American Leadership Academy
Champions School
Gilbert, AZ
Phoenix, AZ
Loveland Classical
Loveland, CO
Prospect Ridge Academy
Broomfield, CO
South Phoenix Academy
Phoenix, AZ
Pacific Heritage
Salt Lake City, UT
Valley Academy
Odyssey Institute for
International & Advanced
Studies
American Leadership Academy-
Queen Creek Campus
The Environmental Charter
School at Frick Park
North East Carolina Prep
Academy
Hurricane, UT
Buckeye, AZ
Gilbert, AZ
Pittsburg, PA
Tarboro, NC
Chester Community Charter
School
Lowcountry Leadership
Chester Upland, PA
Hollywood, SC
Children's Learning Adventure
Camden Community Charter
School
Bella Mente Academy
Imagine Academy at Sullivant
Imagine Klepinger Community
Imagine Madison Avenue
Imagine Columbia Leadership
Learning Foundation &
Performing Arts Academy
McKinley Academy
Global Village Academy-
Colorado Springs
Skyline Chandler
Harrisburg Pike Community
Lake Pleasant, AZ
Camden, NJ
Vista, CA
Columbus, OH
Dayton, OH
Toledo, OH
Columbia, SC
Gilbert, AZ
Chicago, IL
Colorado Springs, CO
Chandler, AZ
Columbus, OH
Subtotal Education Properties, carried over to next page
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
n/a
10/07
10/07
6/08
6/08
6/08
6/08
6/08
1/10
1/10
1/10
3/11
4/11
4/11
6/11
6/11
6/11
8/11
11/11
3/12
3/12
4/12
5/12
7/12
7/12
3/13
3/13
3/13
4/13
5/13
5/13
5/13
05/13
05/13
05/13
05/13
06/13
07/13
11/13
29
380,835
47,186
24,503
153,000
43,188
106,955
40,400
51,094
72,346
121,933
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
84,454
Imagine Schools, Inc.
54,975 CSDC
64,779 Benjamin Franklin
Acad Project
Development
37,502 Bradley Project
44,600
61,149
24,582
Development
PCI ALA Gilbert LLC
Phoenix Charter
Properties
Loveland Classical
School Project
Development
Prospect Ridge Acad
Project Development
Skyline Schools
Project Development
Pacific Heritage Acad
Project Development
25,324 Valley Acad Project
45,125
60,818
56,724
96,704
Development
Schoolhouse Buckeye
LLC
211,440
34,530
Schoolhouse Queen
Creek LLC
Imagine Schools, Inc.
110,000 NE Carolina Prep
Acad Project
Development
25,200 CSMI
44,181
Lowcountry
Leadership Project
Development
15,309 CLA Properties
32,762 CSMI
26,454 Bella Mente Project
Development
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
41,575
52,112
48,375
21,690
52,723 CAFA Gilbert
Investments
50,900 Concept Schools
110,000 GVA CS Project
Development
Skyline Chandler
Imagine Schools, Inc.
70,000
67,043
2,712,470
Property
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
Education Properties:
Subtotal from previous page
Children's Learning Adventure
American Intl School of Utah
Children's Learning Adventure
Children's Learning Adventure
Franklin Academy Palm Beach
iLEAD Charter School
n/a
Goodyear, AZ
Salt Lake City, UT
Oklahoma City, OK
Las Vegas, NV
Palm Beach, FL
Mesa, AZ
North Carolina Leadership Acad
Kernersville, NC
Basis Private San Jose
San Jose, CA
Children's Learning Adventure
Global Village Academy-Fort
Collins
Wilson Prep Academy
Mesa, AZ
Fort Collins, CO
Wilson, NC
Impact Charter Elementary
Baker, LA
Bradford Preparatory School
Charlotte, NC
Horizon Science Academy South
Chicago
Chicago, IL
Subtotal Education Properties
Recreation Properties:
Mad River Mountain (1)(31)
Topgolf-Allen (1)
Topgolf-Dallas (1)
Topgolf-Houston (1)
WISP Resort (33)
Topgolf-Colony
Camelback Mountain Resort
(34)
Topgolf-Alpharetta
Topgolf-Scottsdale (1)
Topgolf-Spring
Topgolf-Brandon (1)
Topgolf-Gilbert
Subtotal Recreation Properties
Total
Bellfontaine, OH
Allen, TX
Dallas, TX
Houston, TX
McHenry, MD
Colony, TX
Tannersville, PA
Alpharetta, GA
Scottsdale, AZ
Spring, TX
Tampa, FL
Gilbert, AZ
n/a
06/13
07/13
08/13
09/13
10/13
12/13
12/13
12/13
01/14
02/14
03/14
04/14
05/14
05/14
11/05
02/12
02/12
09/12
12/12
12/12
09/13
05/13
06/13
07/13
02/14
02/14
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,712,470
20,746 CLA Properties
160,000
Schoolhouse Galleria
LLC
25,737 CLA Properties
16,534 CLA Properties
80,000 Discovery Schools
iLEAD Lancaster
34,647
Project Development
38,448 NC Leadership Project
Development
80,604 Highmark Independent
LLC
25,744 CLA Properties
23,380 GVA FC Project
Development
29,000 Wilson Prep Project
34,033
Development
ICE Project
Development LLC
23,790 Bradford Charter
Holdings LLC
38,000 Concept Schools
3,343,133
48,427
63,242
46,400
65,000
113,135
64,100
Peak Resorts, Inc.
Topgolf USA
Topgolf USA
Topgolf USA
Everbright Pacific,
LLC
Topgolf USA
155,669 CBK
64,232
59,850
64,232
64,232
64,232
872,751
Topgolf USA
Topgolf USA
Topgolf USA
Topgolf USA
Topgolf USA
2,235
423,516
15,915,220
(1) Third party ground leased property. Although we are the tenant under a ground lease and have assumed responsibility for performing the
(2)
obligations thereunder, pursuant to the lease, the tenant is responsible for performing our obligations under the ground lease.
In addition to the theatre property itself, we have acquired land parcels adjacent to the theatre property, which we have or intend to lease or
sell to restaurant or other entertainment themed operators.
(3) Property is included as security for $62.8 million in mortgage notes payable.
(4) Property is included as security for a $5.4 million mortgage notes payable.
(5) Property is included as security for a $6.2 million mortgage note payable.
(6) Property is included as security for a $30.5 million mortgage note payable.
(7) Property is included as security for a $6.9 million mortgage note payable.
(8) Property is included as security for a $6.5 million mortgage note payable.
(9) Property is included as security for a $4.1 million mortgage note payable.
(10) Property is included as security for a $5.4 million mortgage note payable.
(11) Property is included as security for a $7.7 million mortgage note payable.
(12) Property is included as security for a $4.2 million mortgage note payable.
(13) Property is included as security for a $12.4 million mortgage note payable.
(14) Property is included as security for a $13.2 million mortgage note payable.
(15) Property is included as security for a $17.8 million mortgage note payable.
(16) Property is included as security for a $17.8 million mortgage note payable.
(17) Property is included as security for a $9.7 million mortgage note payable.
30
(18) Property is included as security for a $10.0 million mortgage note payable.
(19) Property is included as security for a $4.3 million mortgage note payable.
(20) Property is included as security for a $8.7 million mortgage note payable.
(21) Property is included as security for a $4.0 million mortgage note payable
(22) Property is included as security for a $15.6 million mortgage note payable.
(23) Property is included as security for a $13.0 million mortgage note payable.
(24) Property is included as security for a $10.7 million mortgage note payable.
(25) Property is included as security for a $13.8 million mortgage note payable
(26) Property is included as security for $10.6 million bond payable.
(27) Property is included as security for a $14.4 million bond payable
(28) Property is included as security for a $5.0 million mortgage note payable
(29) Property in included as security for a $3.6 million mortgage note payable.
(30) Property is included as security for a $97.3 million mortgage note payable.
(31) Property includes approximately 324 acres of land.
(32) Property is located in Ontario, Canada.
(33) Property includes 406 acres of owned land and 284 acres of land under ground lease.
(34) Property includes 354 acres of owned land and 185 acres of land under ground lease.
(35) Property includes land beneath a megaplex theatre and adjacent retail.
31
As of December 31, 2014, our owned portfolio of entertainment properties consisted of 11.7 million square feet and
was 99% leased, including 9.8 million square feet of owned megaplex theatre properties that were 100% leased. Our
owned portfolio of education properties consisted of 3.3 million square feet and was 100% leased. Our owned portfolio
of recreation properties consisted of approximately 873 thousand square feet of buildings and 1,392 acres of land,
and was 100% leased. The combined owned portfolio consisted of 15.9 million square feet and was 99% leased. The
following table sets forth lease expirations regarding EPR’s owned megaplex theatre portfolio and owned education
portfolio as of December 31, 2014 (dollars in thousands).
Megaplex Theatre Portfolio
Education Portfolio
Square
Footage
Revenue for the
Year
Ended December
31, 2014 (2)
% of
Company's
Total
Revenue
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
There-
after
Number of
Properties
3
4
4
17
6
7
5
12
5
14
5
5
13 (3)
3
15 (4)
—
5
3 (5)
6
2
Square
Footage
345,708
423,934
332,438
1,401,939
562,725
417,443
279,245
874,935
497,875
1,118,487
321,861
277,710
685,481
195,063
1,245,920
—
297,371
119,566
313,641
111,493
Revenue for the
Year
Ended December
31, 2014 (1)
% of
Company's
Total
Revenue
9,747
9,340
7,380
27,602
16,667
9,103
7,614
22,211
10,770
27,787
11,010
5,667
11,441
5,650
14,125
—
7,495
2,039
4,680
1,368
2.5%
2.4%
1.9%
7.2%
4.3%
2.4%
2.0%
5.8%
2.8%
7.2%
2.9%
1.5%
3.0%
1.5%
3.7%
—%
1.9%
0.5%
1.2%
0.4%
Number of
Properties
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
9 (6)
14 (7)
17 (8)
14
—
—
32,762
—
—
—
—
—
—
—
—
—
—
—
—
—
441,291
957,067
977,417
630,126
—
134
—
9,822,835
$
—
211,696
—%
55.1%
4 (9)
59
304,470
3,343,133
$
—
—
1,062
—
—
—
—
—
—
—
—
—
—
—
—
—
7,518
16,647
16,427
6,508
3,512
51,674
—%
—%
0.3%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
2.0%
4.3%
4.3%
1.7%
0.9%
13.5%
(1) Consists of rental revenue and tenant reimbursements.
(2) Consists of rental revenue and financing income related to the public charter schools recorded as a direct financing
lease.
(3) Eleven of these properties are leased under a master lease.
(4) All of these theatre properties are leased under a master lease.
(5) All of these theatre properties are leased under a master lease.
(6) Four of these education properties are leased under a master lease to Imagine.
(7) Six of these education properties are leased under a master lease to Imagine.
(8) Ten of these education properties are leased under a master lease to Imagine.
(9) Three of these education properties are leased under a master lease to Imagine.
32
Our properties are located in 37 states, the District of Columbia and in the Canadian province of Ontario. The following
table sets forth certain state-by-state and Ontario, Canada information regarding our owned real estate portfolio as of
December 31, 2014 (dollars in thousands). This data does not include the public charter schools recorded as a direct
financing lease.
Location
Texas
Ontario, Canada
California
Arizona
Florida
Illinois
Colorado
Virginia
Michigan
North Carolina
Louisiana
New York
Ohio
Indiana
Kentucky
New Jersey
Utah
Pennsylvania
Kansas
Alabama
Georgia
Idaho
Maryland
South Carolina
Connecticut
Tennessee
New Hampshire
Mississippi
Missouri
Massachusetts
Nebraska
Maine
Iowa
Arkansas
New Mexico
Montana
Oklahoma
Nevada (2)
Washington (3)
Building (gross
sq. ft)
1,945,369
1,147,026
1,049,127
1,039,894
842,395
723,853
692,280
646,706
625,564
624,613
614,902
446,076
379,981
322,312
266,958
249,186
230,449
225,477
217,972
210,705
206,983
179,036
176,441
163,716
157,895
155,538
131,500
116,900
112,376
111,166
107,402
107,000
93,755
79,330
71,297
44,650
25,737
16,534
—
14,558,101
Rental
revenue for the year ended
December 31, 2014 (1)
% of
Rental
Revenue
$
$
40,234
40,181
31,131
17,535
17,686
14,059
12,409
12,614
11,145
11,324
11,731
10,696
5,014
4,792
3,957
5,846
1,901
7,922
4,738
3,934
3,528
2,714
4,129
2,987
2,501
3,134
2,109
2,838
1,770
729
1,836
1,699
1,099
1,586
1,251
902
184
—
491
304,336
13.2%
13.2%
10.2%
5.8%
5.8%
4.6%
4.1%
4.1%
3.7%
3.7%
3.9%
3.5%
1.6%
1.6%
1.3%
1.9%
0.6%
2.6%
1.6%
1.3%
1.2%
0.9%
1.4%
1.0%
0.8%
1.0%
0.7%
0.9%
0.6%
0.2%
0.6%
0.6%
0.4%
0.5%
0.4%
0.3%
0.1%
—%
0.1%
100.0%
(1) Consists of rental revenue and tenant reimbursements.
(2) Property was placed in service in December 2014 and rental revenue will begin in January 2015.
(3) Property was sold in December 2014.
33
Office Location
Our executive office is located in Kansas City, Missouri and is leased from a third-party landlord. The office occupies
approximately 39 thousand square feet with projected 2015 annual rental of approximately $544 thousand. The lease
is scheduled to expire on September 30, 2016, with two separate five year extension options available.
Tenants and Leases
Our existing leases on rental property (on a consolidated basis - excluding unconsolidated joint venture properties)
provide for aggregate annual minimum rentals of approximately $296.8 million (not including periodic rent escalations,
percentage rent or straight-line rent). Our entertainment portfolio has an average remaining base term life of
approximately nine years, our education portfolio has an average remaining base term life of approximately 18 years
and our recreation portfolio has an average remaining base term life of approximately 19 years. These leases may be
extended for predetermined extension terms at the option of the tenant. Our leases are typically triple-net leases that
require the tenant to pay substantially all expenses associated with the operation of the properties, including taxes, other
governmental charges, insurance, utilities, service, maintenance and any ground lease payments.
Property Acquisitions and Developments in 2014
Our property acquisitions and developments in 2014 consisted primarily of spending in each of our primary segments
of Entertainment, Education and Recreation. The percentage of total investment spending related to build to suit
projects, including investment spending for mortgage notes, increased to approximately 73% in 2014 from
approximately 60% in 2013 and we expect this trend toward more build to suit projects to continue in 2015. Many of
our build to suit opportunities come to us from our existing strong relationships with property operators and developers.
Item 3. Legal Proceedings
On June 7, 2011, affiliates of Louis Cappelli, Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha
LLC (the "Cappelli Group"), filed a complaint with the Supreme Court of the State of New York, County of Sullivan,
against two subsidiaries of the Company seeking (i) a declaratory judgment concerning the Company's obligations
under a previously disclosed settlement agreement involving these entities, (ii) an order that the Company execute the
golf course lease and the “Racino Parcel” lease subject to the settlement agreement, and (iii) an extension of the restrictive
covenant against ownership or operation of a casino on the Concord resort property under the settlement agreement
(the "Restrictive Covenant"), which covenant was set to expire on December 31, 2011. The Company filed counterclaims
seeking related relief. The Cappelli Group subsequently obtained leave to discontinue its claims, but the counterclaims
remained pending. On June 30, 2014, the Court (i) denied the Cappelli Group's motion to dismiss the counterclaims,
(ii) granted the Company's motion for summary judgment finding that the Cappelli Group missed the December 31,
2011 deadline to fully execute a master credit agreement which was a condition to the Company's obligation to continue
its joint development activities with the Cappelli Group under the settlement agreement, (iii) granted the Company's
motion for summary judgment finding that the Restrictive Covenant had expired, and (iv) granted the Company's motion
for declaratory relief declaring the Company as master developer of the Concord resort property. The Cappelli Group
perfected its appeal of the summary judgment decision in the Appellate Division, Third Department on December 30,
2014.
On October 20, 2011, the Cappelli Group also filed suit against the Company and two affiliates in the Supreme Court
of the State of New York, County of Westchester, asserting a claim for breach of contract and the implied covenant of
good faith, and seeking damages of at least $800 million, based on the same allegations as in the action the Cappelli
Group filed in Sullivan County Supreme Court. The Company has moved to dismiss the Amended Complaint in
Westchester County based on the Sullivan County Supreme Court’s June 30, 2014 decision, and the Cappelli Group
has cross-moved for a stay of the action. The motion and cross-motion have been fully briefed, and are under judicial
consideration.
On September 18, 2013, the United States District Court for the Southern District of New York (the "District Court")
dismissed the complaint filed by Concord Associates L.P. and six other companies affiliated with Mr. Cappelli against
the Company and certain of its subsidiaries, Empire Resorts, Inc. and Monticello Raceway Management, Inc.
(collectively, "Empire"), and Kien Huat Realty III Limited and Genting New York LLC (collectively, "Genting"). The
34
complaint alleged, among other things, that the Company had conspired with Empire to monopolize the racing and
gaming market in the Catskills by entering into exclusivity and development agreements to develop a comprehensive
resort destination in Sullivan County, New York. The plaintiffs are seeking $500 million in damages (trebled to $1.5
billion under antitrust law), punitive damages, and injunctive relief. The District Court dismissed plaintiffs’ federal
antitrust claims against all defendants with prejudice, and dismissed the pendent state law claims against Empire and
Genting without prejudice, meaning they could be further pursued in state court. On October 2, 2013, the plaintiffs
filed a motion for reconsideration with the District Court, seeking permission to file a Second Amended Complaint,
and soon after filed a Notice of Appeal. The District Court denied the motion for reconsideration in an Opinion and
Order dated November 3, 2014, and the plaintiffs perfected their appeal in the Second Circuit on or about December
17, 2014.
The Company has not determined that losses related to these matters are probable. Because of the favorable rulings
from the Supreme Court of Sullivan County, New York and the District Court, and the pending or potential appeals,
together with the inherent difficulty of predicting the outcome of litigation generally, the Company does not have
sufficient information to determine the amount or range of reasonably possible loss with respect to these matters. The
Company's assessments are based on estimates and assumptions that have been deemed reasonable by management,
but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might
cause the Company to change those estimates and assumptions. The Company intends to vigorously defend the claims
asserted against the Company and certain of its subsidiaries by the Cappelli Group and its affiliates, for which the
Company believes it has meritorious defenses, but there can be no assurances as to its outcome.
Item 4. Mine Safety Disclosures
Not applicable.
35
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information and Dividends
The following table sets forth, for the quarterly periods indicated, the high and low sales prices per share for our common
shares on the New York Stock Exchange (“NYSE”) under the trading symbol “EPR” and the dividends declared.
2014:
Fourth quarter
Third quarter
Second quarter
First quarter
2013:
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
Dividend
$
$
59.29
$
49.91
$
60.80
55.90
54.76
50.24
52.50
48.38
52.87
$
47.39
$
53.05
61.18
52.55
47.60
46.69
45.70
0.855
0.855
0.855
0.855
0.790
0.790
0.790
0.790
The closing price for our common shares on the NYSE on February 24, 2015 was $61.62 per share.
We declared dividends to common shareholders aggregating $3.42 and $3.16 per common share in 2014 and 2013,
respectively.
While we intend to continue paying regular dividends, future dividend declarations will be at the discretion of the Board
of Trustees and will depend on our actual cash flow, our financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code, debt covenants and other factors the Board of Trustees deems
relevant. We began paying dividends to our common shareholders on a monthly rather than quarterly basis beginning
in May 2013 and expect to continue to pay such dividends monthly. We expect to continue to pay dividends to our
preferred shareholders on a quarterly basis. The actual cash flow available to pay dividends may be affected by a
number of factors, including the revenues received from rental properties and mortgage notes, our operating expenses,
debt service on our borrowings, the ability of tenants and customers to meet their obligations to us and any unanticipated
capital expenditures. Our Series C preferred shares have a fixed dividend rate of 5.75%, our Series E preferred shares
have a fixed dividend rate of 9.00% and our Series F preferred shares have a fixed dividend rate of 6.625%.
During the year ended December 31, 2014, the Company did not sell any unregistered equity securities.
On February 24, 2015, there were approximately 810 holders of record of our outstanding common shares.
Issuer Purchases of Equity Securities
During the quarter ended December 31, 2014, the Company did not purchase any unregistered equity securities.
36
Share Performance Graph
The following graph compares the cumulative return on our common shares during the five year period ended
December 31, 2014, to the cumulative return on the MSCI U.S. REIT Index and the Russell 2000 Index for the same
period. The comparisons assume an initial investment of $100 and the reinvestment of all dividends during the
comparison period. Performance during the comparison period is not necessarily indicative of future performance.
Total Return Analysis
EPR Properties
MSCI US REIT Index
Russell 2000 Index
Source: SNL Financial
12/31/2009
100.00
$
100.00
$
100.00
$
12/31/2010
139.34
$
128.48
$
126.86
$
12/31/2011
140.40
$
139.65
$
121.56
$
12/31/2012
158.41
$
164.46
$
141.43
$
12/31/2013
179.58
$
168.52
$
196.34
$
12/31/2014
224.21
$
219.72
$
205.95
$
The performance graph and related text are being furnished to and not filed with the SEC, and will not be deemed
"soliciting material" or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of
the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or
the Exchange Act, except to the extent we specifically incorporate such information by reference into such a filing.
37
Item 6. Selected Financial Data
Operating statement data
(Dollars in thousands except per share data)
The operating data below reflects the reclassification of discontinued operations for properties sold or held for sale.
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Total revenue
Property operating expense
Other expense
General and administrative expense
Costs associated with loan refinancing or payoff, net
Gain on early extinguishment of debt
Interest expense, net
Transaction costs
Provision for loan losses
Impairment charges
Depreciation and amortization
Income before equity in income from joint
ventures and other items
Equity in income from joint ventures
Gain on sale or acquisition, net
Gain on sale of investment in a direct financing lease
Gain on previously held equity interest
Income before income taxes
Income tax benefit (expense)
Income from continuing operations
Discontinued operations:
Income (loss) from discontinued operations
Transaction (costs) benefit
Impairment charges
Gain (loss) on sale or acquisition of real estate
Net income
Add: Net loss (income) attributable to noncontrolling
interests
Net income attributable to EPR Properties
Preferred dividend requirements
Preferred share redemption costs
Net income available to common shareholders
of EPR Properties
Per share data attributable to EPR Properties
shareholders:
Basic earnings per share data:
Income from continuing operations
Income (loss) from discontinued operations
Net income available to common shareholders
Diluted earnings per share data:
Income from continuing operations
Income (loss) from discontinued operations
Net income available to common shareholders
Shares used for computation (in thousands):
Basic
Diluted
Cash dividends declared per common share
2014
$ 286,673
17,663
1,009
79,706
385,051
24,897
771
27,566
301
—
81,270
2,452
3,777
—
66,739
Year Ended December 31,
2012
$ 234,517
18,575
738
63,977
317,807
24,915
1,382
23,170
627
—
76,656
404
—
3,074
46,698
2013
$ 248,709
18,401
1,682
74,272
343,064
26,016
658
25,613
6,166
(4,539)
81,056
1,955
—
—
53,946
2011
$219,733
17,965
374
55,564
293,636
24,204
1,613
20,173
1,877
—
71,295
1,727
—
2,531
42,975
177,278
1,273
1,209
220
—
179,980
(4,228)
$ 175,752
152,193
1,398
3,017
—
4,853
161,461
14,176
$ 175,637
140,881
1,025
—
—
—
141,906
—
$ 141,906
127,241
2,847
—
—
—
130,088
—
$130,088
2010
$208,044
17,100
536
52,044
277,724
22,253
864
18,225
11,383
—
68,462
517
700
463
40,064
114,793
2,138
—
—
—
116,931
—
$116,931
505
3,376
—
—
179,633
—
179,633
(23,807)
—
620
333
—
—
— (20,835)
(27)
121,664
4,256
180,226
—
180,226
(23,806)
—
(108)
121,556
(24,508)
(3,888)
(34,367)
—
—
19,545
115,266
(38)
115,228
(28,140)
(2,769)
(12,163)
—
—
8,287
113,055
1,819
114,874
(30,206)
—
$ 155,826
$ 156,420
$ 93,160
$ 84,319
$ 84,668
$
$
$
$
$
2.80
0.07
2.87
2.79
0.07
2.86
54,244
54,444
3.42
$
$
$
$
$
3.16
0.10
3.26
3.15
0.09
3.24
48,028
48,214
3.16
$
$
$
$
$
2.42
(0.43)
1.99
2.41
(0.43)
1.98
46,798
47,049
3.00
$
$
$
$
$
2.13
(0.32)
1.81
2.12
(0.32)
1.80
46,640
46,901
2.80
$
$
$
$
$
1.92
(0.05)
1.87
1.91
(0.05)
1.86
45,206
45,555
2.60
38
Balance sheet data
(Dollars in thousands)
Net real estate investments
Mortgage notes and related accrued interest
receivable, net
Investment in a direct financing lease, net
Total assets
Dividends payable
Debt
Total liabilities
Equity
December 31,
2014
$2,839,333
2013
$2,394,966
2012
$2,113,434
2011
$2,031,090
2010
$2,217,047
507,955
199,332
486,337
242,212
455,752
234,089
325,097
233,619
305,404
226,433
3,702,048
3,272,276
2,946,730
2,733,995
2,923,420
22,233
19,552
41,186
38,711
37,804
1,645,523
1,475,336
1,368,832
1,154,295
1,191,179
1,775,559
1,584,262
1,486,832
1,235,892
1,292,162
1,926,489
1,688,014
1,459,898
1,498,103
1,631,258
39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto
included in this Annual Report on Form 10-K. The forward-looking statements included in this discussion and elsewhere
in this Annual Report on Form 10-K involve risks and uncertainties, including anticipated financial performance,
business prospects, industry trends, shareholder returns, performance of leases by tenants, performance on loans to
customers and other matters, which reflect management’s best judgment based on factors currently known. See
“Cautionary Statement Concerning Forward-Looking Statements.” Actual results and experience could differ materially
from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number
of factors, including but not limited to those discussed in this Item and in Item 1A - “Risk Factors.”
Overview
Business
Our principal business objective is to enhance shareholder value by achieving predictable and increasing FFO and
dividends per share. Our prevailing strategy is to focus on long-term investments in a limited number of categories in
which we maintain a depth of knowledge and relationships, and which we believe offer sustained performance
throughout all economic cycles. Our investment portfolio includes ownership of and long-term mortgages on
entertainment, education and recreation properties. Substantially all of our owned single-tenant properties are leased
pursuant to long-term, triple-net leases, under which the tenants typically pay all operating expenses of the property.
Tenants at our owned multi-tenant properties are typically required to pay common area maintenance charges to
reimburse us for their pro-rata portion of these costs.
It has been our strategy to structure leases and financings to ensure a positive spread between our cost of capital and
the rentals or interest paid by our tenants. We have primarily acquired or developed new properties that are pre-leased
to a single tenant or multi-tenant properties that have a high occupancy rate. We have also entered into certain joint
ventures and we have provided mortgage note financing. We intend to continue entering into some or all of these types
of arrangements in the foreseeable future.
Historically, our primary challenges have been locating suitable properties, negotiating favorable lease or financing
terms (on new or existing properties), and managing our portfolio as we have continued to grow. We believe our
management’s knowledge and industry relationships have facilitated opportunities for us to acquire, finance and lease
properties. Our business is subject to a number of risks and uncertainties, including those described in “Risk Factors”
in Item 1A of this report.
As of December 31, 2014, our total assets were approximately $4.2 billion (after accumulated depreciation of
approximately $0.5 billion) which included investments in each of our four operating segments with properties located
in 37 states, the District of Columbia and Ontario, Canada.
• Our Entertainment segment included investments in 126 megaplex theatre properties, nine entertainment retail
centers (which include eight additional megaplex theatre properties and one live performance venue) and six
family entertainment centers. Our portfolio of owned entertainment properties consisted of 11.7 million square
feet and was 99% leased, including megaplex theaters that were 100% leased.
• Our Education segment included investments in 62 public charter school properties, five early education
centers and two private schools. Our portfolio of owned education properties consisted of 3.3 million square
feet and was 100% leased.
• Our Recreation segment included investments in nine metro ski parks, four waterparks and ten golf
entertainment complexes. Our portfolio of owned recreation properties was 100% leased.
• Our Other segment consisted primarily of the land held for development related to the Adelaar casino and
resort project in Sullivan County, New York.
The combined owned portfolio consisted of 15.9 million square feet and was 99% leased. As of December 31, 2014,
we also had invested approximately $181.8 million in property under development.
