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R E T U R N O N I N S I G H T
ANNUAL
REPORT
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909 WALNUT, SUITE 200,
KANSAS CITY, MO 64106
EPRKC.COM
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CORPORATE
INFORMATION
BOARD OF TRUSTEES
EXECUTIVE OFFICERS
ROBERT J. DRUTEN
Chairman of the Board of Trustees
GREGORY K. SILVERS
President & Chief Executive Officer
THOMAS M. BLOCH
Trustee
BARRETT BRADY
Trustee
PETER C. BROWN
Trustee
JACK A. NEWMAN, JR.
Trustee
ROBIN P. STERNECK
Trustee
GREGORY K. SILVERS
Trustee
President & Chief Executive Officer
MARK A. PETERSON
Executive Vice President, Chief Financial Officer & Treasurer
MORGAN G. EARNEST II
Senior Vice President & Chief Investment Officer
CRAIG L. EVANS
Senior Vice President, General Counsel & Secretary
MICHAEL L. HIRONS
Senior Vice President – Strategy and Asset Management
THOMAS B. WRIGHT III
Senior Vice President – Human Resources and Administration
TONYA L. MATER
Vice President & Chief Accounting Officer
ANNUAL SHAREHOLDERS
MEETING
STOCK MARKET
INFORMATION
The annual meeting of shareholders will be held at
11:00 a.m. (CST), May 31, 2017, in the Company’s
office at 909 Walnut, Suite 200, Kansas City, MO.
The Company’s common shares of
beneficial interest are traded on the
New York Stock Exchange under the
symbol EPR.
INVESTOR
RELATIONS
TRANSFER AGENT
AND REGISTRAR
INDEPENDENT
AUDITORS
For further information regarding
EPR Properties, please direct
inquiries to:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
EPR Properties
Investor Relations Department
909 Walnut, Suite 200
Kansas City, MO 64106
brianm@eprkc.com
KPMG LLP
1000 Walnut Street
Suite 1000
Kansas City, MO 64106
FOR ACCESS TO ADDITIONAL FINANCIAL INFORMATION, VISIT OUR WEBSITE AT WWW.EPRKC.COM
LETTER FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDER:
I’m pleased to report that 2016 was the strongest year in
the Company’s history in terms of revenue, earnings and
investment spending. For the year, we delivered a 17%
year-over-year increase in top line revenue along with a
9% year-over-year increase in our FFO as adjusted per share.
Additionally, our investment spending totaled
over $800 million. In 2016, we increased our
monthly common dividend by almost 6%,
representing an annualized dividend of $3.84 per
common share and are currently on pace to pay
$4.08 in 2017, a 6.25% increase. Finally, we
delivered a top tier 29% total shareholder return.
Our dedicated team and differentiated
business model have enabled us to deliver
these strong results. I’m also thankful to our
business partners and shareholders for their
continued commitment and trust.
We’re proud of our ability to deliver superior
shareholder returns consistently over the
longer term. From the inception of the
company in 1997 we chose to take a different
path. Initially, we saw the opportunity to focus
on the movie exhibition property segment and
for several years we focused our investments
only in theatre properties.
TOTAL INVESTMENTS
(IN MILLIONS)
OTHER
RECREATION
EDUCATION
ENTERTAINMENT
$2,717
$2,844
$2,271
67
234
44
342
280
170
382
312
174
$3,120
$2,969
$3,211
395
318
230
335
337
286
267
421
374
$5,307
$4,606
178
$4,040
$3,562
212
550
538
207
696
728
203
944
1006
1,148
1,303
2,678
1,926
1,925
1,976
2,177
2,011
2,148
2,262
2,453
2,411
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
LIFETIME TOTAL RETURN TO SHAREHOLDERS*
EPR - 1,432%
MSCI US REIT (RMS) - 445%
RUSSELL 1000 - 253%
1997
EPR
RMS
2017
3 YEAR
5 YEAR
10 YEAR LIFETIME*
75%
121%
142%
1,432%
45%
74%
62%
445%
RUSSELL
1000
28%
96%
98%
253%
Source: SNL All data through 12/31/16
* Lifetime Data: 11/15/97 - 12/31/16
In subsequent years we not only added to
theatres, creating what we now refer to as
our Entertainment segment, we’ve also
added Recreation and Education as primary
investment segments.
The basis of our expansion into broadened
segments was, and continues to be, supported
by our overall investment thesis of focusing on
select, non-commodity real estate segments
that are highly enduring.
In deploying over $800 million in investment
spending in 2016, we continued to see strength
across each of our tenant industries and
investment segments.