40
Operating Results
Our total revenue, net income available to common shareholders and Funds From Operations As Adjusted ("FFOAA")
are detailed below for the years ended December 31, 2014 and 2013 (in millions, except per share information):
Year ended December 31,
2014
2013
Increase
Total revenue
$
385.1
$
343.1
Net income available to common
shareholders of EPR Properties
FFOAA per diluted share
155.8
4.13
156.4
3.90
12 %
— %
6 %
Year ended December 31, 2014
• Our total revenue, net income available to common shareholders of EPR Properties and FFOAA per diluted
share for the year ended December 31, 2014 were favorably impacted by the results of investment spending
in 2013 and 2014, a $5.0 million prepayment fee, lower financing rates and lower bad debt expense.
• Our net income available to common shareholders of EPR Properties for the year ended December 31, 2014
was favorably impacted by a $3.4 million reversal of a liability that was established related to the acquisition
of Toronto Dundas Square (now sold) as well as gains from property dispositions of $1.4 million.
• Our net income available to common shareholders of EPR Properties for the year ended December 31, 2014
was unfavorably impacted by the sale of four public charter schools, the December payoff of various mortgage
notes due from Peak Resorts, Inc. ("Peak"), a $3.8 million provision for loan loss, higher general and
administrative costs, as well as higher income tax expense related to our Canadian operations.
• Our per share results for the year ended December 31, 2014 were also unfavorably impacted by lower average
leverage (measured by debt to gross assets) than in the prior year.
Year ended December 31, 2013
• Our total revenue, net income available to common shareholders of EPR Properties and FFOAA per diluted
share for the year ended December 31, 2013 were favorably impacted by the recognition of $1.2 million in
other income related to option payments received in connection with the Adelaar casino and resort project in
Sullivan County, New York.
• Our net income available to common shareholders of EPR Properties for the year ended December 31, 2013
was also favorably impacted by a $4.5 million gain on early extinguishment of debt, a combined gain of $7.9
million related to the purchase and consolidation of our previously held equity interests in two joint ventures,
the recognition of a net $14.2 million income tax benefit (primarily triggered by tax law changes related to
our real estate assets in Canada), and gains of $4.3 million on sales of vineyard and winery properties as we
exit that business.
• Our net income available to common shareholders of EPR Properties and per share results for the year ended
December 31, 2013 were negatively impacted by $6.2 million in costs associated with loan refinancing.
FFOAA is a non-GAAP financial measure. For the definitions and further details on the calculations of FFOAA and
certain other non-GAAP financial measures, see section below titled "Funds From Operations (FFO), Funds From
Operations As Adjusted (FFOAA) and Adjusted Funds from Operations (AFFO)."
Investment Spending Overview
During 2014, our total investment spending of $612.7 million was an increase of 52% over our investment spending
in 2013 with increases coming in each of our primary segments of Entertainment, Education and Recreation.
During 2014, our investment spending in our Entertainment segment was $170.8 million compared to $115.7 million
in the prior year and included an acquisition of an 11 theatre portfolio for approximately $118 million. We continued
to have build-to-suit opportunities available for megaplex theatres at attractive terms with both existing and new tenants.
Additionally, many megaplex theatre operators are expanding their food and beverage options and are now including
in-theatre dining options, luxury seating and alcohol availability. This trend is expected to continue to provide build-
to-suit opportunities for us in the future as well.
41
During 2014, our investment spending in our Education segment was $225.0 million compared to $155.5 million in
the prior year, and included build-to-suit public charter schools, early childhood education centers and private schools.
We continued to establish our position as a leading owner of public charter school real estate and expect this momentum
to continue into 2015. We continued to diversify our tenant base, and as of year-end we had 33 different public charter
school operators and we expect to continue to expand this number in 2015. During 2014, we increased our investments
in early childhood education centers and private schools and expect to continue to do so as we move forward.
During 2014, our investment spending in our Recreation segment was $212.2 million compared to $127.3 million in
the prior year, and primarily related to golf entertainment complexes as well as the funding of the water-park hotel at
Camelback Mountain Ski Resort. We plan to continue to seek attractive investments in this segment in 2015.
During 2014, our investment spending in our Other segment was $4.7 million and related to the Adelaar casino and
resort project in Sullivan County, New York. This project is further discussed below under “Recent Developments".
Capitalization Strategies
Our property acquisitions and financing commitments are financed by cash from operations, borrowings under our
unsecured revolving credit facility and unsecured term loan facility, long-term mortgage debt, the sale of debt and
equity securities and the periodic sale of properties. During the past several years, we have taken significant steps to
implement our strategy of migrating to an unsecured debt structure and maintaining significant liquidity by issuing
$875.0 million of unsecured notes and paying off secured debt. Over the last two years we have reduced our cost of
debt by amending and restating our unsecured revolving credit facility, allowing for reductions in interest rate spread
and facility fee pricing and also increased its capacity to $535.0 million. Additionally, over the last two years, we have
amended and restated our unsecured term loan facility increasing the funded amount to $285.0 million and lowering
the interest rate. We also increased the accordion feature under both of our unsecured revolving credit facility and
unsecured term loan facility increasing the maximum amount available under the facilities to $600.0 million and $400.0
million, respectively. Having enhanced our liquidity position, strengthened our balance sheet and continued our access
to the unsecured debt markets, we believe we are better positioned to aggressively pursue investments, acquisitions
and financing opportunities that may become available to us from time to time.
Throughout the remainder of 2015, we expect to maintain our debt to total gross assets ratio between 35% and 45%.
Depending on our capital needs, we will seek both debt and equity capital and will consider issuing additional shares
under the direct share purchase component of our Dividend Reinvestment and Direct Share Purchase Plan. We may
also issue equity securities in connection with acquisitions. While equity issuances and maintaining lower leverage
mitigate the growth in per share results, we believe lower leverage and an emphasis on liquidity are prudent during the
current economic environment.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
(“GAAP”) requires management to make estimates and assumptions in certain circumstances that affect amounts
reported in the accompanying consolidated financial statements and related notes. In preparing these financial
statements, management has made its best estimates and assumptions that affect the reported assets and liabilities. The
most significant assumptions and estimates relate to consolidation, revenue recognition, depreciable lives of the real
estate, the valuation of real estate, accounting for real estate acquisitions, estimating reserves for uncollectible
receivables and the accounting for mortgage and other notes receivable. Application of these assumptions requires the
exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
42
Consolidation
We consolidate certain entities if we are deemed to be the primary beneficiary in a variable interest entity ("VIE"), as
defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic on
Consolidation. The Topic on Consolidation requires the consolidation of VIEs in which an enterprise has a controlling
financial interest. A controlling financial interest will have both of the following characteristics: the power to direct the
activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses
of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could
potentially be significant to the VIE. This topic requires an ongoing reassessment. The equity method of accounting
is applied to entities in which we are not the primary beneficiary as defined in the Consolidation Topic of the FASB
ASC, or do not have effective control, but can exercise influence over the entity with respect to its operations and major
decisions.
Revenue Recognition
Rents that are fixed and determinable are recognized on a straight-line basis over the expected terms of the leases. Base
rent escalation in other leases is dependent upon increases in the Consumer Price Index (“CPI”) and accordingly,
management does not include any future base rent escalation amounts on these leases in current revenue. Most of our
leases provide for percentage rents based upon the level of sales achieved by the tenant. These percentage rents are
recognized once the required sales level is achieved. Lease termination fees are recognized when the related leases are
canceled and we have no continuing obligation to provide services to such former tenants.
Direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet
recovered. Estimated unguaranteed residual values at the date of lease inception represent management’s initial estimates
of fair value of the leased assets at the expiration of the lease, not to exceed original cost. Significant assumptions used
in estimating residual values include estimated net cash flows over the remaining lease term and expected future real
estate values. The estimated unguaranteed residual value is reviewed on an annual basis or more frequently if necessary.
We evaluate the collectibility of our direct financing lease receivable to determine whether it is impaired. A direct
financing lease receivable is considered to be impaired when, based on current information and events, it is probable
that we will be unable to collect all amounts due according to the existing contractual terms. When a direct financing
lease receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment
to the value determined by discounting the expected future cash flows at the direct financing lease receivable’s effective
interest rate or to the value of the underlying collateral, less costs to sell, if such receivable is collateralized.
Real Estate Useful Lives
We are required to make subjective assessments as to the useful lives of our properties for the purpose of determining
the amount of depreciation to reflect on an annual basis with respect to those properties. These assessments have a
direct impact on our net income. Depreciation and amortization are provided on the straight-line method over the useful
lives of the assets, as follows:
Buildings
Tenant improvements
Furniture, fixtures and equipment
40 years
Base term of lease or useful life, whichever is shorter
3 to 25 years
Impairment of Real Estate Values
We are required to make subjective assessments as to whether there are impairments in the value of our rental properties.
These estimates of impairment may have a direct impact on our consolidated financial statements.
We assess the carrying value of our rental properties whenever events or changes in circumstances indicate that the
carrying amount of a property may not be recoverable. Certain factors that may occur and indicate that impairments
may exist include, but are not limited to: underperformance relative to projected future operating results, tenant
difficulties and significant adverse industry or market economic trends. If an indicator of possible impairment exists,
a property that is held and used by the Company is evaluated for impairment by comparing the carrying amount of the
property to the estimated undiscounted future cash flows expected to be generated by the property. If the carrying
amount of a property exceeds its estimated future cash flows on an undiscounted basis, an impairment charge is
43
recognized in the amount by which the carrying amount of the property exceeds the fair value of the property. For
assets and asset groups that are held for sale, an impairment loss is measured by comparing the fair value of the property,
less costs to sell, to the asset (group) carrying value. Management estimates fair value of our rental properties utilizing
independent appraisals and/or based on projected discounted cash flows using a discount rate determined by management
to be commensurate with the risk inherent in the Company.
Real Estate Acquisitions
Upon acquisition of real estate properties, we determine if the acquisition meets the criteria to be accounted for as a
business combination. Accordingly, we account for (1) acquired vacant properties, (2) acquired single tenant properties
when a new lease or leases are signed at the time of acquisition, and (3) acquired single tenant properties that have an
existing long-term triple-net lease or leases (greater than 7 years) as asset acquisitions. Acquisitions of properties with
shorter-term leases or properties with multiple tenants that require business related activities to manage and maintain
the properties (i.e. those properties that involve a process) are treated as business combinations.
Costs incurred for asset acquisitions and development properties, including transaction costs, are capitalized. For asset
acquisitions, we allocate the purchase price and other related costs incurred to the real estate assets acquired based on
recent independent appraisals and management judgment.
If the acquisition is determined to be a business combination, we record the fair value of acquired tangible assets
(consisting of land, building, tenant improvements, and furniture, fixtures and equipment) and identified intangible
assets and liabilities (consisting of above and below market leases, in-place leases, tenant relationships and assumed
financing that is determined to be above or below market terms) as well as any noncontrolling interest. In addition,
acquisition-related costs in connection with business combinations are expensed as incurred.
Allowance for Doubtful Accounts
Management makes quarterly estimates of the collectibility of its accounts receivable related to base rents, tenant
escalations (straight-line rents), reimbursements and other revenue or income. Management specifically analyzes trends
in accounts receivable, historical bad debts, customer credit worthiness, current economic trends and changes in
customer payment terms when evaluating the adequacy of its allowance for doubtful accounts. In addition, when
customers are in bankruptcy, management makes estimates of the expected recovery of pre-petition administrative and
damage claims. These estimates have a direct impact on our net income.
Mortgage Notes and Other Notes Receivable
Mortgage notes and other notes receivable, including related accrued interest receivable, consist of loans that we
originated and the related accrued and unpaid interest income as of the balance sheet date. Mortgage notes and other
notes receivable are initially recorded at the amount advanced to the borrower and we defer certain loan origination
and commitment fees, net of certain origination costs, and amortize them over the term of the related loan. Interest
income on performing loans is accrued as earned. We evaluate the collectibility of both interest and principal for each
loan to determine whether it is impaired. A loan is considered to be impaired when, based on current information and
events, we determine it is probable that we will be unable to collect all amounts due according to the existing contractual
terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment
to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair
value of the underlying collateral, less costs to sell, if the loan is collateral dependent. For impaired loans, interest
income is recognized on a cash basis, unless we determine based on the loan to estimated fair value ratio the loan should
be on the cost recovery method, and any cash payments received would then be reflected as a reduction of principal.
Interest income recognition is recommenced if and when the impaired loan becomes contractually current and
performance is demonstrated to be resumed.
Recent Developments
Debt Financing
On March 26, 2014, we increased the size of our unsecured revolving credit facility from $475.0 million to $535.0
million. As of December 31, 2014, we had $62.0 million outstanding under the facility and the total availability under
the unsecured revolving credit facility was $473.0 million.
44
Additionally on March 26, 2014, we increased the size of our unsecured term loan facility from $265.0 million to
$275.0 million. On September 19, 2014, we further increased the size of our unsecured term loan facility to $285.0
million.
On April 21, 2014, we assumed a mortgage note payable of $90.3 million and a note payable of $1.9 million in
conjunction with the acquisition of 11 theatre properties. The mortgage note was recorded at fair value upon acquisition
which was estimated to be $99.6 million and matures on July 6, 2017. The note payable matures on April 21, 2016.
The carrying value of the note approximated fair value on the date of acquisition.
Issuance of Common Shares
On September 23, 2014, we issued 3,680,000 common shares in a registered public offering for total net proceeds, after
the underwriting discount and offering expenses, of approximately $184.2 million. The net proceeds from the public
offering were used to pay down our unsecured revolving credit facility.
During the year ended December 31, 2014, we issued pursuant to a registered public offering 1,563,709 common shares
under the direct share purchase component of the Dividend Reinvestment and Direct Share Purchase Plan for total net
proceeds after expenses of $79.5 million.
Investment Spending
Our investment spending during the year ended December 31, 2014 totaled $612.7 million, and included investments
in each of our four operating segments.
Entertainment investment spending during the year ended December 31, 2014 totaled $170.8 million, and was related
primarily to the acquisition of the 11 theatre portfolio as described below and an acquisition of land under a theatre
and adjacent retail, as well as investments in build-to-suit construction of five megaplex theatres and redevelopment
of three existing megaplex theatres, each of which is subject to a long-term triple net lease or long-term mortgage
agreement.
On April 21, 2014, we acquired 100% of an entity that owns 11 theatre properties in seven states for a total purchase
price of approximately $117.7 million. The theatre properties are leased on a triple net basis under a master lease
agreement to a subsidiary of Regal Cinemas, Inc. with the tenant responsible for all taxes, costs and expenses arising
from the use or operation of the properties.
Education investment spending during the year ended December 31, 2014 totaled $225.0 million, and was related to
investments in build-to-suit construction of 22 public charter schools, three private schools and 11 early childhood
education centers, as well as the acquisition of two early childhood education centers located in Arizona and the
expansions of seven existing public charter schools, each of which is subject to a long-term triple net lease or long-
term mortgage agreement.
Recreation investment spending during the year ended December 31, 2014 totaled $212.2 million, and was related to
build-to-suit construction of 17 Topgolf golf entertainment facilities and additional improvements at two existing
Topgolf golf entertainment facilities and Camelback Mountain Resort, each of which is subject to a long-term triple
net lease or a long-term mortgage agreement.
Other investment spending during the year ended December 31, 2014 totaled $4.7 million, and was related to the land
held for development related to the Adelaar casino and resort project in Sullivan County, New York.
45
The following details our investment spending during the years ended December 31, 2014 and 2013 (in thousands):
For the Year Ended December 31, 2014
Total
Investment
Spending
$
170,837
225,041
212,171
4,659
New
Development
16,139
$
196,843
133,886
4,659
Re-
development
13,224
$
—
4,717
—
Asset
Acquisition
137,808
$
7,889
—
—
Investment
in
Mortgage
Notes
Investment
in Joint
Ventures or
Direct
Financing
Lease
$
$
3,666
20,309
73,568
—
—
—
—
—
—
$
612,708
$
351,527
$
17,941
$
145,697
$
97,543
$
For the Year Ended December 31, 2013
Total
Investment
Spending
$
115,666
155,508
127,310
5,167
New
Development
50,127
$
108,000
38,050
5,167
Re-
development
6,908
$
—
—
—
Asset
Acquisition
43,964
$
14,052
70,668
—
Investment
in
Mortgage
Notes
Investment
in Joint
Ventures or
Direct
Financing
Lease
$
$
13,061
30,194
18,592
—
1,606
3,262
—
—
$
403,651
$
201,344
$
6,908
$
128,684
$
61,847
$
4,868
Operating
Segment
Entertainment
Education
Recreation
Other
Total Investment
Spending
Operating
Segment
Entertainment
Education
Recreation
Other
Total Investment
Spending
The above amounts include $186 thousand and $128 thousand in capitalized payroll, $7.4 million and $2.8 million in
capitalized interest and $1.9 million and $2.0 million in capitalized other general and administrative direct project costs
for the years ended December 31, 2014 and 2013, respectively. In addition, we had $7.7 million and $4.1 million of
maintenance capital expenditures for the years ended December 31, 2014 and 2013, respectively.
Property Dispositions
On April 2, 2014, we completed the sale of four public charter school properties located in Florida and previously
leased to Imagine Schools, Inc. for net proceeds of $46.1 million. Accordingly, we reduced our investment in a direct
financing lease, net, by $45.9 million which included $41.5 million in original acquisition cost. A gain of $0.2 million
was recognized during the year ended December 31, 2014.
During the year ended December 31, 2014, we sold one winery located in Washington and one vineyard located in
California for net proceeds of $8.0 million and we recognized a gain of $0.9 million. This completes the sale of all our
vineyard and winery properties. Additionally, during the year ended December 31, 2014, we sold three land parcels
for net proceeds of $4.1 million and recognized a gain of $0.3 million.
Subsequent to year end, on January 27, 2015, we sold one theatre property located in Los Angeles, California for net
proceeds of $42.7 million and recognized a gain on sale of $23.7 million.
Mortgage Notes Receivable Prepayment
In conjunction with Peak Resorts (Peak) becoming a publicly traded company, on December 2, 2014, we received $76.2
million from Peak representing full prepayment of three mortgage notes receivable and partial prepayment for one
mortgage note receivable related to five metro ski parks and one development property. In conjunction with this payoff,
we received a prepayment fee of $5.0 million which is included in mortgage and other financing income in the
46
accompanying consolidated statements of income for the year ended December 31, 2014 in this Annual Report on Form
10-K. The maturity dates of the remaining mortgage notes receivable totaling $93.6 million at December 31, 2014
were extended to December 31, 2034. Additionally, $301 thousand of prepaid mortgage fees were written off which
are included in costs associated with loan refinancing in the accompanying consolidated statements of income for the
year ended December 31, 2014 in this Annual Report on Form 10-K.
Note Receivable
During the year ended December 31, 2014, we recognized a provision for loan loss of $3.8 million that relates to the
full amount outstanding of one note receivable that was originated in January 2006. This note was made originally as
a bridge loan to an anticipated larger transaction that we chose not to pursue in that same year. Recent changes in the
borrower's financial status are such that future payments are no longer considered likely.
Imagine Schools
As of December 31, 2014, we have 17 schools that are occupied and operated by Imagine, three schools that have been
subleased by Imagine, and three schools that remain non-operational. For those remaining non-operational schools,
Imagine continues to seek further opportunities for sale or sublease. Imagine remains responsible for payments on all
23 properties under the master lease and was current as of December 31, 2014. We do not anticipate any delay in future
payments under the master lease, and as additional credit support we continue to hold a $9.0 million letter of credit
from Imagine and require them to maintain a $7.4 million escrow reserve.
Adelaar Casino and Resort Project in Sullivan County, New York
The proposed ground lease tenant for a portion of our Sullivan County, New York property, Empire Resorts, announced
on June 30, 2014 that it submitted an application to the New York State Gaming Facility Location Board (“FLB”) for
a Class III gaming license to operate a full-scale casino to be named Montreign Resort Casino ("Montreign"). On
December 17, 2014, the FLB announced its recommendation for a license for Montreign. With this recommendation,
Empire Resorts is now applying to the New York State Gaming Commission for the official gaming license. If the
casino license is granted and the parties proceed with the development of the project as set forth in the Master Plan
submitted to Sullivan County, New York, the total combined investment in the Adelaar casino and resort project could
be in excess of $1.0 billion, which may include land held for development ($201.5 million at December 31, 2014), and
additional investments outside of the casino by the Company and others in excess of $200.0 million for infrastructure,
a waterpark hotel, a redesign of the existing golf course and retail, restaurant, shopping and entertainment properties.
In addition to the Company, sources of this additional investment may include funding by tenants, joint venture partners,
developers and purchasers of the land. Empire Resorts has reported that they plan to invest up to $630.0 million for
the casino project. The Adelaar casino and resort project also has been approved for up to $75.0 million in industrial
development bonds to fund portions of the project. The size of the overall project, including the amount of capital
necessary to complete it, will vary based upon a number of contingencies. We have received from Empire Resorts non-
refundable option payments totaling $3.8 million through December 31, 2014 which have been deferred and are expected
to be recognized in income in the future as a part of lease accounting should a lease agreement be finalized with Empire
Resorts.
As further described in Note 20 to the consolidated financial statements in this Annual Report on Form 10-K, the
Adelaar casino and resort project is the subject of ongoing litigation for which we believe we have meritorious defenses.
Chief Executive Officer Retirement
On February 24, 2015, we announced that our President and Chief Executive Officer, David Brain, was retiring from
the Company. In connection with this change, we accrued for anticipated severance amounts (including stock based
compensation costs), which resulted in a charge to earnings in the first quarter of 2015 of approximately $18.5 million.
Results of Operations
Year ended December 31, 2014 compared to year ended December 31, 2013
Rental revenue was $286.7 million for the year ended December 31, 2014 compared to $248.7 million for the year
ended December 31, 2013. Rental revenue increased $38.0 million from the prior period, of which $39.6 million was
47
related to acquisitions or build-to-suit projects completed in 2014 and 2013 and was partially offset by a net decrease
of $1.6 million in rental revenue on existing properties due in part by the impact of a weaker Canadian exchange rate.
Percentage rents of $2.0 million and $2.6 million were recognized during the years ended December 31, 2014 and
2013, respectively. Straight-line rents of $8.7 million and $4.8 million were recognized during the years ended December
31, 2014 and 2013, respectively.
During the year ended December 31, 2014, we experienced an increase of approximately 4.1% in rental rates on
approximately 91,000 square feet with respect to two lease renewals. Additionally, we have funded or have agreed to
fund a weighted average of $10.09 per square foot in tenant improvements. There were no leasing commissions related
to these renewals.
Tenant reimbursements totaled $17.7 million for the year ended December 31, 2014 compared to $18.4 million for the
year ended December 31, 2013. These tenant reimbursements related to the operations of our entertainment retail
centers. The $0.7 million decrease was primarily due to the impact of a weaker Canadian dollar exchange rate.
Other income was $1.0 million for the year ended December 31, 2014 compared to $1.7 million for the year ended
December 31, 2013. The $0.7 million decrease was primarily due to to option payments earned during 2013 related
to the Adelaar casino and resort project in Sullivan County, New York of $1.2 million and was partially offset by an
increase in income recognized upon settlement of foreign currency swap contracts.
Mortgage and other financing income for the year ended December 31, 2014 was $79.7 million compared to $74.3
million for the year ended year ended December 31, 2013. The $5.4 million increase was due to a $5.0 million
prepayment fee we received on December 2, 2014 in conjunction with the full and partial repayment of four mortgage
notes receivable as well as increased real estate lending activities related to our mortgage loan agreements. This was
partially offset by a decrease due to the sale of four public charter school properties during 2014, which were classified
as a direct financing lease. We also recognized participating interest income of $2.2 million and $0.9 million for the
years ended December 31, 2014 and 2013, respectively.
Our property operating expense totaled $24.9 million for the year ended December 31, 2014 compared to $26.0 million
for the year ended December 31, 2013. These property operating expenses arise from the operations of our retail centers
and other specialty properties. The $1.1 million decrease resulted primarily from a decrease in bad debt expenses and
other non-recoverable expenses at these properties and was also impacted by a weaker Canadian dollar exchange rate.
Our general and administrative expense totaled $27.6 million for the year ended December 31, 2014 compared to $25.6
million for the year ended December 31, 2013. The increase of $2.0 million is primarily due to an increase in payroll
related expenses including stock grant amortization.
Costs associated with loan refinancing or payoff for the year ended December 31, 2014 were $0.3 million and were
related to the write off of prepaid mortgage fees in conjunction with our borrowers prepayment of four mortgage notes
receivable. Costs associated with loan refinancing or payoff were $6.2 million for the year ended December 31, 2013
and related to the repayment of secured fixed rate mortgage debt as well as the amendments to our unsecured revolving
credit facility.
Gain on early extinguishment of debt for the year ended December 31, 2013 was $4.5 million and related to our
discounted payoff of a mortgage loan secured by a theatre property located in Omaha, Nebraska. There was no gain
on early extinguishment of debt for the year ended December 31, 2014.
Our net interest expense increased by $0.2 million to $81.3 million for the year ended December 31, 2014 from $81.1
million for the year ended December 31, 2013. This increase resulted primarily from an increase in average borrowings
and was partially offset by a decrease in the weighted average interest rate used to finance our real estate acquisitions
and fund our mortgage notes receivable as well as an increase in interest cost capitalized.
48
Transaction costs totaled $2.5 million for the year ended December 31, 2014 compared to $2.0 million for the year
ended December 31, 2013. The increase of $0.5 million is due to an increase in costs associated with business
combinations and write offs of costs associated with terminated transactions.
Provision for loan loss was $3.8 million for the year ended December 31, 2014 and related to one note receivable.
There was no provision for loan loss for the year ended December 31, 2013.
Depreciation and amortization expense totaled $66.7 million for the year ended December 31, 2014 compared to $53.9
million for the year ended December 31, 2013. The $12.8 million increase resulted primarily from asset acquisitions
completed in 2014 and 2013 as well as the acceleration of depreciation on certain existing assets.
Gain on sale or acquisition, net was $1.2 million for the year ended December 31, 2014 and related to the sale of one
winery, one vineyard and three parcels of land. Gain on sale or acquisition, net was $3.0 million for the year ended
December 31, 2013 and primarily related to the acquisition of the assets held in the Atlantic-EPR I and Atlantic-EPR
II joint ventures previously held as equity interests.
Gain on sale of investment in a direct financing lease was $0.2 million for the year ended December 31, 2014 and
related to the sale of four public charter school properties located in Florida. There was no gain on sale of investment
in a direct financing lease for the year ended December 31, 2013.
Gain on previously held equity interest was $4.9 million for the year ended December 31, 2013 and was due to the fair
value adjustment associated with our original ownership in the Atlantic-EPR I and Atlantic-EPR II joint ventures that
was valued due to our acquisition of the remaining interest in these partnerships. There was no gain on previously held
equity interest for the year ended December 31, 2014.
Income tax expense was $4.2 million for the year ended December 31, 2014 and related primarily to Canadian income
taxes on our Canadian trust as well as state income taxes and withholding tax for distributions related to our
unconsolidated joint venture projects located in China. Income tax benefit was $14.2 million for the year ended
December 31, 2013 and primarily resulted from the deferred tax valuation allowance reduction which was triggered
by Canadian tax law changes. Changes in Canadian tax law at the end of 2013 restricted the deductibility of intercompany
interest such that the Canadian trust was expected to incur and pay income taxes starting in 2014. This amount was
partially offset by $0.6 million in expense recognized due to state income taxes and withholding tax for distributions
related to our unconsolidated joint venture projects located in China.
Income from discontinued operations was $3.9 million for the year ended December 31, 2014 and related primarily to
the reversal of liabilities that related to the acquisition or ownership of Toronto Dundas Square (now sold). These
liabilities were reversed during the year ended December 31, 2014 as the related payments are not expected to occur.
Income from discontinued operations was $0.3 million for the year ended December 31, 2013 and related to post closing
items for the previously sold Toronto Dundas Square property as well as the operations of five winery and vineyard
properties which were sold during 2013.
Gain on sale or acquisition of real estate from discontinued operations was $4.3 million for the year ended December
31, 2013 and was due to the sale of five winery and vineyard properties during the year. There was no gain on sale of
real estate from discontinued operations for the year ended December 31, 2014.
Year ended December 31, 2013 compared to year ended December 31, 2012
Rental revenue was $248.7 million for the year ended December 31, 2013 compared to $234.5 million for the year
ended December 31, 2012. Rental revenue increased $14.2 million from the prior period, of which $17.9 million was
related to acquisitions completed in 2013 and 2012, and was partially offset by a net decrease of $3.7 million in rental
revenue on existing properties. Percentage rents of $2.6 million and $1.8 million were recognized during the years
ended December 31, 2013 and 2012, respectively. Straight-line rents of $4.8 million and $4.6 million were recognized
during the years ended December 31, 2013 and 2012, respectively.
49
During the year ended December 31, 2013, we experienced a decrease of approximately 30.0% in rental rates on
approximately 692,000 square feet with respect to five lease renewals and two new leases on existing properties.
Additionally, we have funded or have agreed to fund a weighted average of $28.60 per square foot in tenant
improvements. There were no leasing commissions related to these renewals.
Other income was $1.7 million for the year ended December 31, 2013 compared to $0.7 million for the year ended
December 31, 2012. The $1.0 million increase was primarily due to to option payments earned related to the planned
casino and resort development in Sullivan County, New York.
Mortgage and other financing income for the year ended December 31, 2013 was $74.3 million compared to $64.0
million for the year ended year ended December 31, 2012. The $10.3 million increase was primarily due to increased
real estate lending activities related to our mortgage loan agreements. We also recognized participating interest income
of $0.9 million from SVVI related to our water-park interests for both of the years ended December 31, 2013 and 2012.
Our property operating expense totaled $26.0 million for the year ended December 31, 2013 compared to $24.9 million
for the year ended December 31, 2012. These property operating expenses arise from the operations of our retail centers
and other specialty properties. The $1.1 million increase resulted primarily from increases in property tax and vacant
space expenses at these properties.
Other expense was $0.7 million for the year ended December 31, 2013 compared to $1.4 million for the year ended
December 31, 2012. The decrease of $0.7 million was primarily due to more favorable net settlement of foreign currency
forward and swap contracts.
Our general and administrative expense totaled $25.6 million for the year ended December 31, 2013 compared to $23.2
million for the year ended December 31, 2012. The increase of $2.4 million was primarily due to an increase in payroll
related expenses and professional fees.
Costs associated with loan refinancing or payoff, net for the year ended December 31, 2013 were $6.2 million and were
related to our repayment of secured fixed rate mortgage debt as well as the amendments to our unsecured revolving
credit facility. Costs associated with loan refinancing or payoff, net were $0.6 million for the year ended December
31, 2012 and related to the prepayment of secured fixed rate mortgage debt.
Gain on early extinguishment of debt for the year ended December 31, 2013 was $4.5 million and related to our
discounted payoff of a mortgage loan secured by a theatre property located in Omaha, Nebraska. There was no gain
on early extinguishment of debt for the year ended December 31, 2012.
Our net interest expense increased by $4.4 million to $81.1 million for the year ended December 31, 2013 from $76.7
million for the year ended December 31, 2012. This increase resulted primarily from an increase in average borrowings
and was partially offset by a decrease in the weighted average interest rate used to finance our real estate acquisitions
and fund our mortgage notes receivable.
Transaction costs totaled $2.0 million for the year ended December 31, 2013 compared to $0.4 million for the year
ended December 31, 2012. The increase of $1.6 million was due to an increase in costs associated with terminated
transactions and potential business combinations.
There were no impairment charges for the year ended December 31, 2013. Impairment charges for the year ended
December 31, 2012 were $3.1 million and related to certain of our vineyard and winery properties.
Depreciation and amortization expense totaled $53.9 million for the year ended December 31, 2013 compared to $46.7
million for the year ended December 31, 2012. The $7.2 million increase resulted primarily from asset acquisitions
completed in 2013 and 2012.
50
Equity in income from joint ventures totaled $1.4 million for the year ended December 31, 2013 compared to $1.0
million for the year ended December 31, 2012. The $0.4 million increase was primarily due to an increase in income
from our joint venture projects located in China.
Gain on sale or acquisition, net was $3.0 million for the year ended December 31, 2013 and primarily related to the
acquisition of the assets held in the Atlantic-EPR I and Atlantic-EPR II joint ventures previously held as equity interests.
There was no gain on acquisition for the year ended December 31, 2012.
Gain on previously held equity interest was $4.9 million for the year ended December 31, 2013 and was due to the fair
value adjustment associated with our original ownership in the Atlantic-EPR I and Atlantic-EPR II joint ventures that
was valued due to our acquisition of the remaining interest in these partnerships. There was no gain on previously held
equity interest for the year ended December 31, 2012.
Income tax benefit was $14.2 million for the year ended December 31, 2013 and primarily resulted from the deferred
tax valuation allowance reduction which was triggered by tax law changes. Changes in Canadian tax law at the end
of 2013 restricted the deductibility of intercompany interest such that the Canadian trust was expected to incur and pay
income taxes starting in 2014. This amount was partially offset by $0.6 million in expense recognized due to state
income taxes and withholding tax for distributions related to our unconsolidated joint venture projects located in China.
There was no income tax benefit for the year ended December 31, 2012 and expenses in 2012 related to state and
foreign income taxes were not significant.
Income from discontinued operations was $0.3 million for the year ended December 31, 2013 and related to the
operations of five winery and vineyard properties which were sold during 2013. Loss from discontinued operations
was $20.2 million (including impairment charges of $20.8 million) for the year ended December 31, 2012 and related
to the prior mentioned properties as well as the two winery and vineyard properties which were sold during 2012.
Additionally, included in discontinued operations for the years ended December 31, 2013 and 2012 are the operations
that relate to the settlement of escrow reserves established with the March 29, 2011 sale of Toronto Dundas Square.
Gain on sale or acquisition of real estate from discontinued operations was $4.3 million for the year ended December
31, 2013 and was due to the sale of five winery and vineyard properties during the year. Loss on sale or acquisition of
real estate from discontinued operations was $0.03 million for the year ended December 31, 2012 and related to the
sale of two winery and vineyard properties which was partially offset by a gain on sale or acquisition of real estate of
$0.3 million that relates to the settlement of escrow reserves established with the March 29, 2011 sale of Toronto Dundas
Square.
Preferred dividend requirements for the year ended December 31, 2013 were $23.8 million compared to $24.5 million
for the year ended December 31, 2012. The $0.7 million decrease was due to a decrease of $7.2 million as a result of
the redemption of 4.6 million Series D preferred shares on November 5, 2012, offset by an increase of $6.5 million
due to the issuance of 5.0 million Series F preferred shares on October 12, 2012.
There were no preferred share redemption costs for the year ended December 31, 2013. Preferred share redemption
costs of $3.9 million for the year ended December 31, 2012 were due to the redemption of all of the Series D preferred
shares on November 5, 2012. These costs consist of the original issuance costs and other redemption related expenses.
Liquidity and Capital Resources
Cash and cash equivalents were $3.3 million at December 31, 2014. In addition, we had restricted cash of $13.1 million
at December 31, 2014. Of the restricted cash at December 31, 2014, $9.6 million relates to cash held for our borrowers’
debt service reserves for mortgage notes receivable or tenants' off-season rent reserves, $0.1 million relates to escrow
balances required in connection with the sale of Toronto Dundas Square and the balance represents deposits required
in connection with debt service, payment of real estate taxes and capital improvements.
51
Mortgage Debt, Credit Facilities and Term Loan
As of December 31, 2014, we had total debt outstanding of $1.6 billion of which $396.7 million was fixed rate mortgage
debt secured by a portion of our rental properties. The fixed rate mortgage debt had a weighted average interest rate
of approximately 5.5% at December 31, 2014.
At December 31, 2014, we had outstanding $875.0 million in aggregate principal amount of unsecured senior notes
ranging in interest rates from 5.25% to 7.75%. All of these notes are guaranteed by certain of our subsidiaries. The
notes contain various covenants, including: (i) a limitation on incurrence of any debt that would cause the ratio of our
debt to adjusted total assets to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause the
ratio of secured debt to adjusted total assets to exceed 40%; (iii) a limitation on incurrence of any debt which would
cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of our total
unencumbered assets such that they are not less than 150% of our outstanding unsecured debt.
On March 26, 2014, the Company increased the size of its unsecured revolving credit facility from $475.0 million to
$535.0 million. At December 31, 2014, we had $62.0 million outstanding under our $535.0 million unsecured revolving
credit facility, with $473.0 million of availability and with interest at a floating rate of LIBOR plus 140 basis points,
which was 1.56% at December 31, 2014. The unsecured revolving credit facility has a term expiring July 23, 2017
with a one year extension available at our option, subject to certain terms and conditions. The amount that we are able
to borrow on our unsecured revolving credit facility is a function of the values and advance rates, as defined by the
credit agreement, assigned to the assets included in the borrowing base less outstanding letters of credit and less other
liabilities. The unsecured revolving credit facility also contains an "accordion" feature allowing it to be increased by
up to an additional $65.0 million upon satisfaction of certain conditions.
Additionally on March 26, 2014, we increased the size of our unsecured term loan facility from $265.0 million to
$275.0 million and further increased the size to $285.0 million on September 19, 2014. At December 31, 2014, the
unsecured term loan facility had interest at a floating rate of LIBOR plus 160 basis points, which was 1.77%, and $240.0
million of this LIBOR-based debt has been fixed with interest rate swaps at 2.51% through January 5, 2016 and 2.38%
from January 5, 2016 to July 5, 2017. The loan matures on July 23, 2018. The unsecured term loan facility also contains
an "accordion" feature allowing it to be increased by up to an additional $115.0 million upon satisfaction of certain
conditions.
Our unsecured revolving credit facility and our unsecured term loan facility contain substantially identical financial
covenants that limit our levels of consolidated debt, secured debt, investment levels outside certain categories and
dividend distributions, and require minimum coverage levels for fixed charges and unsecured debt service costs.
Additionally, our unsecured revolving credit facility, unsecured term loan facility and our unsecured senior notes contain
cross-default provisions that go into effect if we default on any of our obligations for borrowed money or credit in an
amount exceeding $25.0 million ($50.0 million for the 5.25% unsecured senior notes), unless such default has been
waived or cured within a specified period of time. We were in compliance with all financial covenants under our debt
instruments at December 31, 2014.
Our principal investing activities are acquiring, developing and financing entertainment, education and recreation
properties. These investing activities have generally been financed with senior unsecured notes and mortgage debt, as
well as the proceeds from equity offerings. Our unsecured revolving credit facility is also used to finance the acquisition
or development of properties, and to provide mortgage financing. We have and expect to continue to issue debt securities
in public or private offerings. We have and may in the future assume mortgage debt in connection with property
acquisitions. We may also issue equity securities in connection with acquisitions. Continued growth of our rental
property and mortgage financing portfolios will depend in part on our continued ability to access funds through additional
borrowings and securities offerings, and, to a lesser extent, our ability to assume debt in connection with property
acquisitions.
Certain of our debt agreements contain customary restrictive covenants related to financial and operating performance
as well as certain cross-default provisions. We were in compliance with all financial covenants at December 31, 2014.
52
On September 23, 2014, we issued 3,680,000 common shares in a registered public offering for total net proceeds, after
the underwriting discount and offering expenses, of approximately $184.2 million. The net proceeds from the public
offering were used to pay down our unsecured revolving credit facility.
During the year ended December 31, 2014, we issued pursuant to a registered public offering 1,563,709 common shares
under the direct share purchase component of the Dividend Reinvestment and Direct Share Purchase Plan for total net
proceeds after expenses of $79.5 million.
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal recurring corporate operating expenses, debt service
requirements and dividends to shareholders. We meet these requirements primarily through cash provided by operating
activities. Net cash provided by operating activities was $250.3 million, $234.1 million and $207.4 million for the years
ended December 31, 2014, 2013 and 2012, respectively. Net cash used by investing activities was $376.2 million,
$336.5 million and $255.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Net cash
provided by financing activities was $121.6 million, $100.2 million and $44.2 million for the years ended December
31, 2014, 2013 and 2012, respectively. We anticipate that our cash on hand, cash from operations, and funds available
under our unsecured revolving credit facility will provide adequate liquidity to fund our operations, make interest and
principal payments on our debt, and allow dividends to be paid to our shareholders and avoid corporate level federal
income or excise tax in accordance with REIT Internal Revenue Code requirements.
Liquidity requirements at December 31, 2014 consisted primarily of maturities of debt. Contractual obligations as of
December 31, 2014 are as follows (in thousands):
Contractual Obligations
Long Term Debt
Obligations
Interest on Long Term
Debt Obligations
Operating Lease
Obligations
Year ended December 31,
2015
2016
2017
2018
2019
Thereafter
Total
$ 110,081
$ 109,747
$ 227,319
$ 298,381
$
— $
899,995
$ 1,645,523
82,237
74,482
66,855
57,970
53,945
114,589
450,078
544
441
—
—
—
—
985
Total
$ 192,862
$ 184,670
$ 294,174
$ 356,351
$ 53,945
$ 1,014,584
$ 2,096,586
Commitments
As of December 31, 2014, we had seven entertainment development projects for which we have commitments to fund
approximately $29.8 million of additional improvements, 16 education development projects for which we have
commitments to fund approximately $107.0 million of additional improvements and nine recreation development
projects for which we have commitments to fund approximately $110.9 million. Of these amounts, approximately
$215.0 million is expected to be funded in 2015. Development costs are advanced by us in periodic draws. If we
determine that construction is not being completed in accordance with the terms of the development agreements, we
can discontinue funding construction draws. We have agreed to lease the properties to the operators at pre-determined
rates upon completion of construction.
We have certain commitments related to our mortgage note investments that we may be required to fund in the future.
We are generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events
outside of our direct control. As of December 31, 2014, we had five mortgage notes receivable with commitments
totaling approximately $155.4 million, of which $45.7 million is expected to be funded in 2015. If commitments are
funded in the future, interest will be charged at rates consistent with the existing investments.
53
We have provided guarantees of the payment of certain economic development revenue bonds totaling $22.9 million
related to two theatres in Louisiana for which we earn fees at annual rates of 2.88% to 4.00% over the 30 year terms
of the bonds. We have recorded $9.8 million as a deferred asset included in other assets and $9.8 million included in
other liabilities in the accompanying consolidated balance sheet included in this Annual Report on Form 10-K as of
December 31, 2014 related to these guarantees. No amounts have been accrued as a loss contingency related to this
guarantee because payment by us is not probable.
Liquidity Analysis
In analyzing our liquidity, we generally expect that our cash provided by operating activities will meet our normal
recurring operating expenses, recurring debt service requirements and dividends to shareholders.
We have $95.5 million in debt balloon payments coming due in 2015. Our sources of liquidity as of December 31,
2014 to pay the 2015 commitments described above include the amount available under our unsecured revolving credit
facility of approximately $473.0 million and unrestricted cash on hand of $3.3 million. Accordingly, while there can
be no assurance, we expect that our sources of cash will exceed our existing commitments over the remainder of 2015.
We also believe that we will be able to repay, extend, refinance or otherwise settle our debt obligations for 2016 and
thereafter as the debt comes due, and that we will be able to fund our remaining commitments as necessary. However,
there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or
advantageous to us.
Our primary use of cash after paying operating expenses, debt service, dividends to shareholders and funding existing
commitments is in growing our investment portfolio through the acquisition, development and financing of additional
properties. We expect to finance these investments with borrowings under our unsecured revolving credit facility, as
well as debt and equity financing alternatives and the periodic sale of properties. The availability and terms of any such
financing or sales will depend upon market and other conditions. If we borrow the maximum amount available under
our unsecured revolving credit facility, there can be no assurance that we will be able to obtain additional investment
financing (See Item 1A - “Risk Factors”).
Capital Structure
We believe that our shareholders are best served by a conservative capital structure. Therefore, we seek to maintain a
conservative debt level on our balance sheet and solid interest, fixed charge and debt service coverage ratios. We expect
to maintain our debt to gross assets ratio (i.e. total debt to total assets plus accumulated depreciation) between 35%
and 45%. However, the timing and size of our equity and debt offerings may cause us to temporarily operate over this
threshold. At December 31, 2014, this ratio was 39%. Our debt as a percentage of our total market capitalization at
December 31, 2014 was 31%; however, we do not manage to a ratio based on total market capitalization due to the
inherent variability that is driven by changes in the market price of our common shares. We calculate our total market
capitalization of $5.3 billion by aggregating the following at December 31, 2014:
• Common shares outstanding of 57,125,941 multiplied by the last reported sales price of our common shares
on the NYSE of $57.63 per share, or $3.3 billion;
• Aggregate liquidation value of our Series C convertible preferred shares of $135.0 million;
• Aggregate liquidation value of our Series E convertible preferred shares of $86.3 million;
• Aggregate liquidation value of our Series F redeemable preferred shares of $125.0 million; and
• Total debt of $1.6 billion.
54
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, we calculate FFO as net income available to common shareholders, computed in accordance with GAAP,
excluding gains and losses from sales or acquisitions of depreciable operating properties and impairment losses of
depreciable 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. We have calculated FFO for all periods presented in accordance
with this definition.
In addition to FFO, we present FFOAA and AFFO. FFOAA is presented by adding to FFO costs (gain) associated with
loan refinancing or payoff, net, transaction costs (benefit), preferred share redemption costs and provision for loan
losses, and subtracting gain on early extinguishment of debt, gain (loss) on sale of land and 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 market
leases, net; and subtracting maintenance capital expenditures (including second generation tenant improvements and
leasing commissions), straight-lined rental revenue, 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 our FFO, FFOAA and AFFO including per share amounts for FFO and FFOAA, for
the years ended December 31, 2014, 2013 and 2012 (unaudited, in thousands, except per share information):
55
FFO:
Net income available to common shareholders of EPR Properties $
Loss (gain) on sale or acquisition of real estate
Gain on sale of investment in a direct financing lease
Gain on previously held equity interest
Real estate depreciation and amortization
Allocated share of joint venture depreciation
Impairment charges
$
$
$
$
$
$
$
$
$
FFO available to common shareholders of EPR
Properties
FFO available to common shareholders of EPR Properties
Add: Preferred dividends for Series C preferred shares
Diluted FFO available to common shareholders
FFOAA:
FFO available to common shareholders of EPR Properties
Costs associated with loan refinancing or payoff
Transaction costs (benefit)
Provision for loan losses
Preferred share redemption costs
Gain on early extinguishment of debt
Gain on sale of land
Deferred income tax expense (benefit)
FFOAA available to common shareholders of EPR
Properties
AFFO:
FFOAA available to common shareholders of EPR Properties
Non-real estate depreciation and amortization
Deferred financing fees amortization
Share-based compensation expense to management and trustees
Maintenance capital expenditures (1)
Straight-lined rental revenue
Non-cash portion of mortgage and other financing income
Amortization of above market leases, net
AFFO available to common shareholders of EPR
Properties
FFO per common share attributable to EPR Properties:
Basic
Diluted
FFOAA per common share attributable to EPR Properties:
Basic
Diluted
Shares used for computation (in thousands):
Basic
Diluted
Weighted average shares outstanding-diluted EPS
Effect of dilutive Series C preferred shares
Adjusted weighted average shares outsanding-diluted
Other financial information:
Dividends per common share
2014
Year ended December 31,
2013
2012
$
$
$
$
$
155,826
(879)
(220)
—
65,501
225
—
220,453
220,453
7,763
228,216
220,453
301
(924)
3,777
—
—
(330)
1,796
$
$
$
$
$
156,420
(7,273)
—
(4,853)
54,564
547
—
199,405
199,405
7,763
207,168
199,405
6,166
1,955
—
—
(4,539)
—
(14,787)
93,160
27
—
—
51,162
581
23,909
168,839
168,839
—
168,839
168,839
627
404
—
3,888
—
—
—
225,073
$
188,200
$
173,758
$
225,073
1,238
4,248
8,902
(7,681)
(8,665)
(6,358)
192
$
188,200
1,109
4,041
6,516
(4,051)
(4,846)
(5,275)
48
173,758
1,057
4,218
5,833
(4,772)
(4,632)
(4,988)
—
216,949
$
185,742
$
170,474
$
$
4.06
4.04
4.15
4.13
$
$
4.15
4.13
3.92
3.90
54,244
54,444
54,444
1,989
56,433
48,028
48,214
48,214
1,962
50,176
3.61
3.59
3.71
3.69
46,798
47,049
47,049
—
47,049
(1) Includes maintenance capital expenditures and certain second generation tenant improvements and leasing
commissions.
56
$
3.42
$
3.16
$
3.00
The additional 2.0 million common shares that would result from the conversion of our 5.75% Series C cumulative
convertible preferred shares and the additional 1.6 million common shares that would result from the conversion of
our 9.0% Series E cumulative convertible preferred shares and the corresponding add-back of the preferred dividends
declared on those shares are not included in the calculation of diluted earnings per share for the years ended December
31, 2014, 2013 and 2012 because the effect is anti-dilutive. However, because a conversion of the 5.75% Series C
cumulative convertible preferred shares would be dilutive to FFO per share for the years ended December 31, 2014
and 2013, these adjustments have been made in the calculation of diluted FFO per share for those two years.
Impact of Recently Issued Accounting Standards
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes
the criteria for disposals to qualify as discontinued operations. Under this ASU, a discontinued operation is (1) a
component of an entity or group of components that have been disposed of or are classified as held for sale and represent
a strategic shift that has or will have a major effect on an entity’s operations and financial results, or (2) an acquired
business that is classified as held for sale on the acquisition date. This guidance also requires expanded or new disclosures
for discontinued operations, individually material disposals that do not meet the definition of a discontinued operation,
an entity’s continuing involvement with a discontinued operation following disposal and retained equity method
investments in a discontinued operation. The Company early adopted the standard during 2014 and it did not have a
material effect on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.
The ASU does not apply to revenue recognition for lease contracts. The new standard is effective for the Company on
January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative
effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial
statements and related disclosures. The Company has not yet selected a transition method nor has it determined the
effect of the standard on its ongoing financial reporting.
Inflation
Investments by EPR are financed with a combination of equity and debt. During inflationary periods, which are generally
accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments
may increase at a slower rate than new borrowing costs.
Substantially all of our megaplex theatre leases as well as other leases provide for base and participating rent features.
In addition, certain of our mortgage notes receivable similarly provide for base and participating interest. To the extent
inflation causes tenant or borrower revenues at our properties to increase over baseline amounts, we would participate
in those revenue increases through our right to receive annual percentage rent and/or participating interest.
Our leases and mortgage notes receivable also generally provide for escalation in base rents or interest in the event of
increases in the Consumer Price Index, with generally a limit of 2% per annum, or fixed periodic increases. Alternatively,
during deflationary periods, the escalations in base rents or interest that are dependent on increases in the Consumer
Price Index in our leases and mortgage notes receivable may be adversely affected.
Our leases are generally triple-net leases requiring the tenants to pay substantially all expenses associated with the
operation of the properties, thereby minimizing our exposure to increases in costs and operating expenses resulting
from inflation. A portion of our megaplex theatre, retail and restaurant leases are non-triple-net leases. These leases
represent approximately 17% of our total real estate square footage. To the extent any of those leases contain fixed
expense reimbursement provisions or limitations, we may be subject to increases in costs resulting from inflation that
are not fully passed through to tenants.
57
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, primarily relating to potential losses due to changes in interest rates and foreign currency
exchange rates. We seek to mitigate the effects of fluctuations in interest rates by matching the term of new investments
with new fixed rate borrowings whenever possible. As of December 31, 2014, we had $535.0 million unsecured
revolving credit facility with $62.0 million outstanding and $25.0 million in bonds, all of which bear interest at a floating
rate. In addition, we had a $285.0 million unsecured term loan facility that bears interest at a floating rate and $240.0
million of this LIBOR-based debt has been fixed with interest rate swaps at 2.51% through January 5, 2016 and 2.38%
from January 5, 2016 to July 5, 2017.
We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced
or that the terms of such refinancing may not be as favorable as the terms of current indebtedness. The majority of our
borrowings are subject to contractual agreements or mortgages which limit the amount of indebtedness we may incur.
Accordingly, if we are unable to raise additional equity or borrow money due to these limitations, our ability to make
additional real estate investments may be limited.
The following table presents the principal amounts, weighted average interest rates, and other terms required by year
of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes as of December 31
(including the impact of the interest rate swap agreements described below):
Expected Maturities (in millions)
2015
2016
2017
2018
2019
Thereafter
Total
Estimated
Fair Value
$ 110.1
$ 109.7
$165.3
$253.4
$ — $ 875.0
$1,513.5
$1,620.0
5.7%
5.9%
4.9%
2.7%
$ — $ — $ 62.0
$ 45.0
—%
$ — $
6.2%
25.0
5.4%
3.6%
$ 132.0
$ 132.0
—%
—%
1.6%
1.8%
—%
0.1%
1.3%
1.3%
2014
2015
2016
2017
2018
Thereafter
Total
Estimated
Fair Value
$ 10.9
$ 106.4
$102.9
$ 76.7
$253.4
$ 875.0
$1,425.3
$1,473.7
6.1%
5.7%
6.1%
5.9%
2.7%
$ — $ — $ — $ — $ 25.0
$
6.2%
25.0
$
5.5%
50.0
$
4.6%
50.0
—%
—%
—%
—%
1.8%
0.1%
0.9%
0.9%
December 31, 2014:
Fixed rate debt
Average interest rate
Variable rate debt
Average interest rate
(as of December 31,
2014)
December 31, 2013:
Fixed rate debt
Average interest rate
Variable rate debt
Average interest rate
(as of December 31,
2013)
The fair value of our debt as of December 31, 2014 and 2013 is estimated by discounting the future cash flows of each
instrument using current market rates including current market spreads.
We are exposed to foreign currency risk against our functional currency, the U.S. dollar, on our four Canadian properties
and the rents received from tenants of the properties are payable in CAD. To mitigate our foreign currency risk in
future periods on these Canadian properties, we entered into crosscurrency swaps with a fixed original notional value
of $100.0 million CAD and $98.1 million U.S. The net effect of these swaps is to lock in an exchange rate of $1.05
CAD per U.S. dollar on approximately $13.5 million of annual CAD denominated cash flows on the properties through
June 2018. There is no initial or final exchange of the notional amounts on these swaps. These foreign currency
derivatives should hedge a significant portion of our expected CAD denominated FFO of these four Canadian properties
through June 2018 as their impact on our reported FFO when settled should move in the opposite direction of the
exchange rates used to translate revenues and expenses of these properties.
In order to also hedge our net investment on the four Canadian properties, we entered into a forward contract with a
fixed notional value of $100.0 million CAD and $94.3 million U.S. with a July 2018 settlement date. The exchange
rate of this forward contract is approximately $1.06 CAD per U.S dollar. Additionally, on February 28, 2014, the
58
Company entered into a forward contract with a fixed notional value of $100.0 million CAD and $88.1 million U.S.
with a July 2018 settlement date. The exchange rate of this forward contract is approximately $1.13 CAD per U.S.
dollar. These forward contracts should hedge a significant portion of our CAD denominated net investment in these
four centers through July 2018 as the impact on accumulated other comprehensive income from marking the derivative
to market should move in the opposite direction of the translation adjustment on the net assets of our four Canadian
properties.
See Note 12 to the consolidated financial statements in this Annual Report on Form 10-K for additional information
on our derivative financial instruments and hedging activities.
59
Item 8. Financial Statements and Supplementary Data
EPR Properties
Contents
Report of Independent Registered Public Accounting Firm...............................................................................
61
Audited Financial Statements
Consolidated Balance Sheets..............................................................................................................................
Consolidated Statements of Income ...................................................................................................................
Consolidated Statements of Comprehensive Income .........................................................................................
Consolidated Statements of Changes in Equity..................................................................................................
Consolidated Statements of Cash Flows.............................................................................................................
Notes to Consolidated Financial Statements ......................................................................................................
62
63
64
65
67
69
Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts..............................................................................................
Schedule III - Real Estate and Accumulated Depreciation.................................................................................
117
118
60
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
EPR Properties:
We have audited the accompanying consolidated balance sheets of EPR Properties and subsidiaries as of December
31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and
cash flows for each of the years in the three-year period ended December 31, 2014. In connection with our audits of
the consolidated financial statements, we have also audited the accompanying financial statement schedules listed in
Item 15 (2) of this Form 10-K. These consolidated financial statements and financial statement schedules are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of EPR Properties and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a whole present fairly, in all material
respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), EPR Properties’ internal control over financial reporting as of December 31, 2014, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated February 25, 2015, expressed an unqualified opinion on the
effectiveness of EPR Properties’ internal control over financial reporting.
As discussed in Note 2 to the financial statements, the Company adopted FASB Accounting Standards Update
(ASU) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,
in 2014.