LETTER FROM THE PRESIDENT (cont.)
ENTERTAINMENT
Supported by the transformation of the movie-going
experience, in 2016 the U.S. Box Office exceeded
expectations and had yet another record-setting year, with
revenues of approximately $11.4 billion. We continue to see
quality opportunities within the Entertainment segment with
the acceleration of exhibitors’ migration to expanded
amenity theatres.
These opportunities involve the purchase and conversion of
existing theatres as well as the build-to-suit construction of
new theatres. Through the end of 2016, 25% of our theatre
portfolio had been renovated to reflect the new design and
within 36 months we expect these renovations to exceed
50% of our existing theatre portfolio.
These renovations have benefited the Company not only in terms of extending lease term, but also
from a performance standpoint. For renovated properties which have been open for a full year, our tenants
have seen a 40% average improvement in total revenues, which translates into higher rent coverages
and greater opportunities for percentage rent. During the year we invested over $266 million in our
Entertainment segment.
RECREATION
In our Recreation segment, we have seen the centuries old
game of golf evolve into a new experience with
Topgolf. The strong performance of these properties has
continued with overall lease coverage in excess of three
times. We are encouraged by the strong consumer
acceptance, rapid ramp-up and reliable performance of
our Topgolf investments.
Our ski and waterpark investments continue to demonstrate
that the combination of family and friends with fun outdoor
activities is an essential part of our social fabric, and is only
enhanced by technological advances rather than threatened.
While Mother Nature may introduce variability into the results
of our operators, our underwriting takes this variability into
consideration, and the investments continue to deliver
durable results for the long term.
During the year we invested over $198 million in our
Recreation segment.
LETTER FROM THE PRESIDENT (cont.)
EDUCATION
Our Education segment continues to experience significant demand-driven growth across each of
our property types. This growth recognizes the enormous power of educational choice and the
increasing focus parents have on both educational curriculum and environments.
National public charter school enrollment achieved a new record with approximately 3.1 million
students for the 2016/17 school year, a 7% increase over the previous year. We continue to believe
that growth opportunities with public charter schools will
remain strong as the category continues to garner
increased acceptance among both students and parents.
Separately, we saw substantial growth in both our
early childhood education and private school property
types. We invested over $73 million in our private
school portfolio, adding eight additional schools and
two additional operators. During the year we invested
over $338 million in our Education segment.
BALANCE SHEET
Our disciplined approach to financial
management has remained an
important priority. As a result we
ended the year in a strong financial
position, providing us with financial
flexibility and access to capital.
CAPITAL STRUCTURE*
(IN MILLIONS)
SECURED
DEBT, $200
3%
UNSECURED
DEBT, $2,286
31%
61%
COMMON
EQUITY,
$4,568
* As of December 31, 2016. See the supplemental
for the quarter ended December 31, 2016 for
reconciliation of certain Non-GAAP financial
measures at www.eprkc.com
5%
PREFERRED EQUITY, $346
Total Market Cap = $7.4B
Fixed Rate Debt = 97%
Weighted Average = 5.06%
Unsecured Debt = 92%
Leverage = 5.48X on Net
Debt to Adjusted EBITDA
LOOKING AHEAD
As a leader in experiential real estate, we remain committed to executing our strategy and believe tha
we are well positioned for growth in the “Experience Economy.” While we see significant opportunity
across each of our investing segments, we will remain selective in our investments, focused on
those that deliver accretive long term value. We will also continue to make solid advancements in the
quality of our portfolio through our strategic asset disposition and capital recycling program.
t
While we are pleased with our 2016 results, our orientation has been, and will remain, with a focus on
the long term. We have a uniquely qualified team of professionals and we have the opportunity to
continue to grow in unique real estate segments, yet we must do so with deliberate and thoughtful
execution to sustain the long term.
THANK YOU FOR YOUR SUPPORT.
GREGORY SILVERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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, 2016
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 $5,172,059,171.
At February 27, 2017, there were 64,105,840 common shares outstanding.