Kansas City, Missouri
February 25, 2015
61
EPR PROPERTIES
Consolidated Balance Sheets
(Dollars in thousands except share data)
Assets
Rental properties, net of accumulated depreciation of $465,660 and $409,643 at
December 31, 2014 and 2013, respectively
Land held for development
Property under development
Mortgage notes and related accrued interest receivable, net
Investment in a direct financing lease, net
Investment in joint ventures
Cash and cash equivalents
Restricted cash
Deferred financing costs, net
Accounts receivable, net
Other assets
Total assets
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities
Common dividends payable
Preferred dividends payable
Unearned rents and interest
Debt
Total liabilities
Equity:
Common Shares, $.01 par value; 75,000,000 shares authorized; and 58,952,404 and
53,361,261 shares issued at December 31, 2014 and 2013, respectively
Preferred Shares, $.01 par value; 25,000,000 shares authorized:
5,400,000 Series C convertible shares issued at December 31, 2014 and 2013;
liquidation preference of $135,000,000
3,450,000 Series E convertible shares issued at December 31, 2014 and 2013;
liquidation preference of $86,250,000
5,000,000 Series F shares issued at December 31, 2014 and 2013; liquidation
preference of $125,000,000
Additional paid-in-capital
Treasury shares at cost: 1,826,463 and 1,706,109 common shares at December 31,
2014 and 2013, respectively
Accumulated other comprehensive income
Distributions in excess of net income
EPR Properties shareholders’ equity
Noncontrolling interests
Equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31,
2014
2013
$
$
$
2,451,534
206,001
181,798
507,955
199,332
5,738
3,336
13,072
19,909
47,282
66,091
3,702,048
82,180
16,281
5,952
25,623
1,645,523
1,775,559
2,104,151
201,342
89,473
486,337
242,212
5,275
7,958
9,714
23,344
42,538
59,932
3,272,276
72,327
13,601
5,952
17,046
1,475,336
1,584,262
589
534
54
35
50
2,283,440
(67,846)
12,566
(302,776)
1,926,112
377
1,926,489
3,702,048
$
$
54
35
50
2,003,863
(62,177)
17,193
(271,915)
1,687,637
377
1,688,014
3,272,276
$
$
$
$
$
62
EPR PROPERTIES
Consolidated Statements of Income
(Dollars in thousands except per share data)
$
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Total revenue
Property operating expense
Other expense
General and administrative expense
Costs associated with loan refinancing or payoff
Gain on early extinguishment of debt
Interest expense, net
Transaction costs
Provision for loan losses
Impairment charges
Depreciation and amortization
Income before equity in income from joint ventures
and other items
Equity in income from joint ventures
Gain on sale or acquisition, net
Gain on sale of investment in a direct financing lease
Gain on previously held equity interest
Income before income taxes
Income tax benefit (expense)
Income from continuing operations
$
Discontinued operations:
Income from discontinued operations
Transaction (costs) benefit
Impairment charges
Gain (loss) on sale or acquisition of real estate
Net income
Add: Net income attributable to noncontrolling interests
Net income attributable to EPR Properties
Preferred dividend requirements
Preferred share redemption costs
Year Ended December 31,
$
$
2014
286,673
17,663
1,009
79,706
385,051
24,897
771
27,566
301
—
81,270
2,452
3,777
—
66,739
177,278
1,273
1,209
220
—
179,980
(4,228)
175,752
505
3,376
—
—
179,633
—
179,633
(23,807)
—
$
$
2013
248,709
18,401
1,682
74,272
343,064
26,016
658
25,613
6,166
(4,539)
81,056
1,955
—
—
53,946
152,193
1,398
3,017
—
4,853
161,461
14,176
175,637
333
—
—
4,256
180,226
—
180,226
(23,806)
—
2012
234,517
18,575
738
63,977
317,807
24,915
1,382
23,170
627
—
76,656
404
—
3,074
46,698
140,881
1,025
—
—
—
141,906
—
141,906
620
—
(20,835)
(27)
121,664
(108)
121,556
(24,508)
(3,888)
Net income available to common shareholders of EPR
Properties
Per share data attributable to EPR Properties common shareholders:
$
155,826
$
156,420
$
93,160
Basic earnings per share data:
Income from continuing operations
Income (loss) from discontinued operations
Net income available to common shareholders
Diluted earnings per share data:
Income from continuing operations
Income (loss) from discontinued operations
Net income available to common shareholders
Shares used for computation (in thousands):
Basic
Diluted
See accompanying notes to consolidated financial statements.
63
$
$
$
$
2.80
0.07
2.87
2.79
0.07
2.86
$
$
$
$
3.16
0.10
3.26
3.15
0.09
3.24
$
$
$
$
2.42
(0.43)
1.99
2.41
(0.43)
1.98
54,244
54,444
48,028
48,214
46,798
47,049
EPR PROPERTIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Change in unrealized gain (loss) on derivatives
Comprehensive income
Comprehensive income attributable to the noncontrolling
interests
Year Ended December 31,
2014
179,633
$
2013
180,226
$
2012
121,664
$
(18,464)
13,837
175,006
(13,049)
9,620
176,797
—
—
3,132
(5,973)
118,823
(108)
118,715
Comprehensive income attributable to EPR Properties
$
175,006
$
176,797
$
See accompanying notes to consolidated financial statements.
64
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6
EPR PROPERTIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
2013
2012
2014
$
179,633
$
180,226
$
121,664
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on early extinguishment of debt
Gain on previously held equity interest
Gain on sale or acquisition, net
Deferred income tax expense (benefit)
Provision for loan losses
Non-cash impairment charges
Loss (income) from discontinued operations
Gain on sale of investment in a direct financing lease
Costs associated with loan refinancing or payoff
Equity in income from joint ventures
Distributions from joint ventures
Depreciation and amortization
Amortization of deferred financing costs
Amortization of above market lease
Share-based compensation expense to management and trustees
Decrease (increase) in restricted cash
Increase in mortgage notes accrued interest receivable
Increase in accounts receivable, net
Increase in direct financing lease receivable
Decrease (increase) in other assets
Increase in accounts payable and accrued liabilities
Increase in unearned rents
Net operating cash provided by continuing operations
Net operating cash provided by discontinued operations
Net cash provided by operating activities
Investing activities:
Acquisition of rental properties and other assets
Proceeds from sale of real estate
Investment in unconsolidated joint ventures
Proceeds from settlement of derivative
Investment in mortgage notes receivable
Proceeds from mortgage note receivable paydown
Investment in promissory notes receivable
Proceeds from promissory note receivable paydown
Investment in a direct financing lease, net
Proceeds from sale of investment in a direct financing lease, net
Additions to properties under development
Net cash used by investing activities of continuing operations
Net proceeds from sale of real estate from discontinued operations
Net cash used by investing activities
Financing activities:
Proceeds from debt facilities
Principal payments on debt
Deferred financing fees paid
Costs associated with loan refinancing or payoff (cash portion)
Net proceeds from issuance of common shares
Net proceeds from issuance of preferred shares
Redemption of preferred shares
Impact of stock option exercises, net
Purchase of common shares for treasury
Dividends paid to shareholders
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplemental information continued on next page.
$
67
—
—
(1,209)
1,796
3,777
—
(3,881)
(220)
301
(1,273)
810
66,739
4,248
192
8,902
(8)
(3,997)
(5,214)
(2,993)
(3,360)
4,586
1,323
250,152
143
250,295
(85,205)
12,055
—
5,725
(93,877)
76,256
(4,387)
1,750
—
46,092
(334,635)
(376,226)
—
(376,226)
379,000
(310,253)
(814)
(25)
264,158
—
—
50
(2,892)
(207,637)
121,587
(278)
(4,622)
7,958
3,336
$
(4,539)
(4,853)
(3,017)
(14,787)
—
—
(4,589)
—
6,166
(1,398)
985
53,946
4,041
48
6,516
12,509
(457)
(7,163)
(4,860)
2,338
7,816
2,511
231,439
2,681
234,120
(123,497)
797
(1,607)
—
(60,568)
1,900
(1,278)
1,027
(3,262)
—
(197,271)
(383,759)
47,301
(336,458)
646,000
(552,468)
(8,133)
(5,790)
220,785
—
—
947
(3,246)
(197,924)
100,171
(539)
(2,706)
10,664
7,958
$
—
—
—
—
—
3,074
20,242
—
627
(1,025)
1,046
46,698
4,218
—
5,833
(6,681)
(409)
(7,400)
(4,964)
(989)
8,720
5,447
196,101
11,343
207,444
(73,188)
—
(1,800)
—
(113,823)
—
—
—
—
4,494
(113,599)
(297,916)
42,133
(255,783)
871,000
(658,571)
(5,800)
(189)
231
120,567
(115,013)
(1,987)
(3,232)
(162,775)
44,231
147
(3,961)
14,625
10,664
Continued from previous page.
EPR PROPERTIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
2013
2012
2014
236,428
101,441
$
$
139,026
19,710
$
$
15,525
$
— $
— $
— $
— $
— $
— $
85,290
710
7,525
7,053
$
$
$
$
10,398
$
— $
— $
$
2,500
49,391
8,282
33,089
73,403
102
2,763
1,168
$
$
$
$
$
$
$
96,178
—
7,181
14,852
27,785
2,500
—
—
—
66,302
(325)
859
2,626
Supplemental schedule of non-cash activity:
Transfer of property under development to rental property
Acquisiton of real estate in exchange for assumption of debt at fair value
Issuance of nonvested shares and restricted share units at fair value,
$
including nonvested shares issued for payment of bonuses
Conversion of equity to mortgage note receivable related to Atlantic-EPR I $
$
Adjustment of noncontrolling interest to additional paid in capital
Sale of real estate in exchange for note receivable
$
Consolidation of previously held equity interest:
$
$
Net increase in real estate and other assets
Decrease in investment in joint ventures
Decrease in mortgage notes receivable
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
Cash paid (received) during the year for income taxes
Interest cost capitalized
Increase in accrued capital expenditures
See accompanying notes to consolidated financial statements.
$
$
$
$
$
$
$
68
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
1. Organization
Description of Business
EPR Properties (the Company) is a specialty real estate investment trust (REIT) organized on August 29, 1997 in
Maryland. The Company develops, owns, leases and finances properties in select market segments primarily related
to Entertainment, Education and Recreation. The Company’s properties are located in the United States and Canada.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of EPR Properties and its subsidiaries, all of which are
wholly owned except for those subsidiaries discussed below.
The Company consolidates certain entities if it is deemed to be the primary beneficiary in a variable interest entity
(VIE) in which it has a controlling financial interest. A controlling financial interest will have both of the following
characteristics: the power to direct the activities of a VIE that most significantly impact the VIE's economic performance
and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive
benefits from the VIE that could potentially be significant to the VIE. This topic requires an ongoing reassessment. The
equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in
the Consolidation Topic of the FASB ASC, or does not have effective control, but can exercise influence over the entity
with respect to its operations and major decisions.
The Company reports its noncontrolling interests as required by the Consolidation Topic of the FASB ASC.
Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a
parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling
interests. Such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from
the Company's equity. On the consolidated statements of income, revenues, expenses and net income or loss from less-
than-wholly owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to
the Company and noncontrolling interests. Consolidated statements of changes in shareholders' equity are included for
both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances
for equity, noncontrolling interests and total equity. The Company does not have any redeemable noncontrolling
interests.
As further explained in Note 9, the Company owns 96% of the membership interests of VinREIT, LLC (VinREIT). There
was no net income attributable to noncontrolling interest related to VinREIT for the years ended December 31, 2014
and 2013. Net income attributable to noncontrolling interest related to VinREIT was $108 thousand for the year ended
December 31, 2012, representing the noncontrolling interest’s portion of the annual cash flow. Total noncontrolling
interest in VinREIT included in the accompanying consolidated balance sheets was $377 thousand at both December
31, 2014 and 2013.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America. Actual results could differ
from those estimates.
69
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Rental Properties
Rental properties are carried at cost less accumulated depreciation. Costs incurred for the acquisition and development
of the properties are capitalized. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets, which generally are estimated to be 40 years for buildings and 3 to 25 years for furniture, fixtures
and equipment. Tenant improvements, including allowances, are depreciated over the shorter of the base term of the
lease or the estimated useful life. Expenditures for ordinary maintenance and repairs are charged to operations in the
period incurred. Significant renovations and improvements, which improve or extend the useful life of the asset, are
capitalized and depreciated over their estimated useful life.
Management reviews a property for impairment whenever events or changes in circumstances indicate that the carrying
value of a property may not be recoverable. The review of recoverability is based on an estimate of undiscounted future
cash flows expected to result from its use and eventual disposition. If impairment exists due to the inability to recover
the carrying value of the property, an impairment loss is recorded to the extent that the carrying value of the property
exceeds its estimated fair value.
The Company evaluates the held-for-sale classification of its real estate as of the end of each quarter. Assets that are
classified as held for sale are recorded at the lower of their carrying amount or fair value less costs to sell. Assets are
generally classified as held for sale once management has initiated an active program to market them for sale and has
received a firm purchase commitment that is expected to close within one year. On occasion, the Company will receive
unsolicited offers from third parties to buy individual Company properties. Under these circumstances, the Company
will classify the properties as held for sale when a sales contract is executed with no contingencies and the prospective
buyer has funds at risk to ensure performance.
Accounting for Acquisitions
Upon acquisition of real estate properties, the Company determines if the acquisition meets the criteria to be accounted
for as a business combination. Accordingly, the Company accounts for (1) acquired vacant properties, (2) acquired
single tenant properties when a new lease or leases are signed at the time of acquisition, and (3) acquired single tenant
properties that have an existing long-term triple-net lease or leases (greater than seven years) as asset acquisitions.
Acquisitions of properties that include a process such as those with with shorter-term leases or properties with multiple
tenants that require business related activities to manage and maintain the properties are treated as business combinations.
Costs incurred for asset acquisitions and development properties, including transaction costs, are capitalized. For asset
acquisitions, the Company allocates the purchase price and other related costs incurred to the real estate assets acquired
based on recent independent appraisals and management judgment.
If the acquisition is determined to be a business combination, the Company records the fair value of acquired tangible
assets (consisting of land, building, tenant improvements, and furniture, fixtures and equipment) and identified intangible
assets and liabilities (consisting of above and below market leases, in-place leases, tenant relationships and assumed
financing that is determined to be above or below market terms) as well as any noncontrolling interest. In addition,
acquisition-related costs in connection with business combinations are expensed as incurred. Costs related to such
transactions, as well as costs associated with terminated transactions, are included in the accompanying Consolidated
Statements of Income as transaction costs. Transaction costs expensed totaled $2.5 million, $2.0 million and $0.4
million for the years ended December 31, 2014, 2013 and 2012, respectively.
Most of the Company’s rental property acquisitions do not involve in-place leases. In such cases, the fair value of the
tangible assets is determined based on recent independent appraisals and management judgment. Because the Company
typically executes these leases simultaneously with the purchase of the real estate, no value is ascribed to in-place leases
in these transactions.
For rental property acquisitions involving in-place leases, the fair value of the tangible assets is determined by valuing
the property as if it were vacant based on management’s determination of the relative fair values of the assets.
Management determines the “as if vacant” fair value of a property using recent independent appraisals or methods
similar to those used by independent appraisers. The aggregate value of intangible assets or liabilities is measured based
on the difference between the stated price plus capitalized costs and the property as if vacant.
70
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
In determining the fair value of acquired in-place leases, the Company considers many factors. On a lease-by-lease
basis, management considers the present value of the difference between the contractual amounts to be paid pursuant
to the leases and management’s estimate of fair market lease rates. For above market leases, management considers
such differences over the remaining non-cancelable lease terms and for below market leases, management considers
such differences over the remaining initial lease terms plus any fixed rate renewal periods. The capitalized above-
market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the
respective leases. The capitalized below market lease values are amortized as an increase to rental income over the
remaining initial lease terms plus any fixed rate renewal periods. Management considers several factors in determining
the discount rate used in the present value calculations, including the credit risks associated with the respective tenants.
If debt is assumed in the acquisition, the determination of whether it is above or below market is based upon a comparison
of similar financing terms for similar rental properties at the time of the acquisition.
The fair value of acquired in-place leases also includes management’s estimate, on a lease-by-lease basis, of the present
value of the following amounts: (i) the value associated with avoiding the cost of originating the acquired in-place
leases (i.e. the market cost to execute the leases, including leasing commissions, legal and other related costs); (ii) the
value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the
assumed re-leasing period, (i.e. real estate taxes, insurance and other operating expenses); (iii) the value associated
with lost rental revenue from existing leases during the assumed re-leasing period; and (iv) the value associated with
avoided tenant improvement costs or other inducements to secure a tenant lease. These values are amortized over the
remaining initial lease term of the respective leases.
The Company also determines the value, if any, associated with customer relationships considering factors such as the
nature and extent of the Company’s existing business relationship with the tenants, growth prospects for developing
new business with the tenants and expectation of lease renewals. The value of customer relationship intangibles is
amortized over the remaining initial lease terms plus any renewal periods.
Management of the Company reviews the carrying value of intangible assets for impairment on an annual basis.
Intangible assets (included in Other Assets in the accompanying consolidated balance sheets) consist of the following
at December 31 (in thousands):
In-place leases, net of accumulated amortization of $12.1 million and $11.6
million, respectively
Above market lease, net of accumulated amortization of $0.2 million and $0.05
million, respectively
Goodwill
Total intangible assets, net
2014
2013
$
$
6,951
$
862
693
8,506
$
5,065
1,054
693
6,812
In-place leases, net at December 31, 2014 and 2013 of approximately $7.0 million and $5.1 million, respectively, relate
to four entertainment retail centers in Ontario, Canada that were purchased on March 1, 2004, one entertainment retail
center in Burbank, California that was purchased on March 31, 2005, three theatre properties that were purchased during
2013 and 11 theatre properties that were purchased in 2014. Above market lease, net at December 31, 2014 and 2013
relates to one theatre property that was purchased during 2013. Goodwill at December 31, 2014 and 2013 relates solely
to the acquisition of New Roc that was acquired on October 27, 2003. Amortization expense related to in-place leases
is computed using the straight-line method and was $1.4 million for both the years ended December 31, 2014 and 2013
and $1.2 million for the year ended December 31, 2012. The weighted average life for these in-place leases at
December 31, 2014 is 8.3 years. Amortization expense related to the above market lease is computed using the straight-
line method and was $192 thousand and $48 thousand for the years ended December 31, 2014 and 2013, respectively.
There was no amortization expense related to above market leases for the year ended December 31, 2012. The weighted
average life for the above market lease at December 31, 2014 is 4.5 years.
Future amortization of in-place leases, net and above market lease, net at December 31, 2014 is as follows (in thousands):
71
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Year:
2015
2016
2017
2018
2019
Thereafter
Total
In place leases
Above market lease
$
$
1,332
1,015
883
869
630
2,222
6,951
$
$
192
192
192
192
94
—
862
Deferred Financing Costs
Deferred financing costs are amortized over the terms of the related debt obligations or mortgage note receivable as
applicable.
Capitalized Development Costs
The Company capitalizes certain costs that relate to property under development including interest and a portion of
internal legal personnel costs.
Operating Segments
For financial reporting purposes, the Company groups its investments into four reportable operating segments:
Entertainment, Education, Recreation and Other. See Note 21 for financial information related to these operating
segments.
Revenue Recognition
Rents that are fixed and determinable are recognized on a straight-line basis over the minimum terms of the leases.
Base rent escalation on leases that are dependent upon increases in the Consumer Price Index (CPI) is recognized when
known. In addition, most of the Company's tenants are subject to additional rents if gross revenues of the properties
exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents as well as participating
interest for those mortgage agreements that contain similar such clauses are recognized at the time when specific
triggering events occur as provided by the lease or mortgage agreements. Rental revenue included percentage rents of
$2.0 million, $2.6 million and $1.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Mortgage and other financing income included participating interest income of $2.2 million for the year ended December
31, 2014 and $0.9 million for both of the years ended December 31, 2013 and 2012. For the year ended December 31,
2014, mortgage and other financing income also included a $5.0 million prepayment fee related to mortgage notes that
were paid either fully or partially in advance of their maturity dates. There were no prepayment fees included in
mortgage and other financing income for the years ended December 31, 2013 and 2012. Lease termination fees are
recognized when the related leases are canceled and the Company has no obligation to provide services to such former
tenants. Termination fees of $123 thousand, $37 thousand and $105 thousand were recognized during the years ended
December 31, 2014, 2013 and 2012, respectively.
Direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet
recovered. Estimated unguaranteed residual values at the date of lease inception represent management's initial estimates
of fair value of the leased assets at the expiration of the lease, not to exceed original cost. Significant assumptions used
in estimating residual values include estimated net cash flows over the remaining lease term and expected future real
estate values. The Company evaluates on an annual basis (or more frequently if necessary) the collectability of its
direct financing lease receivable and unguaranteed residual value to determine whether they are impaired. A direct
financing lease receivable is considered to be impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due according to the existing contractual terms. When a direct
financing lease receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded
investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable's
effective interest rate or to the fair value of the underlying collateral, less costs to sell, if such receivable is collateralized.
72
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Discontinued Operations
The Company evaluates each sale or disposal transaction to determine if it meets the criteria to qualify as discontinued
operations. A discontinued operation is a component of an entity or group of components that have been disposed of
or are classified as held for sale and represent a strategic shift that has or will have a major effect on the Company's
operations and financial results, or an acquired business that is classified as held for sale on the acquisition date. If the
sale or disposal transaction does not meet the criteria, the operations and related gain or loss on sale is included in
income from continuing operations. The Company adopted the FASB issued Accounting Standards Update (ASU) No.
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, during 2014
and applied the guidance prospectively.
Allowance for Doubtful Accounts
Accounts receivable is reduced by an allowance for amounts that may become uncollectible in the future. The Company’s
accounts receivable balance is comprised primarily of rents and operating cost recoveries due from tenants as well as
accrued rental rate increases to be received over the life of the existing leases. The Company regularly evaluates the
adequacy of its allowance for doubtful accounts. The evaluation primarily consists of reviewing past due account
balances and considering such factors as the credit quality of the Company’s tenants, historical trends of the tenant and/
or other debtor, current economic conditions and changes in customer payment terms. Additionally, with respect to
tenants in bankruptcy, the Company estimates the expected recovery through bankruptcy claims and increases the
allowance for amounts deemed uncollectible. If the Company’s assumptions regarding the collectiblity of accounts
receivable prove incorrect, the Company could experience write-offs of the accounts receivable or accrued straight-
line rents receivable in excess of its allowance for doubtful accounts. The allowance for doubtful accounts was $1.6
million and $3.0 million at December 31, 2014 and 2013, respectively.
Mortgage Notes and Other Notes Receivable
Mortgage notes and other notes receivable, including related accrued interest receivable, consist of loans originated by
the Company and the related accrued and unpaid interest income as of the balance sheet date. Mortgage notes and other
notes receivable are initially recorded at the amount advanced to the borrower and the Company defers certain loan
origination and commitment fees, net of certain origination costs, and amortizes them over the term of the related loan.
Interest income on performing loans is accrued as earned. The Company evaluates the collectability of both interest
and principal of each of its loans to determine whether it is impaired. A loan is considered to be impaired when, based
on current information and events, the Company determines that it is probable that it will be unable to collect all amounts
due according to the existing contractual terms. An insignificant delay or shortfall in amounts of payments does not
necessarily result in the loan being identified as impaired. When a loan is considered to be impaired, the amount of
loss, if any, is calculated by comparing the recorded investment to the value determined by discounting the expected
future cash flows at the loan’s effective interest rate or to the fair value of the Company’s interest in the underlying
collateral, less costs to sell, if the loan is collateral dependent. For impaired loans, interest income is recognized on a
cash basis, unless the Company determines based on the loan to estimated fair value ratio the loan should be on the
cost recovery method, and any cash payments received would then be reflected as a reduction of principal. Interest
income recognition is recommenced if and when the impaired loan becomes contractually current and performance is
demonstrated to be resumed. During the year ended December 31, 2012, the Company wrote off $8.1 million of
previously impaired and fully reserved notes receivable due from a former vineyard and winery tenant. During the
year ended December 31, 2013, the Company received partial payment of $1.0 million on a note receivable that was
previously impaired and accordingly the allowance for loan losses of $0.1 million was written off. The Company had
one note receivable totaling $3.8 million (including $0.1 million in accrued interest) at December 31, 2014 that was
impaired due to the inability of the borrower to meet its contractual obligations. Interest income of $84 thousand was
recognized on this note for the year ended December 31, 2014 and related to the period before the note was impaired.
Management of the Company evaluated the fair value of the underlying collateral of the note and concluded that a loan
loss reserve for its full value of $3.8 million was necessary at December 31, 2014.
Income Taxes
The Company operates in a manner intended to qualify as a REIT under the Internal Revenue Code (the Code). A REIT
that distributes at least 90% of its taxable income to its shareholders each year and which meets certain other conditions
is not taxed on that portion of its taxable income which is distributed to its shareholders. The Company intends to
continue to qualify as a REIT and distribute substantially all of its taxable income to its shareholders.
73
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
The Company owns certain real estate assets which are subject to income tax in Canada. Prior to December 31, 2013,
a full valuation allowance had been recorded on the net Canadian deferred tax assets as there was no assurance that the
Canadian operations would generate taxable income in the future. Due to tax law changes occurring in the fourth
quarter of 2013 related primarily to limitations on the deductibility of intercompany interest expense, the Company's
Canadian operations generated taxable income during the year ended December 31, 2014 and the Company expects to
continue to generate taxable income from its Canadian operations going forward. For the year ended December 31,
2013, the Company reassessed the need for a valuation allowance, and reversed its valuation allowance associated with
the net Canadian deferred tax assets and recorded an income tax benefit of $14.8 million. At December 31, 2014, the
net Canadian deferred tax assets totaled $11.9 million and the temporary differences between income for financial
reporting purposes and taxable income for the Canadian operations relate primarily to depreciation and straight line
rents.
The Company has certain taxable REIT subsidiaries, as permitted under the Code, through which it conducts certain
business activities and are subject to federal and state income taxes on their net taxable income. One of the taxable
REIT subsidiaries holds four unconsolidated joint ventures located in China. The Company records these investments
using the equity method; therefore the income reported by the Company is net of income tax paid to the Chinese
authorities. In addition, the company is liable for withholding taxes associated with the current and future repatriation
of earnings of the China joint ventures. At December 31, 2014, the amount of this future liability was approximately
$127 thousand and represented withholding taxes on 2014 earnings. Additionally, the Company paid $81 thousand
in withholding taxes during the year ended December 31, 2014 that related to 2013 earnings repatriated during 2014.
In addition to historical net operating loss carryovers, temporary differences between income for financial reporting
purposes and taxable income for the taxable REIT subsidiaries relate primarily to timing differences from when the
foreign income is recognized.
As of December 31, 2014 and 2013, respectively, the Canadian operations and the taxable REIT subsidiaries had
deferred tax assets totaling approximately $18.7 million and $22.7 million and deferred tax liabilities totaling
approximately $4.4 million and $4.7 million. As there is no assurance that the taxable REIT subsidiaries will generate
taxable income in the future beyond the reversal of temporary taxable differences, the deferred tax assets and
liabilities have been offset by a valuation allowance at December 31, 2014 and 2013. As outlined above, in 2013, the
Company reversed its historical valuation allowance associated with the net Canadian deferred tax asset. The Company’s
consolidated deferred tax position is summarized as follows:
Fixed assets
Net operating losses
Other
Less Valuation allowance
Total deferred tax assets
Straight line receivable
Other
Total deferred tax liabilities
Net deferred tax asset
$
$
$
$
$
2014
2013
15,720
2,880
90
(2,391)
16,299
$
$
(3,594) $
(850)
(4,444) $
18,219
3,741
728
(3,164)
19,524
(4,158)
(578)
(4,736)
11,855
$
14,788
Deferred tax assets for which no valuation allowance has been established could be recognized for financial reporting
purposes in future periods if the taxable REIT subsidiaries generate sufficient taxable income.
Additionally, during the years ended December 31, 2014 and 2013, the Company recognized current income and
withholding tax expense of $2.1 million and $522 thousand, respectively, primarily related to certain state income taxes.
74
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
The table below details the current and deferred income tax benefit (expense) for the years ended December 31, 2014
and 2013 (in thousands):
Current state income tax expense and other
Current foreign income tax
Current foreign withholding tax
Deferred foreign withholding tax
Deferred income tax benefit (expense)
Income tax benefit (expense)
$
$
2014
2013
(579) $
(493)
(1,040)
(320)
(1,796)
(4,228) $
(522)
—
—
(89)
14,787
14,176
Tax expense incurred in 2012 was insignificant.
The Company's effective tax rate for the years ended December 31, 2014 and 2013 was 2.3% and (8.8)%, respectively.
The differences between the income tax benefit (expense) calculated at the statutory U.S. federal income tax rates of
35% and the actual income tax benefit (expense) recorded for continuing operations is mostly attributable to the dividends
paid deduction available for REITs.
Furthermore, the Company qualified as a REIT and distributed the necessary amount of taxable income such that no
current U.S. federal income taxes were due for the years ended December 31, 2014, 2013 and 2012. Accordingly, no
provision for current U.S. federal income taxes was recorded for any of those years. If the Company fails to qualify
as a REIT in any taxable year, without the benefit of certain provisions, it will be subject to federal and state income
taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as
a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company is subject
to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed
taxable income. Tax years 2011 through 2014 remain generally open to examination for U.S. federal income tax and
state tax purposes and from 2010 through 2014 for Canadian income tax purposes.
In 2013, the Canada Revenue Agency (CRA) commenced an examination of the Company's taxable subsidiary that
files returns in Canada for tax years 2010 and 2011. Based on interactions with the taxing authority in the first quarter
of 2015, the Company is reevaluating its measurement of uncertain tax positions and currently estimates that a liability
in the range of $6.0 million to $12.0 million will likely be reflected in the first quarter of 2015. Of this amount, it is
anticipated that $1.0 million to $2.0 million would be paid currently and $5.0 million to $10.0 million would be reflected
as an adjustment to deferred tax assets at the completion of the examination. Based on the Company's current knowledge
of the examination, management does not anticipate any additional significant increase in uncertain tax positions during
the next twelve months. The tax years prior to 2010 for this subsidiary are no longer subject to examination.
The Company’s policy is to recognize interest and penalties as general and administrative expense. In 2014 and 2013,
the Company did not recognize any expense related to interest and penalties. The Company did not have any accrued
interest and penalties at December 31, 2014 or December 31, 2013.
Concentrations of Risk
American Multi-Cinema, Inc. (AMC) was the lessee of a substantial portion (26%) of the megaplex theatre rental
properties held by the Company at December 31, 2014 as a result of a series of sale leaseback transactions pertaining
to AMC megaplex theatres. A substantial portion of the Company’s total revenues (approximately $87.4 million or
23%, $85.1 million or 25% and $95.1 million or 30%, for the years ended December 31, 2014, 2013 and 2012,
respectively) result from the revenue from AMC under the leases, or from its parent, AMC Entertainment, Inc. (AMCE),
as the guarantor of AMC’s obligations under the leases. AMCE is wholly owned by AMC Entertainment Holdings,
Inc. (AMCEH). AMCEH is a publicly held company (NYSE: AMC) and its consolidated financial information is
publicly available as www.sec.gov.
For the years ended December 31, 2014, 2013 and 2012, approximately $40.2 million or 10%, and $42.3 million or
12%, and $42.8 million or 13%, respectively, of total revenue was derived from the Company's four entertainment
75
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
retail centers in Ontario, Canada. The Company's wholly owned subsidiaries that hold the four Canadian entertainment
retail centers represent approximately $211.4 million or 11% and $227.2 million or 13%, respectively, of the Company's
net assets as of December 31, 2014 and 2013.
Cash Equivalents
Cash equivalents include bank demand deposits and shares of highly liquid institutional money market mutual funds
for which cost approximates market value.
Restricted Cash
Restricted cash represents cash held for a borrower’s debt service reserve for mortgage notes receivable, deposits
required in connection with debt service, payment of real estate taxes and capital improvements, and escrow balances
required in connection with the sale of Toronto Dundas Square.
Share-Based Compensation
Share-based compensation to employees of the Company is granted pursuant to the Company's Annual Incentive
Program and Long-Term Incentive Plan. Share-based compensation to non-employee Trustees of the Company is
granted pursuant to the Company's Trustee compensation program and shares are issued under the 2007 Equity Incentive
Plan.
Share based compensation expense consists of share option expense, amortization of nonvested share grants, and
amortization of share units issued to non-employee Trustees for payment of their annual retainers. Share based
compensation is included in general and administrative expense in the accompanying consolidated statements of income,
and totaled $8.9 million, $6.5 million and $5.8 million for the years ended December 31, 2014, 2013 and 2012,
respectively.
Share Options
Share options are granted to employees pursuant to the Long-Term Incentive Plan. The fair value of share options
granted is estimated at the date of grant using the Black-Scholes option pricing model. Share options granted to
employees vest over a period of four years and share option expense for these options is recognized on a straight-line
basis over the vesting period. Total expense recognized related to share options was $1.4 million, $856 thousand and
$937 thousand for the years ended December 31, 2014, 2013 and 2012, respectively.
Nonvested Shares Issued to Employees
The Company grants nonvested shares to employees pursuant to both the Annual Incentive Program and the Long-
Term Incentive Plan. The Company amortizes the expense related to the nonvested shares awarded to employees under
the Long-Term Incentive Plan and the premium awarded under the nonvested share alternative of the Annual Incentive
Program on a straight-line basis over the future vesting period (three to four years). Total expense recognized related
to all nonvested shares was $6.5 million, $4.8 million and $4.4 million for the years ended December 31, 2014, 2013
and 2012, respectively.
Restricted Share Units Issued to Non-Employee Trustees
The Company issues restricted share units to non-employee Trustees for payment of their annual retainers. The fair
value of the share units granted was based on the share price at the date of grant. The share units vest upon the earlier
of the day preceding the next annual meeting of shareholders or a change of control. The settlement date for the shares
is selected by the non-employee Trustee, and ranges from one year from the grant date to upon termination of service.
This expense was amortized by the Company on a straight-line basis over the year of service by the non-employee
Trustees. Total expense recognized related to shares issued to non-employee Trustees was $1.1 million, $828 thousand
and $494 thousand for the years ended December 31, 2014, 2013 and 2012, respectively.
Foreign Currency Translation
The Company accounts for the operations of its Canadian properties and mortgage note (prior to pay-off) in Canadian
dollars. The assets and liabilities related to the Company’s Canadian properties and mortgage note are translated into
U.S. dollars at current exchange rates; revenues and expenses are translated at average exchange rates. Resulting
translation adjustments are recorded as a separate component of comprehensive income.
76
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Derivative Instruments
The Company has acquired certain derivative instruments to reduce exposure to fluctuations in foreign currency
exchange rates and variable interest rates. The Company has established policies and procedures for risk assessment
and the approval, reporting and monitoring of derivative financial instrument activities. These derivatives consist of
foreign currency forward contracts, cross currency swaps and interest rate swaps.
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative
in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in
the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are
considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected
future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be
designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting
generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the
recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a
fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may
enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting
does not apply or the Company elects not to apply hedge accounting.
In conjunction with the FASB's fair value measurement guidance in FASB ASU 2011-04 (Amendments to ASC 820),
the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that
are subject to master netting agreements on a net basis by counterparty portfolio.
3. Rental Properties
The following table summarizes the carrying amounts of rental properties as of December 31, 2014 and 2013 (in
thousands):
Buildings and improvements
Furniture, fixtures & equipment
Land
Accumulated depreciation
Total
2014
2,273,430
25,922
617,842
2,917,194
(465,660)
2,451,534
$
$
2013
1,937,661
26,676
549,457
2,513,794
(409,643)
2,104,151
$
$
Depreciation expense on rental properties was $63.0 million, $50.7 million and $43.8 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
On April 21, 2014, the Company acquired 100% of an entity that owns 11 theatre properties in seven states for a total
purchase price of approximately $117.7 million. As a part of this transaction, the Company assumed a mortgage loan
of $90.3 million, which was booked at fair value on the date of the acquisition and a note payable of $1.9 million, for
which the carrying value approximated market value on the date of acquisition. See Note 10 for further details regarding
these loans. The theatre properties are leased on a triple net basis under a master lease agreement to a subsidiary of
Regal Cinemas, Inc. with the tenant responsible for all taxes, costs and expenses arising from the use or operation of
the properties. The remaining initial lease term is approximately 13 years. On the acquisition date, the Company recorded
the following in the consolidated balance sheet: $123.7 million to rental properties, $3.3 million to other assets (for in-
place leases) and $101.5 million to debt. Proforma financial information for this acquisition has been omitted as the
effects of the acquisition are not material to the consolidated financial statements. Acquisition related costs in connection
with this acquisition of $0.5 million were expensed as incurred during the year ended December 31, 2014.
77
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
During the year ended December 31, 2012, the Company sold two winery and vineyard properties located in California
for $44.4 million and the Company recognized a net loss of $308 thousand. In consideration for one of these properties
the Company received $10 million in cash and a mortgage note receivable of $2.5 million, due in December 2017.
During the year ended December 31, 2013, the Company sold five winery and vineyard properties located in California.
The total proceeds for these sales were $49.8 million and the Company recognized a net gain of $4.3 million. In
consideration for one of these properties, the Company received $1.0 million in cash and a mortgage note receivable
of $2.5 million, due in November 2016. As further detailed in Note 19, the results of operations of these properties
have been classified within discontinued operations.
During the year ended December 31, 2014, the Company sold one winery located in Washington and one vineyard
located in California. The total net proceeds for these sales were $8.0 million and the Company recognized a gain of
$0.9 million. Additionally, during the year ended December 31, 2014, the Company sold three land parcels for net
proceeds of $4.1 million and the Company recognized a gain of $0.3 million. The results of operations of these properties
have not been classified within discontinued operations.
4. Impairment Charges
During 2012, the Company recorded impairment charges totaling $23.9 million on six vineyard and winery properties.
The Company began negotiations on or entered into non-binding agreements to sell these assets and as a result, the
Company revised its estimated undiscounted cash flows associated with each of these asset groups, considering the
shorter expected holding periods, and determined that those estimated cash flows were not sufficient to recover the
carrying values of these properties. Management estimated the fair values of these properties taking into account the
various purchase offers, pending purchase agreements, input from an outside broker and previous appraisals. During
2012 and 2013, the Company sold all of the assets at four of these properties (one of which was classified as held for
sale as of December 31, 2012) and a portion of the assets at one of the properties. The related results of operations,
including the impairment of $20.8 million, has been classified within discontinued operations. See Note 19 for further
details.
5. Accounts Receivable, Net
The following table summarizes the carrying amounts of accounts receivable, net as of December 31, 2014 and 2013
(in thousands):
Receivable from tenants
Receivable from non-tenants
Receivable from Canada Revenue Agency
Straight-line rent receivable
Allowance for doubtful accounts
Total
2014
2013
6,705
602
—
41,529
(1,554)
47,282
$
$
10,759
275
839
33,654
(2,989)
42,538
$
$
78
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
6. Investment in Mortgage Notes
Investment in mortgage notes, including related accrued interest receivable, at December 31, 2014 and 2013 consists
of the following (in thousands):
2014
2013
(1) Mortgage note, 10.00%, paid in full December 2, 2014
$
— $
(2) Mortgage note, 10.27%, paid in full December 2, 2014
(3) Mortgage note, 9.00%, due March 16, 2015
(4) Mortgage note and related accrued interest receivable,
9.00%, due November 30, 2015
(5) Mortgage note receivable and related accrued interest
receivable, 5.50%, due November 1, 2016
(6) Mortgage note and related accrued interest receivable,
10.00%, due November 1, 2017
(7) Mortgage notes and related accrued interest receviable,
7.00% and 10.00%, due May 1, 2019
(8) Mortgage note, 10.00%, due November 1, 2020
(9) Mortgage note and related accrued interest receivable,
10.65%, due June 28, 2032
(10) Mortgage note and related accrued interest receivable,
9.50%, due September 1, 2032
(11) Mortgage note and related accrued interest receivable,
10.25%, due October 31, 2032
(12) Mortgage note and related accrued interest receivable,
9.00%, due December 31, 2032
(13) Mortgage note and related accrued interest receivable,
9.50%, due January 31, 2033
(14) Mortgage notes and related accrued interest receivable,
9.50%, due April 30, 2033
(15) Mortgage note and related accrued interest receivable,
10.25%, due June 30, 2033
(16) Mortgage note, 11.31%, due July 1, 2033
(17) Mortgage note, 8.50%, due June 30, 2034
(18) Mortgage note and related accrued interest receivable,
10.93%, due December 1, 2034
(19) Mortgage notes, 10.13%, due December 1, 2034
(20) Mortgage notes, 10.40%, due December 1, 2034
—
1,164
1,149
2,500
2,521
42,907
10,972
—
—
2,511
2,521
191,116
70,114
183,465
1,112
36,032
36,032
19,795
19,659
22,188
22,188
5,598
12,082
5,717
6,872
28,788
20,802
3,471
13,005
4,870
51,450
37,562
4,550
3,455
13,086
—
63,500
47,029
4,509
Total mortgage notes and related accrued interest
receivable
$
507,955
$
486,337
(1) The Company's first mortgage loan agreement with Peak Resorts, Inc. (Peak) that was secured by development
land was paid in full on December 2, 2014. In connection with the full payoff of this note and the full or partial payoff
of notes referenced below in (2), (18) and (19), the Company received a $5.0 million prepayment fee which is included
in mortgage and other financing income in the accompanying consolidated statements of income for the year ended
December 31, 2014.
(2) The Company's first mortgage loan agreement with SNH Development, Inc. that was secured by a ski metro ski
park located in Bennington, New Hampshire and guaranteed by Peak was paid in full on December 2, 2014. In
connection with this note payoff, the Company received a fee as discussed in (1) above and $16 thousand of prepaid
79
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
mortgage fees were written off which are included in costs associated with loan refinancing in the accompanying
consolidated statements of income.
(3) The Company's first mortgage loan agreement with American Charter Development is secured by approximately
56 acres of land located in Arizona City, Arizona. The note requires accrued interest and principal to be paid at maturity.
(4) The Company's first mortgage loan agreement with HighMark Land, LLC is secured by approximately 20 acres of
land located in Lincoln, California. The note requires accrued interest and principal to be paid at maturity.
(5) The Company's mortgage loan agreement with Alko Ranch, LLC is secured by approximately 159 acres of land
and a winery facility. The note requires monthly interest payments.
(6) The Company's mortgage loan agreement with Carneros Vintners, Inc. is secured by approximately 20 acres of
land and a custom crush facility. The note requires monthly interest payments and two principal payments of $750
thousand each during the note term with a final principal payment of $1.0 million due at maturity. Pursuant to the
mortgage note, a $10.0 million first mortgage ranks superior to the Company's collateral position.
(7) The Company’s mortgage loan agreements with SVVI, LLC (SVVI) are secured by one water-park and adjacent
land in Kansas City, Kansas as well as two other water-parks located in New Braunfels and South Padre Island, Texas.
The mortgage notes have cross-default and cross-collateral provisions. Pursuant to the mortgage on the Texas properties,
only a seasonal line of credit secured by the Texas parks totaling not more than $7.0 million at any time ranks superior
to the Company’s collateral position. The note requires monthly interest payments and SVVI is required to fund a debt
service reserve for off-season interest payments (those due from September to May). The reserve is to be funded by
equal monthly installments during the months of June, July and August. Monthly interest payments are transferred to
the Company from this debt service reserve. The mortgage loan agreements also contain certain participating interest
and note pay-down provisions. During the years ended December 31, 2014, 2013 and 2012, the Company recognized
$1.4 million, $923 thousand and $862 thousand of participating interest income, respectively. SVV I, LLC is a VIE,
but it was determined that the Company was not the primary beneficiary of this VIE. The Company’s maximum
exposure to loss associated with SVVI, LLC is limited to the Company’s outstanding mortgage note and related accrued
interest receivable.
(8) The Company's first mortgage loan agreement with CBK Lodge, LP and CBH20, LP is secured by development
land and improvements adjacent to the Company's Camelback Mountain Resort. When complete, the project is expected
to include a 453 room Wilderness Lodge hotel, with an attached 125,000 square foot indoor waterpark, to be located
at the base of the mountain. Upon completion of this indoor waterpark hotel, it is expected that this investment will
be incorporated into the triple net lease of the Camelback Mountain Resort, with an initial term of 20 years from the
completion date.
(9) The Company's first mortgage loan agreement with Montparnasse 56 USA is secured by the observation deck of
the John Hancock building in Chicago, Illinois. This note requires monthly interest payments.
(10) The Company's first mortgage loan agreement with Basis Schools, Inc. is secured by a public charter school and
the underlying land located in Washington D.C. The note bears interest beginning at 9.0% with increases of 0.5% every
four years and requires monthly interest payments. The note has an effective interest rate of approximately 9.3%, which
is net of a 2% servicer fee to HighMark School Development (HighMark).
(11) The Company's first mortgage loan agreement with Fiber Mills, LLC and Music Factory Condominiums, LLC is
secured by the North Carolina Music Factory located in Charlotte, North Carolina which is an existing entertainment
retail center that includes live performance and other dining and entertainment tenants. The note bears interest beginning
at 10.25% with increases of 1.0% every five years and requires monthly interest payments. The note contains an option
to purchase the property for a period of time during 2015 at a price based on a multiple of the property's adjusted net
operating income as defined in the agreement.
80
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(12) The Company's first mortgage loan agreement with LBE Investments, Ltd. is secured by a charter school property
located in Queen Creek, Arizona. The note is fully amortizing and requires monthly principal and interest payments
of $52 thousand.
(13) The Company's first mortgage loan agreement with Beloved Community Charter School, Inc. is secured by a
charter school property located in Jersey City, New Jersey. The note bears interest beginning at 9.50% with increases
of 0.50% every five years and requires monthly interest payments. The note has an effective interest rate of approximately
9.50%, which is net of a 2% servicer fee to HighMark.
(14) The Company's first mortgage loan agreements with LBE Investments, Ltd. are secured by three charter school
properties located in Gilbert and Queen Creek, Arizona. The notes bear interest beginning at 9.50% with increases of
0.50% every five years. The notes are fully amortizing and require monthly payments of principal and interest. The
notes have an effective interest rate of approximately 9.50%, which is net of a 2% servicer fee to HighMark.
(15) The Company's first mortgage loan agreement with UME Preparatory Academy is secured by approximately 28
acres of land and a public charter school property located in Dallas, Texas. The note bears interest beginning at 10.25%
with increases of 0.50% every five years and requires monthly interest payments. The note has an effective interest
rate of approximately 9.90%, which is net of a 2% servicer fee to HighMark.
(16) The Company's first mortgage loan agreement with Topgolf USA Austin is secured by a recreation facility located
in Austin, Texas. The note is fully amortizing and requires monthly principal and interest payments of $141 thousand.
(17) The Company's first mortgage loan agreement with 169 Jenks is secured by a public charter school property located
in St. Paul, Minnesota. The note bears interest beginning at 8.50% which increases annually based on a formula of the
rate multiplied by 1.025%. The note requires monthly interest payments.
(18) On December 2, 2014, the mortgage loan agreement that was secured by Mount Attitash located in Barlett, New
Hampshire was paid in full. In connection with this note payoff, the Company received a fee as discussed in (1) above.
The Company's remaining first mortgage loan agreement with Peak is secured by one metro ski park located in Vermont.
Mount Snow is approximately 588 acres and is located in both West Dover and Wilmington, Vermont. On December
2, 2014, this note was amended and restated to extend the maturity date to December 1, 2034. The note requires monthly
interest payments and Peak is required to fund a debt service reserve for off-season interest payments (those due from
April to December). The reserve is to be funded by equal monthly installments during the months of January, February
and March. Monthly interest payments are transferred to the Company from this debt service reserve. Annually, this
interest rate increases based on a formula dependent in part on increases in the CPI.
(19) On December 2, 2014, a portion of these mortgage notes that were secured by three metro ski parks located in
Missouri and Indiana was paid off. In connection with this note payoff, the Company received a fee as discussed in
(1) above and $285 thousand of prepaid mortgage fees were written off which are included in costs associated with
loan refinancing in the accompanying consolidated statements of income. The Company's remaining first mortgage
loan agreements with Peak are secured by four metro ski parks located in Ohio and Pennsylvania with a total of
approximately 510 acres. On December 2, 2014, these notes were amended and restated to extend the maturity date
to December 1, 2034. The notes requires monthly interest payments and Peak is required to fund a debt service reserve
for off-season interest payments (those due from April to December). The reserve is to be funded by equal monthly
installments during the months of January, February and March. Monthly interest payments are transferred to the
Company from this debt service reserve. Annually, this interest rate increases based on a formula dependent in part on
increases in the CPI.
(20) The Company's first mortgage loan agreement with Peak is secured by a metro ski park located in Chesterland,
Ohio with approximately 135 acres. On December 2, 2014, this note was amended and restated to extend the maturity
date to December 1, 2034. The note requires monthly interest payments and Peak is required to fund a debt service
reserve for off-season interest payments (those due from April to December). The reserve is to be funded by equal
monthly installments during the months of January, February and March. Monthly interest payments are transferred to
81
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
the Company from this debt service reserve. Annually, this interest rate increases based on a formula dependent in part
on increases in the CPI.
Principal payments and related accrued interest due on mortgage notes receivable subsequent to December 31, 2014
are as follows (in thousands):
Year:
2015
2016
2017
2018
2019
Thereafter
Total
Amount
6,305
3,933
1,754
837
190,642
304,484
507,955
$
$
7. Investment in a Direct Financing Lease
The Company’s investment in a direct financing lease relates to the Company’s master lease of 23 public charter school
properties as of December 31, 2014 and 27 public charter school properties as of December 31, 2013, with affiliates
of Imagine Schools, Inc. (Imagine). Investment in a direct financing lease, net represents estimated unguaranteed
residual values of leased assets and net unpaid rentals, less related deferred income. The following table summarizes
the carrying amounts of investment in a direct financing lease, net as of December 31, 2014 and 2013 (in thousands):
Total minimum lease payments receivable
Estimated unguaranteed residual value of leased assets
Less deferred income (1)
Investment in a direct financing lease, net
2014
2013
487,275
$
633,384
172,880
(460,823)
199,332
$
215,207
(606,379)
242,212
$
$
(1) Deferred income is net of $1.5 million and $1.7 million of initial direct costs at December 31, 2014 and 2013,
respectively.
Additionally, the Company has determined that no allowance for losses was necessary at December 31, 2014 and 2013.
On July 13, 2012, per the terms of the master lease of public charter schools with Imagine, the Company exchanged
two Kansas City, Missouri schools for one located in Pittsburgh, Pennsylvania and another in Land O' Lakes, Florida.
There was no impact on the Company's investment in direct financing lease as a result of this exchange. Additionally,
on August 15, 2012, the Company completed the sale of a public charter school property for 4.5 million that was leased
to Imagine. There was no gain or loss recognized on this sale.
On May 17, 2013, per the terms of the master lease of public charter schools with Imagine, the Company exchanged
three St. Louis, Missouri schools for one located in Columbus, Ohio, one located in Dayton, Ohio and another located
in Toledo, Ohio. In conjunction with this exchange, the Company completed the acquisition of a public charter school
in Columbia, South Carolina for $3.3 million that is leased under the master lease to Imagine. Additionally, on October
31, 2013, the Company exchanged one St. Louis, Missouri school for one located in Columbus, Ohio. There was no
impact on the Company's investment in direct financing lease as a result of these exchanges.
On April 2, 2014, the Company completed the sale of four public charter school properties located in Florida and
previously leased to Imagine for net proceeds of $46.1 million. Accordingly, the Company reduced its investment in a
direct financing lease, net, by $45.9 million which included $41.5 million in original acquisition cost. A gain of $0.2
million was recognized during the year ended December 31, 2014.
82
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
The Company’s direct financing lease has expiration dates ranging from approximately 17 to 20 years. Future minimum
rentals receivable on this direct financing lease at December 31, 2014 are as follows (in thousands):
Year:
2015
2016
2017
2018
2019
Thereafter
Total
Amount
20,433
21,046
21,678
22,328
22,998
378,792
487,275
$
$
8. Unconsolidated Real Estate Joint Ventures
On October 8, 2013, the Company purchased from its partner, Atlantic of Hamburg, Germany (Atlantic), its interests
in two unconsolidated real estate joint ventures, Atlantic-EPR I and Atlantic-EPR II. The Company previously accounted
for its investment in these joint ventures under the equity method of accounting. The Company paid cash consideration
of $18.6 million in exchange for Atlantic's interests. The Company had previously made loans to the entities that held
the underlying assets in the Atlantic-EPR joint ventures totaling $33.1 million. During the year ended December 31,
2013, the Company recognized a gain on its previously held equity interest of $4.9 million from the fair value adjustment
associated with the Company's original ownership due to a change in control. Additionally, the Company recognized
a gain on acquisition of $3.2 million.
The Company recognized income of $505 thousand and $536 thousand during 2013 and 2012, respectively, from its
equity investments in the Atlantic-EPR I and Atlantic-EPR II joint ventures. The Company also received distributions
from Atlantic-EPR I and Atlantic-EPR II of $646 thousand and $1.0 million during 2013 and 2012, respectively.
Condensed consolidated financial information for Atlantic-EPR I and Atlantic-EPR II is as follows as of and for the
period ended October 8, 2013 and the year ended December 31, 2012 (in thousands):
2013
2012
Rental properties, net
Cash
Atlantic-EPR II mortgage note payable to
EPR (1)
Mortgage note payable (2)
Atlantic-EPR I mortgage note payable to
EPR (1)
Partners’ equity
Rental revenue
Net income
$
$
44,644
512
11,796
—
21,293
18,372
4,373
1,430
45,496
278
—
11,827
17,979
18,675
5,604
1,842
(1) Atlantic-EPR I and Atlantic-EPR II mortgage notes payable to the Company were settled with the
Company's acquisition of Atlantic's interests in each of these joint ventures on October 8, 2013.
(2) Atlantic-EPR II mortgage note payable to the Company was paid in full on September 1, 2013.
In addition, as of December 31, 2014 and 2013 the Company had invested $5.7 million and $5.3 million, respectively,
in unconsolidated joint ventures for three theatre projects located in China. The Company recognized income of $1.3
million, $893 thousand and $489 thousand from its investment in these joint ventures for the years ended December
31, 2014, 2013 and 2012, respectively. The Company also received distributions from these joint ventures of $810
thousand and $339 thousand during 2014 and 2013, respectively. The Company did not receive any distributions during
2012.
83
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
9. Consolidated Real Estate Joint Ventures
The Company owns 96% of the membership interests of VinREIT, LLC (VinREIT) and accordingly, the financial
statements of VinREIT have been consolidated into the Company’s financial statements. The Company’s partner in
VinREIT is Global Wine Partners (U.S.), LLC (GWP). GWP provides consulting services to VinREIT in connection
with the vineyard and winery properties.
As detailed in the operating agreement, GWP is entitled to receive a 1% origination fee on winery and vineyard
investments and 4% of the annual cash flow of VinREIT after a charge for debt service. GWP may receive additional
amounts upon certain events and after certain hurdle rates of return are achieved by us. There was no net income
attributable to noncontrolling interest related to VinREIT for the years ended December 31, 2014 and 2013. Net income
attributable to noncontrolling interest related to VinREIT was $108 thousand for the year ended December 31, 2012
representing GWP’s portion of the annual cash flow. The Company’s consolidated statements of income include net
income related to VinREIT of $1.7 million and $6.2 million for the years ended December 31, 2014 and 2013, respectively
and a net loss related to VinREIT of $21.2 million for the year ended December 31, 2012. The Company received
operating distributions from VinREIT of $1.3 million, $3.5 million and $11.3 million during 2014, 2013 and 2012,
respectively. In addition, during 2014, 2013 and 2012, respectively, the Company received distributions of $7.1 million,
$45.4 million and $40.6 million related to property sales. During 2014, 2013 and 2012, there were no contributions
related to financing activities.
84
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
10. Debt
Debt at December 31, 2014 and 2013 consists of the following (in thousands):
(1) Mortgage note payable, 5.56%, due June 5, 2015
(2) Mortgage note payable, 5.39%, due November 1, 2015
(3) Mortgage notes payable, 5.77%, due November 6, 2015
(4) Mortgage notes payable, 5.84%, due March 6, 2016
(5)
Note payable, 2.50%, due April 21, 2016
(6) Mortgage notes payable, 6.37%, due June 1, 2016
(7) Mortgage notes payable, 6.10%, due October 1, 2016
(8) Mortgage notes payable, 6.02%, due October 6, 2016
(9) Mortgage note payable, 6.06%, due March 1, 2017
(10) Mortgage note payable, 6.07%, due April 6, 2017
(11) Mortgage notes payable, 5.73%-5.95%, due May 1, 2017
(12) Mortgage notes payable, 4.00%, due July 6, 2017
(13) Mortgage note payable, 5.29%, due July 8, 2017
(14) Unsecured revolving variable rate credit facility, LIBOR +
1.40%, due July 23, 2017
(15) Mortgage notes payable, 5.86% due August 1, 2017
(16) Mortgage note payable, 6.19%, due February 1, 2018
(17) Mortgage note payable, 7.37%, due July 15, 2018
(18) Unsecured term loan payable, LIBOR + 1.60%, $240,000 fixed
through interest rate swaps at 2.51% through January 5, 2016
and 2.38% from January 5, 2016 to July 5, 2017, due July 23,
2018
(19) Senior unsecured notes payable, 7.75%, due July 15, 2020
(20) Senior unsecured notes payable, 5.75%, due August 15, 2022
(21) Senior unsecured notes payable, 5.25%, due July 15, 2023
(22) Bonds payable, variable rate, due October 1, 2037
2014
30,508
$
$
4,960
62,842
35,515
1,850
25,607
23,000
17,319
9,693
9,985
32,662
97,248
3,604
62,000
23,681
13,849
6,205
285,000
250,000
350,000
275,000
24,995
2013
31,235
5,274
65,070
36,724
—
26,406
23,719
17,866
9,986
10,284
33,660
—
3,746
—
24,387
14,486
7,498
265,000
250,000
350,000
275,000
24,995
Total
$ 1,645,523
$ 1,475,336
(1) The Company’s mortgage note payable is secured by one entertainment retail center, which had a net book value
of approximately $48.6 million at December 31, 2014. The note had an initial balance of $36.0 million and the monthly
payments are based on a 30 year amortization schedule. The note requires monthly principal and interest payments of
approximately $206 thousand with a final principal payment at maturity of approximately $30.1 million.
(2) On September 25, 2013, the Company assumed a mortgage note payable of $5.4 million in conjunction with the
acquisition of a theatre property, which had a net book value of $10.9 million at December 31, 2014 . The note requires
monthly principal and interest payments of approximately $50 thousand with a final principal payment at maturity of
$4.7 million. Upon acquisition, the carrying value of the note approximated fair value.
(3) The Company’s mortgage notes payable are secured by six theatre properties, which had a net book value of
approximately $74.5 million at December 31, 2014. The notes had initial balances totaling $79.0 million and the
monthly payments are based on a 25 year amortization schedule. The notes require monthly principal and interest
payments totaling approximately $498 thousand with a final principal payment at maturity totaling approximately $60.7
million.
85
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(4) The Company’s mortgage notes payable are secured by two theatre properties, which had a net book value of
approximately $31.4 million at December 31, 2014. The notes had initial balances totaling $44.0 million and the monthly
payments are based on a 25 year amortization schedule. The notes require monthly principal and interest payments
totaling approximately $279 thousand with a final principal payment at maturity totaling approximately $33.9 million.
(5) On April 21, 2014, the Company assumed a note payable in conjunction with the acquisition of 11 theatre properties.
The carrying value of the note approximated fair value on the date of acquisition. The note requires quarterly interest
payments of approximately $12 thousand with principal payment due at maturity.
(6) The Company’s mortgage notes payable are secured by two theatre properties, which had a net book value of
approximately $31.1 million at December 31, 2014. The notes had initial balances totaling $31.0 million and the
monthly payments are based on a 25 year amortization schedule. The notes require monthly principal and interest
payments totaling approximately $207 thousand with a final principal payment at maturity totaling approximately $24.4
million.
(7) The Company’s mortgage notes payable are secured by four theatre properties, which had a net book value of
approximately $26.2 million at December 31, 2014. The notes had initial balances totaling $27.8 million and the monthly
payments are based on a 25 year amortization schedule. The notes require monthly principal and interest payments
totaling approximately $180 thousand with a final principal payment at maturity totaling approximately $21.6 million.
(8) The Company’s mortgage notes payable are secured by three theatre properties, which had a net book value of
approximately $18.8 million at December 31, 2014. The notes had initial balances totaling $20.9 million and the monthly
payments are based on a 25 year amortization schedule. The notes require monthly principal and interest payments
totaling approximately $135 thousand with a final principal payment at maturity totaling approximately $16.2 million.
(9) The Company’s mortgage note payable is secured by one theatre property, which had a net book value of
approximately $9.2 million at December 31, 2014. The note had an initial balance of $11.6 million and the monthly
payments are based on a 25 year amortization schedule. The note requires monthly principal and interest payments of
approximately $75 thousand with a final principal payment at maturity of approximately $9.0 million.
(10) The Company’s mortgage note payable is secured by one theatre property, which had a net book value of
approximately $8.6 million at December 31, 2014. The note had an initial balance of $11.9 million and the monthly
payments are based on a 30 year amortization schedule. The note requires monthly principal and interest payments of
approximately $77 thousand with a final principal payment at maturity of approximately $9.2 million.
(11) The Company’s mortgage notes payable are secured by four theatre properties, which had a net book value of
approximately $29.9 million at December 31, 2014. The notes had initial balances totaling $38.9 million and the monthly
payments are based on a 25 year amortization schedule. The notes require monthly principal and interest payments
totaling approximately $247 thousand with a final principal payment at maturity totaling approximately $30.0 million.
The weighted average interest rate on these notes is 5.85%.
(12) On April 21, 2014, the Company assumed a mortgage note payable of $90.3 million in conjunction with the
acquisition of 11 theatre properties. The mortgage note was recorded at fair value upon acquisition which was estimated
to be $99.6 million. The fair value of this mortgage note was determined by discounting the future cash flows of the
mortgage note using an estimated current market rate of 4.00%. The mortgage note is secured by 11 theatre properties,
which had a net book value of approximately $121.8 million at December 31, 2014. The monthly payments are based
on a 10 year amortization schedule and the mortgage note requires monthly principal and interest payments of
approximately $635 thousand with a final principal payment at maturity of approximately $85.1 million.
(13) On March 3, 2011, the Company assumed a mortgage note payable of $3.8 million in conjunction with the
acquisition of a theatre property. The note was recorded at fair value upon acquisition which was estimated to be $4.1
million. The fair value of the note was determined by discounting the future cash flows of the note using an estimated
current market rate of 5.29%. The note is secured by one theatre property, which had a net book value of approximately
$8.3 million at December 31, 2014. The monthly payments are based on a 25 year amortization schedule and the note
86
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
requires monthly principal and interest payments of approximately $28 thousand with a final principal payment at
maturity of approximately $3.2 million.
(14) The Company's unsecured revolving credit facility (the facility) bears interest at LIBOR plus 1.40%, which was
1.56% on December 31, 2014. Interest is payable monthly. On March 26, 2014, the Company increased the size of
this facility from $475.0 million to $535.0 million. The facility contains an accordion feature such that the maximum
borrowing amount available under the facility can be increased to $600.0 million. As of December 31, 2014, the
Company had $62.0 million outstanding under the facility and the total availability under the revolving credit facility
was $473.0 million.
(15) The Company’s mortgage notes payable due August 1, 2017 are secured by two theatre properties, which had a
net book value of approximately $26.2 million at December 31, 2014. The notes had initial balances totaling $28.0
million and the monthly payments are based on a 25 year amortization schedule. The notes require monthly principal
and interest payments totaling approximately $178 thousand with a final principal payment at maturity totaling
approximately $21.7 million.
(16) The Company’s mortgage note payable due February 1, 2018 is secured by one theatre property which had a net
book value of approximately $19.6 million at December 31, 2014. The mortgage loan had an initial balance of $17.5
million and the monthly payments are based on a 20 year amortization schedule. The note requires monthly principal
and interest payments of approximately $127 thousand with a final principal payment at maturity of approximately
$11.6 million.
(17) The Company’s mortgage note payable due July 15, 2018 is secured by one theatre property, which had a net book
value of approximately $17.5 million at December 31, 2014. The note had an initial balance of $18.9 million and the
monthly payments are based on a 20 year amortization schedule. The notes require monthly principal and interest
payments of approximately $151 thousand with a final principal payment at maturity of approximately $843 thousand.
(18) The Company's unsecured term loan payable bears interest at LIBOR plus 1.60%, which was 1.77% on December
31, 2014. Interest is payable monthly. On March 26, 2014, the Company increased the size of this facility from $265.0
million to $275.0 million. On September 19, 2014, the Company further increased the size of this facility to $285.0
million.
(19) On June 30, 2010, the Company issued $250.0 million in senior unsecured notes due on July 15, 2020. The notes
bear interest at 7.75%. Interest is payable on July 15 and January 15 of each year beginning on January 15, 2011 until
the stated maturity date of July 15, 2020. The notes were issued at 98.29% of their principal amount and are guaranteed
by certain of the Company’s subsidiaries. The notes contain various covenants, including: (i) a limitation on incurrence
of any debt that would cause the ratio of the Company’s debt to adjusted total assets to exceed 60%; (ii) a limitation
on incurrence of any secured debt which would cause the ratio of the Company’s secured debt to adjusted total assets
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.
(20) On August 8, 2012, the Company issued $350.0 million in senior unsecured notes due on August 15, 2022. The
notes bear interest at 5.75%. Interest is payable on February 15 and August 15 of each year beginning on February 15,
2013 until the stated maturity date of August 15, 2022. The notes were issued at 99.998% of their principal amount and
are guaranteed by certain of the Company’s subsidiaries. The notes contain various covenants, including: (i) a limitation
on incurrence of any debt that would cause the ratio of the Company’s debt to adjusted total assets to exceed 60%; (ii)
a limitation on incurrence of any secured debt which would cause the ratio of the Company’s secured debt to adjusted
total assets 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.
(21) On June 18, 2013, the Company issued $275.0 million in senior unsecured notes due on July 15, 2023. The notes
bear interest at 5.25%. Interest is payable on January 15 and July 15 of each year beginning on January 15, 2014 until
87
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
the stated maturity date of July 15, 2023. The notes were issued at 99.546% of their principal amount and are guaranteed
by certain of the Company’s subsidiaries. The notes contain various covenants, including: (i) a limitation on incurrence
of any debt that would cause the ratio of the Company’s debt to adjusted total assets to exceed 60%; (ii) a limitation
on incurrence of any secured debt which would cause the ratio of the Company’s secured debt to adjusted total assets
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 the Company's total unencumbered assets such
that they are not less than 150% of the Company’s outstanding unsecured debt.
(22) The Company’s bonds payable due October 1, 2037 are secured by three theatres, which had a net book value of
approximately $23.1 million at December 31, 2014, and bear interest at a variable rate which resets on a weekly basis
and was 0.03% at December 31, 2014. The bonds requires monthly interest only payments with principal due at maturity.
Certain of the Company’s debt agreements contain customary restrictive covenants related to financial and operating
performance as well as certain cross-default provisions. The Company was in compliance with all financial covenants
at December 31, 2014.
Principal payments due on long-term debt obligations subsequent to December 31, 2014 (without consideration of any
extensions) are as follows (in thousands):
Year:
2015
2016
2017
2018
2019
Thereafter
Total
Amount
110,081
109,747
227,319
298,381
—
899,995
1,645,523
$
$
The Company capitalizes a portion of interest costs as a component of property under development. The following is
a summary of interest expense, net for the years ended December 31, 2014, 2013 and 2012 (in thousands):
2014
2013
2012
Interest on loans
Amortization of deferred financing costs
Credit facility and letter of credit fees
Interest cost capitalized
Interest income
Less: interest income of discontinued operations
Interest expense, net
$
$
82,839
4,248
1,735
(7,525)
(27)
—
81,270
$
$
78,292
4,041
1,510
(2,763)
(53)
29
81,056
$
$
71,849
4,218
1,515
(859)
(79)
12
76,656
11. Variable Interest Entities
The Company’s variable interest in VIEs currently are in the form of equity ownership and loans provided by the
Company to a VIE or other partner. The Company examines specific criteria and uses its judgment when determining
if the Company is the primary beneficiary of a VIE. Factors considered in determining whether the Company is the
primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting
rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee,
existence of unilateral kick-out rights or voting rights, and level of economic disproportionality between the Company
and the other partner(s).
Consolidated VIEs
As of December 31, 2014, the Company does not have any investments in consolidated VIEs.
88
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Unconsolidated VIE
At December 31, 2014, the Company’s recorded investment in SVVI, a VIE that is unconsolidated, was $191.1 million.
The Company’s maximum exposure to loss associated with SVVI is limited to the Company’s outstanding mortgage
note and related accrued interest receivable of $191.1 million. While this entity is a VIE, the Company has determined
that the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance is not
held by the Company. For further discussion of this mortgage note, see Note 6.
12. Derivative Instruments
All derivatives are recognized at fair value in the consolidated balance sheets within the line items "Other assets" and
"Accounts payable and accrued liabilities" as applicable. The Company's derivatives are subject to a master netting
arrangement and the Company has elected not to offset its derivative position for purposes of balance sheet presentation
and disclosure. The Company had derivative liabilities of $5.1 million and $4.5 million recorded in “Accounts payable
and accrued liabilities” and derivative assets of $14.8 million and $6.1 million recorded in “Other assets” in the
consolidated balance sheet at December 31, 2014 and 2013, respectively. Had the Company elected to offset derivatives
in the consolidated balance sheet pursuant to ASU 210-20-45, the Company would have had derivative assets of
approximately $14.8 million and derivative assets of $6.1 million that would have been offset against the respective
derivative liabilities of $5.1 million and liabilities of $4.5 million, resulting in a net derivative asset of $9.7 million
and $1.6 million (with no derivative liability) at December 31, 2014 and 2013, respectively. The Company has not
posted or received collateral with its derivative counterparties as of December 31, 2014 and 2013. See Note 13 for
disclosures relating to the fair value of the derivative instruments as of December 31, 2014 and 2013.
Risk Management Objective of Using Derivatives
The Company is exposed to the effect of changes in foreign currency exchange rates and interest rates on its LIBOR
based borrowings. The Company limits this risk by following established risk management policies and procedures
including the use of derivatives. The Company’s objective in using derivatives is to add stability to reported earnings
and to manage its exposure to foreign exchange and interest rate movements or other identified risks. To accomplish
this objective, the Company primarily uses interest rate swaps, cross currency swaps and foreign currency forwards.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its
exposure to interest rate movements on its LIBOR based borrowings. To accomplish this objective, the Company
currently uses interest rate swaps as its interest rate risk management strategy. Interest rate swaps designated as cash
flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making
fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
On January 5, 2012 the Company entered into three interest rate swap agreements to fix the interest rate on a $240.0
million term loan that closed on the same day. These agreements have a combined outstanding notional amount of
$240.0 million, a termination date of January 5, 2016 and a fixed rate of 2.51%. On September 6, 2013, the Company
entered into three interest rate swap agreements to further fix the interest rate on $240.0 million of the unsecured term
loan facility at 2.38% from January 5, 2016 to July 5, 2017.
The effective portion of changes in the fair value of interest rate derivatives designated and that qualify as cash flow
hedges is recorded in accumulated other comprehensive income (AOCI) and is subsequently reclassified into earnings
in the period that the hedged forecasted transaction affects earnings. During the years ending December 31, 2014, 2013
and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The
ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge
ineffectiveness on cash flow hedges was recognized during the years ending December 31, 2014, 2013 and 2012.
Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made
on the Company’s variable-rate debt. As of December 31, 2014, the Company estimates that during the twelve months
ending December 31, 2015, $1.4 million will be reclassified from AOCI to interest expense.
89
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to foreign currency exchange risk against its functional currency, the U.S. dollar, on its four
Canadian properties. The Company uses cross currency swaps and foreign currency forwards to mitigate its exposure
to fluctuations in the CAD to U.S. dollar exchange rate on its Canadian properties. These foreign currency derivatives
should hedge a significant portion of the Company's expected CAD denominated cash flow of the Canadian properties
as their impact on the Company's cash flow when settled should move in the opposite direction of the exchange rates
utilized to translate revenues and expenses of these properties.
At December 31, 2014, the Company’s cross-currency swaps had a fixed original notional value of $100.0 million
CAD and $98.1 million U.S. The net effect of these swaps is to lock in an exchange rate of $1.05 CAD per U.S. dollar
on approximately $13.5 million of annual CAD denominated cash flows on the properties through June 2018.
The effective portion of changes in the fair value of foreign currency derivatives designated and that qualify as cash
flow hedges of foreign exchange risk is recorded in AOCI and subsequently reclassified into earnings in the period that
the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative,
as well as amounts excluded from the assessment of hedge effectiveness, is recognized directly in earnings. No hedge
ineffectiveness on foreign currency derivatives has been recognized for the years ended December 31, 2014, 2013 and
2012. As of December 31, 2014, the Company estimates that during the twelve months ending December 31, 2015,
$1.3 million will be reclassified from AOCI to other expense.
Net Investment Hedges
As discussed above, the Company is exposed to fluctuations in foreign exchange rates on its four Canadian properties.
As such, the Company uses currency forward agreements to hedge its exposure to changes in foreign exchange rates.
Currency forward agreements involve fixing the CAD to U.S. dollar exchange rate for delivery of a specified amount
of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. dollars for
their fair value at or close to their settlement date. In order to hedge the net investment in four of the Canadian properties,
the Company entered into a forward contract with a fixed notional value of $100.0 million CAD and $94.3 million
U.S. with a July 2018 settlement date. The exchange rate of this forward contract is approximately $1.06 CAD per
U.S. dollar. Additionally, on February 28, 2014, the Company entered into a forward contract with a fixed notional
value of $100.0 million CAD and $88.1 million U.S. with a July 2018 settlement date. The exchange rate of this forward
contract is approximately $1.13 CAD per U.S. dollar. These forward contracts should hedge a significant portion of
the Company’s CAD denominated net investment in these four centers through July 2018 as the impact on AOCI from
marking the derivative to market should move in the opposite direction of the translation adjustment on the net assets
of these four Canadian properties.
During the year ended December 31, 2014, the Company received 5.7 million of cash in connection with the settlement
of a CAD to U.S. dollar currency forward agreement which was designated as a net investment hedge. The cash receipt
has been reported as part of investing activity in the accompanying consolidated statement of cash flows. The
corresponding change in value of the forward contract for the period from inception to the settlement date of 5.7 million
is reported in AOCI as part of the cumulative translation adjustment. The 5.7 million gain will remain in AOCI and
will be reclassified into earnings upon a sale or complete or substantially complete liquidation of the Company’s
investment in its four Canadian properties.
For foreign currency derivatives designated as net investment hedges, the effective portion of changes in the fair value
of the derivatives are reported in AOCI as part of the cumulative translation adjustment. The ineffective portion of the
change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness on net investment
hedges has been recognized for the years ended December 31, 2014, 2013 and 2012. Amounts are reclassified out of
AOCI into earnings when the hedged net investment is either sold or substantially liquidated.
Below is a summary of the effect of derivative instruments on the consolidated statements of changes in equity and
income for the years ended December 31, 2014, 2013 and 2012:
90
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Income for the
Years Ended December 31, 2014, 2013 and 2012
(Dollars in thousands)
Description
Interest Rate Swaps
Amount of Loss Recognized in AOCI on Derivative
(Effective Portion)
Amount of Expense Reclassified from AOCI into Earnings
(Effective Portion) (1)
Cross Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative
(Effective Portion)
Amount of Income (Expense) Reclassified from AOCI into
Earnings (Effective Portion) (2)
Currency Forward Agreements
Amount of Gain (Loss) Recognized in AOCI on Derivative
(Effective Portion)
Amount of Income (Expense) Reclassified from AOCI into
Earnings (Effective Portion) (2)
Total
Year Ended December 31,
2014
2013
2012
$
(2,458) $
(2,372) $
(5,462)
(1,833)
(1,749)
(1,613)
3,560
698
11,600
—
2,278
(160)
8,092
287
(684)
(617)
(2,078)
(21)
Amount of Gain (Loss) Recognized in AOCI on Derivative
(Effective Portion)
Amount of Expense Reclassified from AOCI into Earnings
(Effective Portion)
$
12,702
$
7,998
$
(8,224)
(1,135)
(1,622)
(2,251)
(1)
(2)
Included in “Interest expense, net” in accompanying consolidated statements of income.
Included in “Other expense” or "Other income" in the accompanying consolidated statements of income.
Credit-risk-related Contingent Features
The Company has agreements with each of its interest rate derivative counterparties that contain a provision where if
the Company defaults on any of its obligations for borrowed money or credit in an amount exceeding $25.0 million
and such default is not waived or cured within a specified period of time, including default where repayment of the
indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its interest
rate derivative obligations.
As of December 31, 2014, the fair value of the Company’s derivatives in a liability position related to these agreements
was $5.1 million. If the Company breached any of the contractual provisions of the derivative contracts, it would be
required to settle its obligations under the agreements at their termination value of $5.2 million.
13. Fair Value Disclosures
The Company’s has certain financial instruments that are required to be measured under the FASB’s Fair Value
Measurements and Disclosures guidance. The Company currently does not have any non-financial assets and non-
financial liabilities that are required to be measured at fair value on a recurring basis.
As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value
Measurements and Disclosures guidance establishes a fair value hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that
are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant
assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs use quoted prices
(unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs
91
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy
within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair
value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Derivative Financial Instruments
The Company uses interest rate swaps, foreign currency forwards and cross currency swaps to manage its interest rate
and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the
contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including
interest rate curves, foreign exchange rates, and implied volatilities. The fair values of interest rate swaps are determined
using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected
variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves)
derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to
appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the
fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk,
the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees. In conjunction with the FASB's fair value measurement guidance, the Company
made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to
master netting agreements on a net basis by counterparty portfolio.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2
of the fair value hierarchy, the credit valuation adjustments associated with its derivatives also use Level 3 inputs, such
as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of
December 31, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on
the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant
to the overall valuation of its derivatives and therefore, has classified its derivatives as Level 2 within the fair value
reporting hierarchy.
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of
December 31, 2014 and 2013, aggregated by the level in the fair value hierarchy within which those measurements are
classified and by derivative type.
Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2014 and 2013
(Dollars in thousands)
Description
2014:
Cross Currency Swaps*
Currency Forward Agreements*
Interest Rate Swap Agreements**
2013:
Cross Currency Swaps*
Currency Forward Agreements*
Interest Rate Swap Agreements**
Quoted Prices in
Active Markets
for Identical
Assets (Level I)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Balance at
December 31,
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
$
4,592
10,227
$
(5,096) $
$
1,730
4,353
$
(4,472) $
— $
— $
— $
— $
— $
— $
4,592
10,227
(5,096)
1,730
4,353
(4,472)
*Included in "Other assets" in the accompanying consolidated balance sheet.
**Included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheet.
92
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Non-recurring fair value measurements
There were no non-recurring measurements during the years ended December 31, 2014 and 2013.
Fair Value of Financial Instruments
Management compares the carrying value and the estimated fair value of the Company’s financial instruments. The
following methods and assumptions were used by the Company to estimate the fair value of each class of financial
instruments at December 31, 2014:
Mortgage notes receivable and related accrued interest receivable:
The fair value of the Company’s mortgage notes and related accrued interest receivable is estimated by discounting
the future cash flows of each instrument using current market rates. At December 31, 2014, the Company had a
carrying value of $508.0 million in fixed rate mortgage notes receivable outstanding, including related accrued
interest, with a weighted average interest rate of approximately 9.07%. The fixed rate mortgage notes bear interest
at rates of 5.50% to 11.31%. Discounting the future cash flows for fixed rate mortgage notes receivable using
rates of 9.00% to 11.31%, management estimates the fair value of the fixed rate mortgage notes receivable to be
$488.8 million with an estimated weighted average market rate of 10.13% at December 31, 2014.
At December 31, 2013, the Company had a carrying value of $486.3 million in fixed rate mortgage notes receivable
outstanding, including related accrued interest, with a weighted average interest rate of approximately 9.05%.
The fixed rate mortgage notes bear interest at rates of 5.50% to 11.31%. Discounting the future cash flows for
fixed rate mortgage notes receivable using rates of 9.00% to 11.31%, management estimates the fair value of the
fixed rate mortgage notes receivable to be approximately $465.2 million with an estimated weighted average
market rate of 10.12% at December 31, 2013.
Investment in a direct financing lease, net:
The fair value of the Company’s investment in a direct financing lease as of December 31, 2014 and 2013 is
estimated by discounting the future cash flows of the instrument using current market rates. At December 31,
2014 and 2013, the Company had an investment in a direct financing lease with a carrying value of $199.3 million
and $242.2 million, respectively, and weighted average effective interest rate of 11.99% and 12.01%, respectively.
The investment in direct financing lease bears interest at effective interest rates of 11.74% to 12.38%. The carrying
value of the investment in a direct financing lease approximates the fair market value at December 31, 2014 and
2013.
Derivative instruments:
Derivative instruments are carried at their fair market value.
Debt instruments:
The fair value of the Company's debt as of December 31, 2014 and 2013 is estimated by discounting the future
cash flows of each instrument using current market rates. At December 31, 2014, the Company had a carrying
value of $372.0 million in variable rate debt outstanding with an average weighted interest rate of approximately
1.57%. The carrying value of the variable rate debt outstanding approximates the fair market value at December 31,
2014.
At December 31, 2013, the Company had a carrying value of $290.0 million in variable rate debt outstanding
with an average weighted interest rate of approximately 1.62%. The carrying value of the variable rate debt
outstanding approximates the fair market value at December 31, 2013.
As described in Note 10, at December 31, 2014 and 2013, $240.0 million of variable rate debt outstanding under
the Company's unsecured term loan facility had been effectively converted to a fixed rate through July 5, 2017
by interest rate swap agreements.
At December 31, 2014, the Company had a carrying value of $1.27 billion in fixed rate debt outstanding with
an average weighted interest rate of approximately 5.94%. Discounting the future cash flows for fixed rate debt
93
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
using rates of 2.13% to 4.56%, management estimates the fair value of the fixed rate debt to be approximately
$1.38 billion with an estimated weighted average market rate of 3.76% at December 31, 2014.
At December 31, 2013, the Company had a carrying value of $1.19 billion in fixed rate debt outstanding with an
average weighted interest rate of approximately 6.10%. Discounting the future cash flows for fixed rate debt
using rates of 2.63% to 5.56%, management estimates the fair value of the fixed rate debt to be approximately
$1.24 billion with an estimated market rate of 4.85% at December 31, 2013.
14. Common and Preferred Shares
Common Shares
The Board of Trustees declared cash dividends totaling $3.42 and $3.16 per common share for the years ended December
31, 2014 and 2013, respectively.
Of the total dividends calculated for tax purposes, the amounts characterized as ordinary income, return of capital and
long-term capital gain for cash dividends paid per common share for the years ended December 31, 2014 and 2013 are
as follows:
Taxable ordinary income
Return of capital
Long-term capital gain
Unrecaptured Sec. 1250 Gain
Totals
2014
2013
3.0364
0.3619
—
—
3.3983
$
$
2.5994
1.0470
—
—
3.6464
$
$
On September 23, 2014, the Company issued 3,680,000 common shares in a registered public offering for total net
proceeds, after the underwriting discount and offering expenses, of approximately $184.2 million. The net proceeds
from the public offering were used to pay down the Company’s unsecured revolving credit facility.
During the year ended December 31, 2014, the Company issued an aggregate of 1,563,709 common shares under the
direct share purchase component of its Dividend Reinvestment and Direct Share Purchase Plan (DSP Plan) for total
net proceeds of $79.5 million.
Series C Convertible Preferred Shares
On December 22, 2006, the Company issued 5.4 million 5.75% Series C cumulative convertible preferred shares (Series
C preferred shares) in a registered public offering for net proceeds of approximately $130.8 million, after underwriting
discounts and expenses. The Company will pay cumulative dividends on the Series C preferred shares from the date
of original issuance in the amount of $1.4375 per share each year, which is equivalent to 5.75% of the $25 liquidation
preference per share. Dividends on the Series C preferred shares are payable quarterly in arrears. The Company does
not have the right to redeem the Series C preferred shares except in limited circumstances to preserve the Company’s
REIT status. The Series C preferred shares have no stated maturity and will not be subject to any sinking fund or
mandatory redemption. As of December 31, 2014, the Series C preferred shares are convertible, at the holder’s option,
into the Company’s common shares at a conversion rate of 0.3700 common shares per Series C preferred share, which
is equivalent to a conversion price of $67.57 per common share. This conversion ratio may increase over time upon
certain specified triggering events including if the Company’s common dividends per share exceeds a quarterly threshold
of $0.6875.
Upon the occurrence of certain fundamental changes, the Company will under certain circumstances increase the
conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to
adjust the conversion rate upon the Series C preferred shares becoming convertible into shares of the public acquiring
or surviving company.
94
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
The Company may, at its option, cause the Series C preferred shares to be automatically converted into that number of
common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right
only if, at certain times, the closing price of the Company’s common shares equals or exceeds 135% of the then prevailing
conversion price of the Series C preferred shares.
Owners of the Series C preferred shares generally have no voting rights, except under certain dividend defaults. Upon
conversion, the Company may choose to deliver the conversion value to the owners in cash, common shares, or a
combination of cash and common shares.
The Board of Trustees declared cash dividends totaling $1.4375 per Series C preferred share for each of the years ended
December 31, 2014 and 2013, respectively. The total amount of cash dividends paid per Series C preferred share of
$1.4375 for the years ended December 31, 2014 and 2013 were characterized as taxable ordinary income.
Series D Preferred Shares
On November 5, 2012, the Company completed the redemption of all of its 4.6 million outstanding 7.375% Series D
cumulative redeemable preferred shares (Series D preferred shares). The shares were redeemed at a redemption price
of $25.18 per share. This price is the sum of the $25.00 per share liquidation preference and a quarterly dividend per
share of $0.4609375 prorated through the redemption date. In conjunction with the redemption, the Company recognized
preferred share redemption costs, representing the original issuance costs and other redemption related expenses. This
charge reduced net income available to common shareholders for the year ended December 31, 2012 by $3.9 million.
Series E Convertible Preferred Shares
On April 2, 2008, the Company issued 3.5 million 9.00% Series E cumulative convertible preferred shares (Series E
preferred shares) in a registered public offering for net proceeds of approximately $83.4 million, after underwriting
discounts and expenses. The Company will pay cumulative dividends on the Series E preferred shares from the date
of original issuance in the amount of $2.25 per share each year, which is equivalent to 9.00% of the $25 liquidation
preference per share. Dividends on the Series E preferred shares are payable quarterly in arrears. The Company does
not have the right to redeem the Series E preferred shares except in limited circumstances to preserve the Company’s
REIT status. The Series E preferred shares have no stated maturity and will not be subject to any sinking fund or
mandatory redemption. As of December 31, 2014, the Series E preferred shares are convertible, at the holder’s option,
into the Company’s common shares at a conversion rate of 0.4551 common shares per Series E preferred share, which
is equivalent to a conversion price of $54.93 per common share. This conversion ratio may increase over time upon
certain specified triggering events including if the Company’s common dividends per share exceeds a quarterly threshold
of $0.84.
Upon the occurrence of certain fundamental changes, the Company will under certain circumstances increase the
conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to
adjust the conversion rate upon the Series E preferred shares becoming convertible into shares of the public acquiring
or surviving company.
The Company may, at its option, cause the Series E preferred shares to be automatically converted into that number of
common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right
only if, at certain times, the closing price of the Company’s common shares equals or exceeds 150% of the then prevailing
conversion price of the Series E preferred shares.
Owners of the Series E preferred shares generally have no voting rights, except under certain dividend defaults. Upon
conversion, the Company may choose to deliver the conversion value to the owners in cash, common shares, or a
combination of cash and common shares.
The Board of Trustees declared cash dividends totaling $2.25 per Series E preferred share for the years ended December
31, 2014 and 2013. The total amount of cash dividends paid per Series E preferred share of $2.25 for each of the years
ended December 31, 2014 and 2013 were characterized as taxable ordinary income.
95
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Series F Preferred Shares
On October 12, 2012, the Company issued 5.0 million shares of 6.625% Series F cumulative redeemable preferred
shares (Series F preferred shares) in a registered public offering for net proceeds of approximately $120.6 million, after
underwriting discounts and expenses. The Company will pay cumulative dividends on the Series F preferred shares
from the date of original issuance in the amount of $1.65625 per share each year, which is equivalent to 6.625% of the
$25.00 liquidation preference per share. Dividends on the Series F preferred shares are payable quarterly in arrears.
The Company may not redeem the Series F preferred shares before October 12, 2017, except in limited circumstances
to preserve the Company’s REIT status or in connection with a change of control. On or after October 12, 2017, the
Company may, at its option, redeem the Series F preferred shares in whole at any time or in part from time to time by
paying $25.00 per share, plus any accrued and unpaid dividends up to and including the date of redemption. The Series
F preferred shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption. The
Series F preferred shares are not convertible into any of the Company's securities, except under certain circumstances
in connection with a change of control. Owners of the Series F preferred shares generally have no voting rights except
under certain dividend defaults.
The Board of Trustees declared cash dividends totaling $1.65625 per Series F preferred share for the years ended
December 31, 2014 and 2013. The total amount of cash dividends paid per Series F preferred share of $1.65625 and
$1.67006 for the years ended December 31, 2014 and 2013, respectively, were characterized as taxable ordinary income.
96
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
15. Earnings Per Share
The following table summarizes the Company’s computation of basic and diluted earnings per share (EPS) for the years
ended December 31, 2014, 2013 and 2012 (amounts in thousands except per share information):
Basic EPS:
Income from continuing operations
Less: preferred dividend requirements
Income from continuing operations available to common shareholders
Income from discontinued operations available to common
shareholders
Net income available to common shareholders
Diluted EPS:
Income from continuing operations available to common shareholders
Effect of dilutive securities:
Share options
Income from continuing operations available to common shareholders
Income from discontinued operations available to common
shareholders
Net income available to common shareholders
Basic EPS:
Income from continuing operations
Less: preferred dividend requirements
Income from continuing operations available to common shareholders
Income from discontinued operations available to common
shareholders
Net income available to common shareholders
Diluted EPS:
Income from continuing operations available to common shareholders
Effect of dilutive securities:
Share options
Income from continuing operations available to common shareholders
Income from discontinued operations available to common
shareholders
Net income available to common shareholders
Year Ended December 31, 2014
Income
(numerator)
Shares
(denominator)
Per Share
Amount
175,752
(23,807)
151,945
3,881
155,826
54,244
54,244
54,244
151,945
54,244
—
151,945
3,881
155,826
200
54,444
54,444
54,444
$
$
$
$
$
$
2.80
0.07
2.87
2.79
0.07
2.86
Year Ended December 31, 2013
Income
(numerator)
Shares
(denominator)
Per Share
Amount
175,637
(23,806)
151,831
4,589
156,420
48,028
48,028
48,028
151,831
48,028
—
151,831
4,589
156,420
186
48,214
48,214
48,214
$
$
$
$
$
$
3.16
0.10
3.26
3.15
0.09
3.24
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
97
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Year Ended December 31, 2012
Income
(numerator)
Shares
(denominator)
Per Share
Amount
Basic EPS:
Income from continuing operations
Less: preferred dividend requirements and redemption costs
Noncontrolling interest adjustments
Income from continuing operations available to common shareholders
Loss from discontinued operations available to common shareholders
Net income available to common shareholders
Diluted EPS:
Income from continuing operations available to common shareholders
Effect of dilutive securities:
Share options
Income from continuing operations available to common shareholders
Loss from discontinued operations available to common shareholders
Net income available to common shareholders
$
$
$
$
$
$
$
$
141,906
(28,396)
(108)
113,402
(20,242)
93,160
46,798
46,798
46,798
113,402
46,798
—
113,402
(20,242)
93,160
251
47,049
47,049
47,049
$
$
$
$
$
$
2.42
(0.43)
1.99
2.41
(0.43)
1.98
The additional 1.9 million common shares that would result from the conversion of the Company’s Series C preferred
shares and the additional 1.6 million common shares that would result from the conversion of the Company’s Series E
preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included
in the calculation of diluted earnings per share for the years ended December 31, 2014, 2013 and 2012 because the
effect is anti-dilutive.
The dilutive effect of potential common shares from the exercise of share options is included in diluted earnings per
share for the years ended December 31, 2014, 2013 and 2012. However, options to purchase 338 thousand, 331 thousand
and 368 thousand shares of common shares at per share prices ranging from $46.86 to $65.50, $45.20 to $65.50 and
$44.62 to $65.50, were outstanding at the end of 2014, 2013 and 2012, respectively, but were not included in the
computation of diluted earnings per share because they were anti-dilutive.
16. Equity Incentive Plan
Grants of common shares and options to purchase common shares are issued under the 2007 Equity Incentive Plan.
Under the 2007 Equity Incentive Plan, an aggregate of 3,650,000 common shares, options to purchase common shares
and restricted share units, subject to adjustment in the event of certain capital events, may be granted. At December 31,
2014, there were 1,389,685 shares available for grant under the 2007 Equity Incentive Plan.
Share Options
Share options granted under the 2007 Equity Incentive Plan have exercise prices equal to the fair market value of a
common share at the date of grant. The options may be granted for any reasonable term, not to exceed 10 years, and
for employees typically become exercisable at a rate of 25% per year over a four-year period. For non-employee
Trustees, share options are vested upon issuance, however, the share options may not be exercised for a one year period
subsequent to the grant date. The Company generally issues new common shares upon option exercise. A summary of
the Company’s share option activity and related information is as follows:
98
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Outstanding at December 31, 2011
Exercised
Granted
Forfeited
Outstanding at December 31, 2012
Exercised
Granted
Forfeited
Outstanding at December 31, 2013
Exercised
Granted
Forfeited
Outstanding at December 31, 2014
Number of
shares
1,002,833
(224,181)
103,082
(396)
881,338
(143,272)
115,257
(12,658)
840,665
(35,963)
172,178
(26,666)
950,214
$
$
$
$
Option price
per share
18.18 — $
18.18 —
44.62 —
18.18 —
18.18 — $
18.18 —
46.86 —
36.56 —
18.18 — $
32.50 —
51.64 —
45.20 —
18.18 — $
65.50
36.56
47.99
46.69
65.50
47.20
58.09
60.42
65.50
52.72
51.64
51.64
65.50
$
$
$
$
Weighted avg.
exercise price
34.41
23.42
45.60
40.03
38.51
30.64
47.86
56.90
40.85
42.63
51.64
50.11
42.48
The weighted average fair value of options granted was $13.87, $12.35 and $12.08 during 2014, 2013 and 2012,
respectively. The intrinsic value of stock options exercised was $0.4 million, $2.9 million, and $5.1 million during the
years ended December 31, 2014, 2013 and 2012, respectively. Additionally, the Company repurchased 27,250 shares
into treasury shares in conjunction with the stock options exercised during the year ended December 31, 2014 with a
total value of $1.5 million.
The expense related to share options included in the determination of net income for the years ended December 31,
2014, 2013 and 2012 was $1.4 million, $856 thousand and $937 thousand, respectively. The following assumptions
were used in applying the Black-Scholes option pricing model at the grant dates: risk-free interest rate of 2.2%, 1.0%
and 1.1% to 1.4% in 2014, 2013 and 2012, respectively, dividend yield of 6.4%, 5.4% to 6.5% and 6.3% to 6.7% in
2014, 2013 and 2012, respectively, volatility factors in the expected market price of the Company’s common shares of
50.3%, 50.7% and 51.3% to 51.4% in 2014, 2013 and 2012, respectively, 0.28%, 0.23% to 0.29% and 0.25% expected
forfeiture rates for 2014, 2013 and 2012, and an expected life of approximately six years for 2014, 2013, and 2012.
The Company uses historical data to estimate the expected life of the option and the risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant. Additionally, expected volatility is computed based on the
average historical volatility of the Company’s publicly traded shares.
At December 31, 2014, stock-option expense to be recognized in future periods was $2.4 million as follows (in
thousands):
Year:
2015
2016
2017
2018
Total
Amount
$
$
1,125
824
477
—
2,426
99
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
The following table summarizes outstanding options at December 31, 2014:
Exercise price range
$ 18.18 - 19.99
20.00 - 29.99
30.00 - 39.99
40.00 - 49.99
50.00 - 59.99
60.00 - 65.50
Options
outstanding
Weighted avg.
life remaining
Weighted avg.
exercise price
Aggregate intrinsic
value (in thousands)
201,859
—
14,774
470,840
169,388
93,353
950,214
4.1
0.0
5.1
4.6
8.7
2.0
5.0
$
42.48
$
15,059
The following table summarizes exercisable options at December 31, 2014:
Exercise price range
$ 18.18 - 19.99
20.00 - 29.99
30.00 - 39.99
40.00 - 49.99
50.00 - 59.99
60.00 - 65.50
Options
outstanding
Weighted avg.
life remaining
Weighted avg.
exercise price
Aggregate intrinsic
value (in thousands)
201,859
—
14,774
335,812
9,375
93,353
655,173
4.1
0.0
5.1
3.5
4.3
2.0
3.5
$
39.36
$
12,631
Nonvested Shares
A summary of the Company’s nonvested share activity and related information is as follows:
Number of
shares
Weighted avg.
grant date
fair value
Weighted avg.
life remaining
Outstanding at December 31, 2013
371,864
$
Granted
Vested
Forfeited
280,193
(149,324)
(34,282)
Outstanding at December 31, 2014
468,451
$
46.00
51.64
45.26
50.24
49.29
1.00
The holders of nonvested shares have voting rights and receive dividends from the date of grant. These shares vest
ratably over a period of three to four years. The fair value of the nonvested shares that vested was $7.3 million, $6.7
million and $7.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014,
unamortized share-based compensation expense related to nonvested shares was $11.4 million and will be recognized
in future periods as follows (in thousands):
Year:
2015
2016
2017
Total
Amount
$
$
5,391
3,957
2,030
11,378
100
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Restricted Share Units
A summary of the Company’s restricted share unit activity and related information is as follows:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Life
Remaining
Outstanding at December 31, 2013
17,530
$
Granted
Vested
19,685
(17,530)
Outstanding at December 31, 2014
19,685
$
58.38
53.55
58.38
53.55
0.38
The holders of restricted share units have voting rights and receive dividends from the date of grant. The share units
vest upon the earlier of the day preceding the next annual meeting of shareholders or a change of control. The settlement
date for the shares is selected by the non-employee trustee, and ranges from one year from the grant date to upon
termination of service. At December 31, 2014, unamortized share-based compensation expense related to restricted
share units was $351 thousand which will be recognized in 2015.
17. Operating Leases
Most of the Company’s rental properties are leased under operating leases with expiration dates ranging from 1 to 34
years. Future minimum rentals on non-cancelable tenant operating leases at December 31, 2014 are as follows (in
thousands):
Year:
2015
2016
2017
2018
2019
Thereafter
Total
Amount
296,814
290,130
277,997
256,148
231,262
1,788,995
3,141,346
$
$
The Company leases its executive office from an unrelated landlord. Rental expense totaled approximately $521
thousand, $435 thousand and $467 thousand for the years ended December 31, 2014, 2013 and 2012, respectively, and
is included as a component of general and administrative expense in the accompanying consolidated statements of
income. Future minimum lease payments under this lease at December 31, 2014 are as follows (in thousands):
Year:
2015
2016
2017
2018
2019
Thereafter
Total
Amount
544
441
—
—
—
—
985
$
$
101
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
18. Quarterly Financial Information (unaudited)
Summarized quarterly financial data for the years ended December 31, 2014 and 2013 are as follows (in thousands,
except per share data):
2014:
Total revenue
Net income
Net income available to common
shareholders of EPR Properties
Basic net income per common share
Diluted net income per common share
2013:
Total revenue
Net income
Net income available to common
shareholders of EPR Properties
Basic net income per common share
Diluted net income per common share
$
$
March 31
June 30
September 30
December 31
$
89,857
43,533
37,581
0.72
0.71
$
91,787
40,760
34,808
0.65
0.65
98,738
42,705
36,753
0.68
0.68
$
104,669
52,635
46,684
0.82
0.81
March 31
June 30
September 30
December 31
$
82,898
41,206
35,254
0.75
0.75
$
82,973
32,476
26,524
0.56
0.56
$
87,841
43,502
37,551
0.79
0.79
89,352
63,042
57,091
1.12
1.12
During the three months ended December 31, 2014, the Company received a $5.0 million prepayment fee from a
borrower which is included in mortgage and other financing income in the accompanying consolidated statements of
income for the year ended December 31, 2014. See Note 6 for further discussion.
Certain reclassifications have been made to the 2013 amounts to conform to the 2014 presentation for asset groups that
qualify for presentation as discontinued operations.
19. Discontinued Operations
Included in discontinued operations for the year ended December 31, 2014 is the reversal of liabilities totaling $3.9
million that related to the acquisition or ownership of Toronto Dundas Square. These liabilities were reversed as the
related payments are not expected to occur. Included in discontinued operations for the year ended December 31, 2013
are five winery and vineyard properties that were sold during 2013. Included in discontinued operations for the year
ended December 31, 2012 are the prior mentioned properties as well as two winery and vineyard properties which were
sold during 2012. Additionally, included in discontinued operations for the year ended December 31, 2012 is a gain
on sale or acquisition of real estate of $0.3 million that relates to the settlement of escrow reserves established with the
March 29, 2011 sale of Toronto Dundas Square.
102
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
The operating results relating to discontinued operations are as follows (in thousands):
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Total revenue
Property operating expense (income)
Other expense (benefit)
Interest expense, net
Transaction costs (benefit)
Impairment charges
Depreciation and amortization
Income (loss) before gain on sale of real estate
Gain (loss) on sale of real estate
Net income (loss)
20. Other Commitments and Contingencies
2014
Year ended December 31,
2013
2012
$
$
3
—
—
—
3
(484)
(18)
—
(3,376)
—
—
3,881
—
3,881
$
$
1,685
513
426
—
2,624
45
547
(29)
—
—
1,728
333
4,256
4,589
$
$
5,389
—
2,325
112
7,826
(1,036)
2,733
(12)
—
20,835
5,521
(20,215)
(27)
(20,242)
As of December 31, 2014, the Company had seven entertainment development projects for which it has commitments
to fund approximately $29.8 million of additional improvements, 16 education development projects for which is has
commitments to fund approximately $107.0 million of additional improvements and nine recreation development
projects for which it has commitments to fund approximately $110.9 million. Development costs are advanced by the
Company in periodic draws. If the Company determines that construction is not being completed in accordance with
the terms of the development agreements, it can discontinue funding construction draws. The Company has agreed to
lease the properties to the operators at pre-determined rates upon completion of construction.
The Company has certain commitments related to its mortgage note investments that it may be required to fund in the
future. The Company is generally obligated to fund these commitments at the request of the borrower or upon the
occurrence of events outside of its direct control. As of December 31, 2014, the Company had five mortgage notes
receivable with commitments totaling approximately $155.4 million. If commitments are funded in the future, interest
will be charged at rates consistent with the existing investments.
The Company has provided guarantees of the payment of certain economic development revenue bonds totaling $22.9
million related to two theatres in Louisiana for which the Company earns a fee at an annual rate of 2.88% to 4.00%
over the 30 year terms of the related bonds. The Company has recorded $9.8 million as a deferred asset included in
other assets and $9.8 million included in other liabilities in the accompanying consolidated balance sheet as of
December 31, 2014 related to these guarantees. No amounts have been accrued as a loss contingency related to these
guarantees because payment by the Company is not probable.
On June 7, 2011, affiliates of Louis Cappelli, Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha
LLC (the Cappelli Group), filed a complaint with the Supreme Court of the State of New York, County of Sullivan,
against two subsidiaries of the Company seeking (i) a declaratory judgment concerning the Company's obligations
under a previously disclosed settlement agreement involving these entities, (ii) an order that the Company execute the
golf course lease and the “Racino Parcel” lease subject to the settlement agreement, and (iii) an extension of the restrictive
covenant against ownership or operation of a casino on the Concord resort property under the settlement agreement
(the Restrictive Covenant), which covenant was set to expire on December 31, 2011. The Company filed counterclaims
seeking related relief. The Cappelli Group subsequently obtained leave to discontinue its claims, but the counterclaims
remained pending. On June 30, 2014, the Court (i) denied the Cappelli Group's motion to dismiss the counterclaims,
(ii) granted the Company's motion for summary judgment finding that the Cappelli Group missed the December 31,
103
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
2011 deadline to fully execute a master credit agreement which was a condition to the Company's obligation to continue
its joint development activities with the Cappelli Group under the settlement agreement, (iii) granted the Company's
motion for summary judgment finding that the Restrictive Covenant had expired, and (iv) granted the Company's motion
for declaratory relief declaring the Company as master developer of the Concord resort property. The Cappelli Group
perfected its appeal of the summary judgment decision in the Appellate Division, Third Department on December 30,
2014.
On October 20, 2011, the Cappelli Group also filed suit against the Company and two affiliates in the Supreme Court
of the State of New York, County of Westchester, asserting a claim for breach of contract and the implied covenant of
good faith, and seeking damages of at least $800 million, based on the same allegations as in the action the Cappelli
Group filed in Sullivan County Supreme Court. The Company has moved to dismiss the Amended Complaint in
Westchester County based on the Sullivan County Supreme Court’s June 30, 2014 decision, and the Cappelli Group
has cross-moved for a stay of the action. The motion and cross-motion have been fully briefed, and are under judicial
consideration.
On September 18, 2013, the United States District Court for the Southern District of New York (the District Court)
dismissed the complaint filed by Concord Associates L.P. and six other companies affiliated with Mr. Cappelli against
the Company and certain of its subsidiaries, Empire Resorts, Inc. and Monticello Raceway Management, Inc.
(collectively, Empire), and Kien Huat Realty III Limited and Genting New York LLC (collectively, Genting). The
complaint alleged, among other things, that the Company had conspired with Empire to monopolize the racing and
gaming market in the Catskills by entering into exclusivity and development agreements to develop a comprehensive
resort destination in Sullivan County, New York. The plaintiffs are seeking $500 million in damages (trebled to $1.5
billion under antitrust law), punitive damages, and injunctive relief. The District Court dismissed plaintiffs’ federal
antitrust claims against all defendants with prejudice, and dismissed the pendent state law claims against Empire and
Genting without prejudice, meaning they could be further pursued in state court. On October 2, 2013, the plaintiffs
filed a motion for reconsideration with the District Court, seeking permission to file a Second Amended Complaint,
and soon after filed a Notice of Appeal. The District Court denied the motion for reconsideration in an Opinion and
Order dated November 3, 2014, and the plaintiffs perfected their appeal in the Second Circuit on or about December
17, 2014.
The Company has not determined that losses related to these matters are probable. Because of the favorable rulings
from the Supreme Court of Sullivan County, New York and the District Court, and the pending or potential appeals,
together with the inherent difficulty of predicting the outcome of litigation generally, the Company does not have
sufficient information to determine the amount or range of reasonably possible loss with respect to these matters. The
Company's assessments are based on estimates and assumptions that have been deemed reasonable by management,
but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might
cause the Company to change those estimates and assumptions. The Company intends to vigorously defend the claims
asserted against the Company and certain of its subsidiaries by the Cappelli Group and its affiliates, for which the
Company believes it has meritorious defenses, but there can be no assurances as to its outcome.
104
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
21. Segment Information
The Company has four reportable operating segments: Entertainment, Education, Recreation and Other. The financial
information summarized below is presented by reportable operating segment:
Balance Sheet Data:
Entertainment Education Recreation
Other
Corporate/
Unallocated Consolidated
As of December 31, 2014
Total Assets
$
2,014,416 $
734,512 $
696,931 $
206,795 $
49,394 $
3,702,048
As of December 31, 2013
Total Assets
Operating Data:
Rental revenue
Tenant reimbursements
Other income (loss)
Mortgage and other
financing income
Total revenue
Property operating
expense
Other expense
Total investment
expenses
Net operating
income - before
unallocated items
Entertainment Education Recreation
$
1,921,836 $
542,052 $
553,019 $
Other
210,064 $
Corporate/
Unallocated Consolidated
3,272,276
45,305 $
For the Year Ended December 31, 2014
Entertainment Education Recreation Other
27,874 $
$
—
—
237,429 $
17,640
(6)
—
—
23
315
20,368 $ 1,002 $
Corporate/
Unallocated Consolidated
286,673
— $
17,663
—
1,009
700
7,056
262,119
31,488
59,362
40,775
61,143
24,143
—
24,143
—
—
—
—
—
—
387
1,727
754
771
1,525
—
700
—
—
—
79,706
385,051
24,897
771
25,668
237,976
59,362
61,143
202
700
359,383
Reconciliation to Consolidated Statements of Income:
General and administrative expense
Costs associated with loan refinancing or payoff
Interest expense, net
Transaction costs
Provision for loan losses
Depreciation and amortization
Equity in income from joint ventures
Gain on sale or acquisition, net
Gain on sale of investment in a direct financing lease
Income tax expense
Discontinued operations:
Income from discontinued operations
Transaction (costs) benefit
Net income
Preferred dividend requirements
Net income available to common shareholders
$
105
(27,566)
(301)
(81,270)
(2,452)
(3,777)
(66,739)
1,273
1,209
220
(4,228)
505
3,376
179,633
(23,807)
155,826
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
For the Year Ended December 31, 2013
Entertainment Education Recreation Other
15,931 $
$
—
—
221,024 $
18,401
80
—
—
— 1,471
10,124 $ 1,630 $
Corporate/
Unallocated Consolidated
248,709
— $
18,401
—
1,682
131
8,447
247,952
33,275
49,206
32,232
42,356
318
3,419
25,521
—
25,521
—
—
—
—
—
495
658
— 1,153
—
131
—
—
—
74,272
343,064
26,016
658
26,674
222,431
49,206
42,356
2,266
131
316,390
Rental revenue
Tenant reimbursements
Other income
Mortgage and other
financing income
Total revenue
Property operating
expense
Other expense
Total investment
expenses
Net operating
income - before
unallocated items
Reconciliation to Consolidated Statements of Income:
General and administrative expense
Costs associated with loan refinancing or payoff
Gain on early extinguishment of debt
Interest expense, net
Transaction costs
Depreciation and amortization
Equity in income from joint ventures
Gain on sale or acquisition, net
Gain on previously held equity interst
Income tax benefit
Discontinued operations:
Income from discontinued operations
Gain on sale of real estate
Net income
Preferred dividend requirements
Net income available to common shareholders
$
(25,613)
(6,166)
4,539
(81,056)
(1,955)
(53,946)
1,398
3,017
4,853
14,176
333
4,256
180,226
(23,806)
156,420
106
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
For the Year Ended December 31, 2012
Entertainment Education Recreation Other
$
3,615 $ 1,219 $
221,020 $
18,575
98
8,663 $
—
—
—
—
Corporate/
Unallocated Consolidated
234,517
— $
18,575
—
738
1
4,308
244,001
30,130
38,793
29,440
33,055
24,008
4
24,012
—
—
—
—
—
907
739
— 1,646
—
1
—
639
639
63,977
317,807
24,915
1,382
26,297
—
639
99
1,957
219,989
38,793
33,055
311
(638)
291,510
Rental revenue
Tenant reimbursements
Other income
Mortgage and other
financing income
Total revenue
Property operating
expense
Other expense
Total investment
expenses
Net operating
income (loss) -
before unallocated
items
Reconciliation to Consolidated Statements of Income:
General and administrative expense
Costs associated with loan refinancing or payoff
Interest expense, net
Transaction costs
Impairment charges
Depreciation and amortization
Equity in income from joint ventures
Discontinued operations:
Income from discontinued operations
Impairment charges
Loss on sale or acquisition of real estate
Net income
Noncontrolling interests
Preferred dividend requirements
Preferred share redemption costs
Net income available to common shareholders
$
(23,170)
(627)
(76,656)
(404)
(3,074)
(46,698)
1,025
620
(20,835)
(27)
121,664
(108)
(24,508)
(3,888)
93,160
107
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
22. Condensed Consolidating Financial Statements
A portion of our subsidiaries have guaranteed the Company’s indebtedness under the Company's unsecured senior
notes, unsecured revolving credit facility and unsecured term loan facility. The guarantees are joint and several, full
and unconditional and subject to customary release provisions. The following summarizes the Company’s condensed
consolidating information as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and
2012 (in thousands):
Condensed Consolidating Balance Sheet
As of December 31, 2014
EPR
Properties
(Issuer)
Wholly Owned
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
Consolidated
Elimination
Consolidated
Assets
Rental properties, net
Land held for development
Property under development
Mortgage notes and related accrued interest
receivable, net
Investment in a direct financing lease, net
Investment in joint ventures
Cash and cash equivalents
Restricted cash
Deferred financing costs, net
Accounts receivable, net
Intercompany notes receivable
Investments in subsidiaries
Other assets
Total assets
Liabilities and Equity
Liabilities:
Dividends payable
Unearned rents and interest
Intercompany notes payable
Debt
Total liabilities
EPR Properties shareholders’ equity
Noncontrolling interests
Equity
Total liabilities and equity
$
713,552
206,001
10,659
— $ 2,451,534
206,001
—
$
— $ 1,737,982
—
—
$
—
—
—
—
(1,234)
1,000
15,224
90
—
3,124,416
21,272
171,139
413,025
199,332
—
786
10,215
4,136
32,303
—
—
8,658
94,930
—
5,738
3,784
1,857
549
14,889
175,757
—
36,161
$
3,160,768
$ 2,577,576
$ 1,263,877
—
—
—
—
—
—
—
181,798
507,955
199,332
5,738
3,336
13,072
19,909
47,282
—
—
—
(175,757)
(3,124,416)
—
66,091
$ (3,300,173) $ 3,702,048
(1,502) $
—
— $
—
4,742
175,757
423,523
602,520
660,980
377
—
(175,757)
—
(175,757)
(3,124,416)
—
82,180
22,233
25,623
—
1,645,523
1,775,559
1,926,112
377
$ (3,124,416) $ 1,926,489
$ (3,300,173) $ 3,702,048
22,233
750
—
1,160,000
1,234,656
1,926,112
—
—
20,131
—
62,000
114,140
2,463,436
—
$
$
1,926,112
$ 2,463,436
$
661,357
3,160,768
$ 2,577,576
$ 1,263,877
108
Accounts payable and accrued liabilities
$
51,673
$
32,009
$
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Balance Sheet
As of December 31, 2013
EPR
Properties
(Issuer)
Wholly Owned
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
Consolidated
Elimination
Consolidated
$
— $ 1,474,501
$
629,650
$
— $ 2,104,151
—
—
—
—
—
—
—
—
201,342
89,473
486,337
242,212
5,275
7,958
9,714
23,344
42,538
—
—
—
(175,757)
(2,852,543)
—
59,932
$ (3,028,300) $ 3,272,276
— $
—
—
(175,757)
—
(175,757)
(2,852,543)
—
72,327
19,553
17,046
—
1,475,336
1,584,262
1,687,637
377
$ (2,852,543) $ 1,688,014
$ (3,028,300) $ 3,272,276
Assets
Rental properties, net
Land held for development
Property under development
Mortgage notes and related accrued interest
receivable, net
Investment in a direct financing lease, net
Investment in joint ventures
Cash and cash equivalents
Restricted cash
Deferred financing costs, net
Accounts receivable, net
Intercompany notes receivable
Investments in subsidiaries
Other assets
Total assets
Liabilities and Equity
Liabilities:
—
18
—
—
—
449
1,150
17,221
106
—
2,852,543
19,292
—
84,397
460,533
242,212
—
1,826
6,735
5,439
25,158
—
—
11,040
201,342
5,058
25,804
—
5,275
5,683
1,829
684
17,274
175,757
—
29,600
$
2,890,779
$ 2,311,841
$ 1,097,956
Accounts payable and accrued liabilities
$
43,589
$
20,564
$
8,174
$
Dividends payable
Unearned rents and interest
Intercompany notes payable
Debt
Total liabilities
EPR Properties shareholders’ equity
Noncontrolling interests
Equity
Total liabilities and equity
19,553
—
—
1,140,000
1,203,142
1,687,637
—
—
14,295
—
—
34,859
2,276,982
—
—
2,751
175,757
335,336
522,018
575,561
377
$
$
1,687,637
$ 2,276,982
$
575,938
2,890,779
$ 2,311,841
$ 1,097,956
109
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Statement of Income
For the Year Ended December 31, 2014
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Intercompany fee income
Interest income on intercompany notes
receivable
Total revenue
Equity in subsidiaries’ earnings
Property operating expense
Intercompany fee expense
Other expense
General and administrative expense
Costs associated with loan refinancing or
payoff
Interest expense, net
Interest expense on intercompany notes
payable
Transaction costs
Provision for loan losses
Depreciation and amortization
Income before equity in income
from joint ventures and other
items
Equity in income from joint ventures
Gain on sale or acquisition, net
Gain on sale of investment in a direct
financing lease
Income before income taxes
Income tax expense
Income from continuing
operations
Discontinued operations:
Income from discontinued
operations
Transaction (costs) benefit
Net income attributable to EPR
Properties
Preferred dividend requirements
Net income available to
common shareholders of EPR
Properties
Comprehensive income
attributable to EPR Properties
EPR
Properties
(Issuer)
$
Wholly
Owned
Subsidiary
Guarantors
193,723
3,660
1
74,619
—
— $
—
—
765
3,124
—
3,889
241,921
—
—
—
—
—
63,056
—
1,319
—
1,224
180,211
—
—
—
180,211
(578)
—
272,003
—
9,620
—
—
18,236
301
(2,773)
—
54
—
45,021
201,544
—
—
220
201,764
—
Non-
Guarantors
Subsidiaries
92,950
$
14,003
1,008
4,322
—
24,796
137,079
—
15,277
3,124
771
9,330
—
20,987
24,796
1,079
3,777
20,494
37,444
1,273
1,209
—
39,926
(3,650)
Consolidated
Elimination
$
— $
—
—
—
(3,124)
Consolidated
286,673
17,663
1,009
79,706
—
(24,796)
(27,920)
(241,921)
—
(3,124)
—
—
—
—
(24,796)
—
—
—
(241,921)
—
—
—
(241,921)
—
—
385,051
—
24,897
—
771
27,566
301
81,270
—
2,452
3,777
66,739
177,278
1,273
1,209
220
179,980
(4,228)
179,633
201,764
36,276
(241,921)
175,752
—
—
487
3,376
18
—
—
—
505
3,376
179,633
(23,807)
205,627
—
36,294
—
(241,921)
—
179,633
(23,807)
$
$
155,826
175,006
$
$
205,627
205,767
$
$
36,294
$ (241,921) $
155,826
32,152
$ (237,919) $
175,006
110
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Statement of Income
For the Year Ended December 31, 2013
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Intercompany fee income
Interest income on intercompany notes
receivable
Total revenue
Equity in subsidiaries’ earnings
Property operating expense
Intercompany fee expense
Other expense
General and administrative expense
Costs associated with loan refinancing or
payoff
Gain on early extinguishment of debt
Interest expense, net
Interest expense on intercompany notes
payable
Transaction costs
Depreciation and amortization
Income before equity in income
from joint ventures and other
items
Equity in income from joint ventures
Gain on sale or acquisition, net
Gain on previously held equity interest
Income before income taxes
Income tax benefit (expense)
Income from continuing
operations
Discontinued operations:
Income (loss) from discontinued
operations
Gain on sale of real estate
Net income attributable to EPR
Properties
Preferred dividend requirements
Net income available to
common shareholders of EPR
Properties
Comprehensive income
attributable to EPR Properties
EPR
Properties
(Issuer)
$
Wholly
Owned
Subsidiary
Guarantors
163,412
3,607
9
69,327
—
— $
—
75
994
2,629
Non-
Guarantor
Subsidiaries
85,297
$
14,794
1,598
3,951
—
Consolidated
Elimination
$
Consolidated
— $ 248,709
18,401
—
1,682
—
74,272
—
—
(2,629)
17,848
21,546
212,634
(88)
—
—
—
—
—
55,856
—
1,813
1,093
—
236,355
—
10,451
—
—
17,507
1,987
(4,539)
3,336
—
—
34,318
386
106,026
—
15,653
2,629
658
8,106
4,179
—
21,864
18,234
142
18,535
175,506
173,295
16,026
505
(150)
4,853
—
3,167
—
893
—
—
(18,234)
(20,863)
(212,634)
—
(2,629)
—
—
—
—
—
(18,234)
—
—
(212,634)
—
—
—
—
343,064
—
26,016
—
658
25,613
6,166
(4,539)
81,056
—
1,955
53,946
152,193
1,398
3,017
4,853
180,714
(488)
176,462
—
16,919
14,664
(212,634)
—
161,461
14,176
180,226
176,462
31,583
(212,634)
175,637
—
—
638
—
180,226
(23,806)
177,100
—
(305)
4,256
35,534
—
—
—
333
4,256
(212,634)
—
180,226
(23,806)
$
$
156,420
176,797
$
$
177,100
177,336
$
$
35,534
$ (212,634) $ 156,420
32,492
$ (209,828) $ 176,797
111
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Statement of Income
For the Year Ended December 31, 2012
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Intercompany fee income
Interest income on intercompany notes
receivable
Total revenue
Equity in subsidiaries’ earnings
Property operating expense
Intercompany fee expense
Other expense
General and administrative expense
Costs associated with loan refinancing or
payoff
Interest expense, net
Interest expense on intercompany notes
payable
Transaction costs
Impairment charges
Depreciation and amortization
Income before equity in income
from joint ventures and other
items
Equity in income from joint ventures
Income from continuing
operations
Discontinued operations:
Income (loss) from discontinued
Impairment charges
Gain on sale or acquisition of real
estate
Net income (loss)
Add: Net loss attributable to
noncontrolling interests
Net income (loss) attributable to
EPR Properties
Preferred dividend requirements
Preferred share redemption costs
Net income (loss) available to
common shareholders of EPR
Properties
Comprehensive income (loss)
attributable to EPR Properties
EPR
Properties
(Issuer)
$
Wholly
Owned
Subsidiary
Guarantors
149,567
3,636
5
60,089
—
— $
—
93
494
2,706
16,967
20,260
137,443
—
—
—
—
—
35,240
—
404
—
1,039
—
213,297
—
8,461
—
4
15,358
627
15,339
—
—
—
28,002
Non-
Guarantor
Subsidiaries
84,950
$
14,939
640
3,394
—
353
104,276
—
16,454
2,706
1,378
7,812
—
26,077
17,320
—
3,074
17,657
Consolidated
Elimination
$
— $
—
—
—
(2,706)
Consolidated
234,517
18,575
738
63,977
—
(17,320)
(20,026)
(137,443)
—
(2,706)
—
—
—
—
(17,320)
—
—
—
—
317,807
—
24,915
—
1,382
23,170
627
76,656
—
404
3,074
46,698
121,020
536
145,506
—
11,798
489
(137,443)
—
140,881
1,025
$
121,556
$
145,506
$
12,287
$ (137,443) $
141,906
—
—
(2)
—
622
(20,835)
—
—
—
121,556
282
145,786
—
—
121,556
(24,508)
(3,888)
145,786
—
—
(309)
(8,235)
(108)
(8,343)
—
—
620
(20,835)
(27)
121,664
—
(137,443)
—
(108)
(137,443)
—
—
121,556
(24,508)
(3,888)
$
$
93,160
118,715
$
$
145,786
145,709
$
$
(8,343) $ (137,443) $
93,160
(7,259) $ (138,450) $
118,715
112
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2014
EPR
Properties
(Issuer)
$
3,124
Wholly
Owned
Subsidiary
Guarantors
$
Non-
Guarantor
Subsidiaries
— $
(3,124) $
Consolidated
—
—
(60,684)
—
241,750
—
69,086
—
250,152
(57,560)
241,750
65,962
250,152
—
47
96
143
(57,560)
241,797
66,058
250,295
(438)
—
—
—
—
—
—
(58,816)
404
—
(26,716)
76,256
(721)
(25,951)
11,651
5,725
(67,161)
—
(3,666)
(85,205)
12,055
5,725
(93,877)
76,256
(4,387)
—
1,750
1,750
—
(821)
(16,206)
(17,465)
46,092
(315,843)
(25,232)
(304,576)
20,000
—
(337)
359,000
(297,000)
(275)
—
264,158
50
(2,892)
(207,637)
73,342
—
(1,683)
449
(1,234) $
(25)
—
—
—
—
61,700
39
(1,040)
1,826
786
$
—
(17,971)
41,438
(54,185)
—
(13,253)
(202)
—
—
—
—
—
(13,455)
(317)
(1,899)
5,683
3,784
$
46,092
(334,635)
—
(376,226)
379,000
(310,253)
(814)
(25)
264,158
50
(2,892)
(207,637)
121,587
(278)
(4,622)
7,958
3,336
Intercompany fee income (expense)
Interest income (expense) on intercompany receivable/
payable
Net cash provided (used) by other operating activities
Net cash provided (used) by operating activities
by continuing operations
Net cash provided by operating activities of
discontinued operations
Net cash provided (used) by operating
activities
Investing activities:
Acquisition of rental properties and other assets
Proceeds from sale of real estate
Proceeds from settlement of derivative
Investment in mortgage notes receivable
Proceeds from mortgage note receivable paydown
Investment in promissory notes receivable
Proceeds from promissory note receivable
paydown
Proceeds from sale of investment in a direct
financing lease, net
Additions to property under development
Advances to subsidiaries, net
Net cash used by investing activities
Financing activities:
Proceeds from debt facilities
Principal payments on debt
Deferred financing fees paid
Costs associated with loan refinancing or payoff
(cash portion)
Net proceeds from issuance of common shares
Impact of stock option exercises, net
Purchase of common shares for treasury
Dividends paid to shareholders
Net cash provided (used) by financing
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
$
113
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2013
Intercompany fee income (expense)
Interest income (expense) on intercompany receivable/
payable
Net cash provided (used) by other operating activities
Net cash provided (used) by operating activities
of continuing operations
Net cash provided by operating activities of
discontinued operations
Net cash provided (used) by operating
activities
Investing activities:
Acquisition of rental properties and other assets
Proceeds from sale of real estate
Investment in unconsolidated joint ventures
Investment in mortgage note receivable
Proceeds from mortgage note receivable paydown
Investment in promissory notes receivable
Proceeds from promissory note paydown
Investment in a direct financing lease, net
Additions to property under development
Investment in intercompany notes payable
Advances to subsidiaries, net
Net cash provided (used) by investing activities
of continuing operations
Net proceeds from sale of discontinued
operations
Net cash provided (used) in investing
activities
Financing activities:
Proceeds from debt facilities
Principal payments on debt
Deferred financing fees paid
Costs associated with loan refinancing or payoff
(cash portion)
Net proceeds from issuance of common shares
Impact of stock option exercises, net
Purchase of common shares for treasury
Dividends paid to shareholders
Net cash provided (used) by financing
activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
EPR
Properties
(Issuer)
$
2,629
Wholly
Owned
Subsidiary
Guarantors
$
Non-
Guarantor
Subsidiaries
— $
(2,629) $
Consolidated
—
17,848
(44,752)
—
210,189
(17,848)
66,002
—
231,439
(24,275)
210,189
45,525
231,439
—
286
2,395
2,681
(24,275)
210,475
47,920
234,120
(1,358)
—
(1,607)
(11,797)
—
—
117
—
(18)
103,104
(380,190)
(112,195)
—
—
(46,402)
202
(1,278)
—
(3,262)
(189,764)
—
253,296
(9,944)
797
—
(2,369)
1,698
—
910
—
(7,489)
(103,104)
126,894
(123,497)
797
(1,607)
(60,568)
1,900
(1,278)
1,027
(3,262)
(197,271)
—
—
(291,749)
(99,403)
7,393
(383,759)
—
—
47,301
47,301
(291,749)
(99,403)
54,694
(336,458)
300,000
—
(5,620)
—
220,785
947
(3,246)
(197,924)
314,942
—
(1,082)
1,531
346,000
(451,818)
(2,494)
—
(100,650)
(19)
(1,753)
—
—
—
—
(4,037)
—
—
—
—
(110,065)
(13)
994
832
(104,706)
(526)
(2,618)
8,301
646,000
(552,468)
(8,133)
(5,790)
220,785
947
(3,246)
(197,924)
100,171
(539)
(2,706)
10,664
Cash and cash equivalents at end of the period
$
449
$
1,826
$
5,683
$
7,958
114
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012
EPR
Properties
(Issuer)
$
2,706
Wholly
Owned
Subsidiary
Guarantors
$
Non-
Guarantor
Subsidiaries
— $
(2,706) $
Consolidated
—
16,967
(19,940)
—
163,357
(16,967)
52,684
—
196,101
(267)
163,357
33,011
196,101
—
1,036
10,307
11,343
(267)
164,393
43,318
207,444
(422)
(1,800)
—
—
—
(3,074)
(416,859)
(67,911)
—
(90,975)
4,494
(99,924)
—
452,015
(4,855)
—
(22,848)
—
(13,675)
3,074
(35,156)
(73,188)
(1,800)
(113,823)
4,494
(113,599)
—
—
(422,155)
197,699
(73,460)
(297,916)
—
282
41,851
42,133
(422,155)
197,981
(31,609)
(255,783)
590,000
—
(5,770)
—
231
120,567
(115,013)
(1,987)
(3,232)
(162,775)
422,021
—
(401)
1,932
1,531
$
281,000
(643,943)
(6)
—
(14,628)
(24)
(189)
—
—
—
—
—
—
—
—
—
—
—
—
—
(363,138)
(5)
(769)
1,601
832
$
(14,652)
152
(2,791)
11,092
8,301
$
871,000
(658,571)
(5,800)
(189)
231
120,567
(115,013)
(1,987)
(3,232)
(162,775)
44,231
147
(3,961)
14,625
10,664
Intercompany fee income (expense)
Interest income (expense) on intercompany receivable/
payable
Net cash provided (used) by other operating activities
Net cash provided (used) by operating activities
of continuing operations
Net cash provided by operating activities of
discontinued operations
Net cash provided (used) by operating
activities
Investing activities:
Acquisition of rental properties and other assets
Investment in unconsolidated joint ventures
Investment in mortgage notes receivable
Proceeds from sale of investment in a direct
financing lease, net
Additions to property under development
Investment in intercompany notes payable
Advances to subsidiaries, net
Net cash provided (used) by investing activities
of continuing operations
Net proceeds from sale of real estate from
discontinued operations
Net cash provided (used) by investing
activities
Financing activities:
Proceeds from debt facilities
Principal payments on debt
Deferred financing fees paid
Costs associated with loan refinancing or payoff
(cash portion)
Net proceeds from issuance of common shares
Net proceeds from issuance of preferred shares
Redemption of preferred shares
Impact of stock option exercises, net
Purchase of common shares for treasury
Dividends paid to shareholders
Net cash provided (used) by financing
activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
$
115
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
23. Subsequent Events
On January 27, 2015, the Company completed the sale of a theatre located in Los Angles, California for net proceeds
of $42.7 million and recognized a gain on sale of $23.7 million.
On February 24, 2015, the Company announced that its President and Chief Executive Officer, David Brain, was retiring
from the Company. In connection with this change, the Company accrued for anticipated severance amounts (including
stock based compensation costs), which resulted in a charge to earnings in the first quarter of 2015 of approximately
$18.5 million.
116
EPR Properties
Schedule II - Valuation and Qualifying Accounts
December 31, 2014
Description
Reserve for Doubtful Accounts
Allowance for Loan Losses
Balance at
December 31, 2013
2,989,000
$
—
Additions
During 2014
Deductions
During 2014
$
1,417,000
3,777,000
$
(2,852,000) $
—
Balance at
December 31, 2014
1,554,000
3,777,000
See accompanying report of independent registered public accounting firm.
EPR Properties
Schedule II - Valuation and Qualifying Accounts
December 31, 2013
Description
Reserve for Doubtful Accounts
Allowance for Loan Losses
Balance at
December 31, 2012
3,852,000
$
123,000
Additions
During 2013
Deductions
During 2013
$
1,949,000
—
$
(2,812,000) $
(123,000)
Balance at
December 31, 2013
2,989,000
—
See accompanying report of independent registered public accounting firm.
EPR Properties
Schedule II - Valuation and Qualifying Accounts
December 31, 2012
Description
Reserve for Doubtful Accounts
Allowance for Loan Losses
Balance at
December 31, 2011
5,152,000
$
8,196,000
$
Additions
During 2012
Deductions
During 2012
1,088,000
—
$
(2,388,000) $
(8,073,000)
Balance at
December 31, 2012
3,852,000
123,000
See accompanying report of independent registered public accounting firm.
117
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1
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation (continued)
Reconciliation
(Dollars in thousands)
December 31, 2014
Real Estate:
Reconciliation:
Balance at beginning of the year
Acquisition and development of rental properties during the year
Disposition of rental properties during the year
Balance at close of year
Accumulated Depreciation
Reconciliation:
Balance at beginning of the year
Depreciation during the year
Disposition of rental properties during the year
Balance at close of year
See accompanying report of independent registered public accounting firm.
$
$
$
$
2,804,609
514,016
(13,632)
3,304,993
409,643
58,983
(2,966)
465,660
124
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective
to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is
(1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our disclosure controls were designed to provide reasonable assurance that the controls and procedures would meet
their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect
that our disclosure controls will prevent all errors and fraud. A control system, no matter how well designed and operated,
can provide only reasonable assurance of achieving the designed control objectives and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or
more people, or by management override of the control. Because of the inherent limitations in a cost-effective, maturing
control system, misstatements due to error or fraud may occur and not be detected.
Except for application of the updated Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in 2013, there have not been any changes in the Company’s
internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework (2013) issued by COSO. Based on our evaluation under the framework in Internal
Control–Integrated Framework (2013), our management concluded that our internal control over financial reporting
was effective as of December 31, 2014. KPMG LLP, the independent registered public accounting firm that audited
the consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on the
effectiveness of our internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements, errors or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of or compliance with
the policies or procedures may deteriorate.
125
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
EPR Properties:
We have audited EPR Properties’ internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). EPR Properties’ management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, EPR Properties maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of EPR Properties and subsidiaries as of December 31, 2014 and 2013, and the
related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of
the years in the three-year period ended December 31, 2014, and our report dated February 25, 2015 expressed an
unqualified opinion on those consolidated financial statements.
As discussed in Note 2 to the financial statements, the Company adopted FASB Accounting Standards Update (ASU)
No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, in 2014.
Kansas City, Missouri
February 25, 2015
126
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 13, 2015 (the
“Proxy Statement”), contains under the captions “Election of Trustees”, “Company Governance”, “Executive Officers”,
and “Section 16(a) Beneficial Ownership Reporting Compliance” the information required by Item 10 of this Annual
Report on Form 10-K, which information is incorporated herein by this reference.
We have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial
Officer, and all other officers, employees and trustees. The Code of Business Conduct and Ethics may be viewed on
our website at www.eprkc.com. Changes to and waivers granted with respect to the Code of Business Conduct and
Ethics required to be disclosed pursuant to applicable rules and regulations will be posted on our website.
Item 11. Executive Compensation
The Proxy Statement contains under the captions “Election of Trustees”, “Executive Compensation”, and
“Compensation Committee Report”, the information required by Item 11 of this Annual Report on Form 10-K, which
information is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The Proxy Statement contains under the captions “Share Ownership” and “Equity Compensation Plan Information”
the information required by Item 12 of this Annual Report on Form 10-K, which information is incorporated herein by
this reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Proxy Statement contains under the caption “Transactions Between the Company and Trustees, Officers or their
Affiliates” the information required by Item 13 of this Annual Report on Form 10-K, which information is incorporated
herein by this reference.
Item 14. Principal Accounting Fees and Services
The Proxy Statement contains under the caption “Ratification of Appointment of Independent Registered Public
Accounting Firm” the information required by Item 14 of this Annual Report on Form 10-K, which information is
incorporated herein by this reference.
127
Item 15. Exhibits and Financial Statement Schedules
(1) Financial Statements: See Part II, Item 8 hereof
PART IV
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and
2012
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Financial Statement Schedules: See Part II, Item 8 hereof
Schedule II – Valuation and Qualifying Accounts
Schedule III – Real Estate and Accumulated Depreciation
Exhibits
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Annual
Report on Form 10-K or incorporated by reference as indicated below.
(2)
(3)
128
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: February 25, 2015
By /s/ Gregory K. Silvers
EPR Properties
Dated: February 25, 2015
By /s/ Mark A. Peterson
Gregory K. Silvers, President and Chief Executive
Officer (Principal Executive Officer)
Mark A. Peterson, Senior Vice President, Chief
Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature and Title
/s/ Robert J. Druten
Robert J. Druten, Chairman of the Board
/s/ Gregory K. Silvers
Gregory K. Silvers, President, Chief Executive Officer
(Principal Executive Officer) and Trustee
/s/ Mark A. Peterson
Mark A. Peterson, Senior Vice President, Chief
Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
/s/ Thomas M. Bloch
Thomas M. Bloch, Trustee
/s/ Barrett Brady
Barrett Brady, Trustee
/s/ Peter Brown
Peter Brown, Trustee
/s/ Jack A. Newman, Jr.
Jack A. Newman, Jr., Trustee
/s/ Robin P. Sterneck
Robin P. Sterneck, Trustee
Date
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
129
Subsidiary
Jurisdiction of Incorporation or Formation
Subsidiaries of the Company
EXHIBIT 21
3 Theatres, Inc.
30 West Pershing, LLC
655554 NB, Inc.
Atlantic - EPR I
Atlantic - EPR II
Burbank Village, Inc.
Burbank Village, LP
Cantera 30, Inc.
Cantera 30 Theatre, LP
CCC VinREIT, LLC
Cinescape Equity, LLC
Cinescape Mezz, LLC
Cinescape Property, LLC
ECE I, LLC
ECE II, LLC
ECS Douglas I, LLC
Educational Capital Solutions, LLC
EPR Apex, Inc.
EPR Camelback, LLC
EPR Canada, Inc.
EPR Concord II, L.P.
EPR Escape, LLC
EPR Financial Services, LLC
EPR Gaming Properties, LLC
EPR Hialeah, Inc.
EPR Metropolis Trust
EPR Netherlands Coöperatief U.A.
EPR Netherlands Holdings I, LLC
EPR Netherlands Holdings II, LLC
EPR North Finance Trust
EPR North GP ULC
EPR North Holdings GP ULC
EPR North Holdings LP
EPR North Properties LP
EPR North Trust
EPR North US GP Trust
EPR North US LP
EPR Resorts, LLC
EPR TRS Holdings, Inc.
EPR TRS I, Inc.
EPR TRS II, Inc.
EPR TRS III, Inc.
EPR TRS IV, Inc.
EPR Tuscaloosa, LLC
Missouri
Missouri
New Brunswick
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Ontario
British Columbia
British Columbia
Ontario
Ontario
Kansas
Delaware
Delaware
Delaware
Missouri
Missouri
Missouri
Missouri
Missouri
Delaware
EPT 301, LLC
EPT 909, Inc.
EPT Aliso Viejo, Inc.
EPT Arroyo, Inc.
EPT Auburn, Inc.
EPT Biloxi, Inc.
EPT Boise, Inc.
EPT Charlotte, LLC
EPT Chattanooga, Inc.
EPT Columbiana, Inc.
EPT Concord, LLC
EPR Concord II, LLC
EPT Crotched Mountain, Inc.
EPT Dallas, LLC
EPT Davie, Inc.
EPT Deer Valley, Inc.
EPT DownREIT II, Inc.
EPT DownREIT, Inc.
EPT East, Inc.
EPT Firewheel, Inc.
EPT First Colony, Inc.
EPT Fontana, LLC
EPT Fresno, Inc.
EPT Gulf Pointe, Inc.
EPT Hamilton, Inc.
EPT Hattiesburg, Inc.
EPT Huntsville, Inc.
EPT Hurst, Inc.
EPT Indianapolis, Inc.
EPT Kalamazoo, Inc.
EPT Kenner, LLC
EPT Lafayette, Inc.
EPT Lawrence, Inc.
EPT Leawood, Inc.
EPT Little Rock, Inc.
EPT Macon, Inc.
EPT Mad River, Inc.
EPT Manchester, Inc.
EPT Melbourne, Inc.
EPT Mesa, Inc.
EPT Mesquite, Inc.
EPT Modesto, Inc.
EPT Mount Attitash, Inc.
EPT Mount Snow, Inc.
EPT New England, LLC
EPT New Roc GP, Inc.
EPT New Roc, LLC
EPT Nineteen, Inc.
EPT Oakview, Inc.
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Missouri
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
EPT Pensacola, Inc.
EPT Pompano, Inc.
EPT Raleigh Theatres, Inc.
EPT Ski Properties, Inc.
EPT Slidell, Inc.
EPT South Barrington, Inc.
EPT Twin Falls, LLC
EPT Virginia Beach, Inc.
EPT Waterparks, Inc.
EPT White Plains, LLC
EPT Wilmington, Inc.
Flik Depositor, Inc.
Flik, Inc.
Go to the Show, L.L.C.
HGP VinREIT, LLC
International Hotel Ventures, Inc.
Kanata Entertainment Holdings, Inc.
LCPV VinREIT, LLC
McHenry FFE, LLC
Megaplex Four, Inc.
Megaplex Nine, Inc.
Metropolis Entertainment Holdings, Inc.
Mississauga Entertainment Holdings, Inc.
New Roc Associates, LP
Oakville Entertainment Holdings, Inc.
Rittenhouse Holding, LLC
Suffolk Retail, LLC
Sunny VinREIT, LLC
Tampa Veterans 24, Inc.
Tampa Veterans 24, LP
Theatre Sub, Inc.
VinREIT, LLC
WestCol Center, LLC
WestCol Corp.
WestCol Holdings, LLC
WestCol Theatre, LLC
Westminster Promenade Owner's Association, LLC
Whitby Entertainment Holdings, Inc.
YongeDundas Signage Trust
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Louisiana
Delaware
Delaware
New Brunswick
Delaware
Delaware
Missouri
Missouri
New Brunswick
New Brunswick
New York
New Brunswick
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Colorado
New Brunswick
Delaware
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23
The Board of Trustees
EPR Properties:
We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-189024 pertaining to the Dividend
Reinvestment and Direct Shares Purchase Plan, Form S-8 No. 333-76625 and Form S-8 No. 333-159465 pertaining to the 1997
Share Incentive Plan, Form S-8 No. 333-142831 and Form S-8 No. 333-189028 pertaining to the 2007 Equity Incentive Plan,
Form S-4 No. 333-78803, as amended, pertaining to the shelf registration of 3,600,000 common shares and Form S-3 No.
333-189023 for an undetermined amount of securities) of EPR Properties of our reports dated February 25, 2015, with respect to
the consolidated balance sheets of EPR Properties and subsidiaries as of December 31, 2014 and 2013, and the related consolidated
statements of income, comprehensive income, changes in equity, and cash flows, for each of the years in the three-year period
ended December 31, 2014, and the related financial statement schedules listed in Item 15 (2) of the Form 10-K, and the effectiveness
of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 Annual
Report on Form 10-K of EPR Properties. Our report refers to the Company’s adoption of FASB Accounting Standards Update
(ASU) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, in 2014.
Kansas City, Missouri
February 25, 2015
CERTIFICATION
EXHIBIT 31.1
PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Gregory K. Silvers, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of EPR Properties;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2015
/s/ Gregory K. Silvers
Gregory K. Silvers
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
EXHIBIT 31.2
PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Mark A. Peterson, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of EPR Properties;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2015
/s/ Mark A. Peterson
Mark A. Peterson
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS
ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
EXHIBIT 32.1
I, Gregory K. Silvers, President and Chief Executive Officer of EPR Properties (the “Issuer”), have executed this
certification for furnishing to the Securities and Exchange Commission in connection with the filing with the
Commission of the registrant’s Annual Report on Form 10-K for the period ended December 31, 2014 (the “Report”).
I hereby certify that, to the best of my knowledge and belief:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Issuer.
/s/ Gregory K. Silvers
Gregory K. Silvers
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 25, 2015
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS
ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
EXHIBIT 32.2
I, Mark A. Peterson, Senior Vice President, Chief Financial Officer and Treasurer of EPR Properties (the “Issuer”),
have executed this certification for furnishing to the Securities and Exchange Commission in connection with the filing
with the Commission of the registrant’s Annual Report on Form 10-K for the period ended December 31, 2014 (the
“Report”). I hereby certify that, to the best of my knowledge and belief:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Issuer.
/s/ Mark A. Peterson
Mark A. Peterson
Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
Date: February 25, 2015