No
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2017 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,” “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:
• The proposed transaction with CNL Lifestyle Properties, Inc. presents certain risks to our business, financial
condition, results of operations and cash flows;
• Global economic uncertainty and disruptions in financial markets;
• Reduction in discretionary spending by consumers;
• Adverse changes in our credit ratings;
•
• The duration or outcome of litigation, or other factors outside of litigation such as 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;
• Unsuccessful development, operation, financing or compliance with licensing requirements of the planned
casino and resort development by the third-party lessee;
• Risks related to overruns for the construction of common infrastructure at our planned casino and resort
development for which we would be responsible;
• Defaults in the performance of lease terms by our tenants;
• Defaults by our customers and counterparties on their obligations owed to us;
• A borrower's bankruptcy or default;
• Our ability to renew maturing leases 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;
• 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;
• Risks relating to our tenants' exercise of purchase options or borrowers' exercise of prepayment options related
to our education properties;
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;
•
• Our reliance on a limited number of employees, the loss of which could harm operations;
• Risks associated with security breaches and other disruptions;
Financing arrangements that expose us to funding or purchase risks;
i
Fluctuations in the value of real estate income and investments;
• Changes in accounting standards that may adversely affect our financial statements;
•
• Risks relating to real estate ownership, leasing and development, including local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, competition from other available
space, whether tenants and users such as customers of our tenants consider a property attractive, changes in
real estate taxes and other expenses, changes in market rental rates, the timing and costs associated with
property improvements and rentals, changes in taxation or zoning laws or other governmental regulation,
whether we are able to pass some or all of any increased operating costs through to tenants, 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.
Except as required by law, we do not undertake any obligation to release publicly any revisions to our forward-looking
statements to reflect events or circumstances after the date of this 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
9
26
27
38
39
PART II............................................................................................................................................................
40
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.
40
43
45
65
67
133
133
135
PART III...........................................................................................................................................................
135
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.
135
135
135
135
135
PART IV ..........................................................................................................................................................
136
Item 15.
Item 16.
Exhibits and Financial Statement Schedules ...............................................................
Form 10-K Summary ...................................................................................................
136
136
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, 2016, our total assets were approximately $4.9 billion (after
accumulated depreciation of approximately $0.6 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 (a non-GAAP financial measure) were approximately $5.3 billion at December 31, 2016. See
"Non-GAAP Financial Measures" for the calculation of total investments and reconciliation of total investments to
"Total assets" in the consolidated balance sheet at December 31, 2016 and 2015. For financial reporting purposes, we
group our investments into four reportable operating segments: Entertainment, Education, Recreation and Other. Our
total investments at December 31, 2016 consisted of interests in the following:
•
•
•
•
$2.7 billion or 50% related to entertainment properties, which includes megaplex theatres, entertainment retail
centers (centers typically anchored by an entertainment component such as a megaplex theatre and containing
other entertainment-related or retail properties), family entertainment centers and other retail parcels;
$1.3 billion or 25% related to education properties, which consists of investments in public charter schools,
early education centers and K-12 private schools;
$1.1 billion or 22% related to recreation properties, which includes ski areas, waterparks, golf entertainment
complexes and other recreation; and
$178.2 million or 3% related to other properties, which consists of the Adelaar casino and resort project in
Sullivan County, New York (excluding $9.7 million related to the Adelaar indoor waterpark project included
in recreation).
We believe 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 relationships and the knowledge 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.
1
Entertainment
As of December 31, 2016, our Entertainment segment consisted of investments in megaplex theatres, entertainment
retail centers, family entertainment centers and other retail parcels totaling approximately $2.7 billion with interests
in:
•
•
•
•
•
•
141 megaplex theatres located in 34 states;
eight entertainment retail centers (which include eight additional megaplex theatres) located in Colorado, New
York, California, Virginia, and Ontario, Canada;
eight family entertainment centers located in Georgia, Illinois, Indiana and Florida;
land parcels leased to restaurant and retail operators adjacent to several of our theatre properties;
$87.7 million in construction in progress primarily for real estate development and redevelopment of megaplex
theatres as well as other retail redevelopment projects; and
$4.5 million in undeveloped land inventory.
As of December 31, 2016, our owned real estate portfolio of megaplex theatres consisted of approximately 10.6 million
square feet and was 100% leased and our remaining owned entertainment real estate portfolio consisted of 1.9 million
square feet and was 95% leased. The combined owned entertainment real estate portfolio consisted of 12.5 million
square feet and was 99% leased. Our owned theatre properties are leased to 15 different leading theatre operators. A
significant portion of our total revenue was derived from rental payments by American Multi-Cinema, Inc. ("AMC").
On December 21, 2016, AMC announced that it closed its acquisition of Carmike Cinemas Inc. ("Carmike"). For the
year ended December 31, 2016, approximately $90.0 million or 18.2% of the Company's total revenues were derived
from rental payments by AMC and approximately $21.7 million or 4.4% of the Company's total revenues were derived
from rental payments by Carmike.
A significant portion of our entertainment assets consist of modern megaplex theatres. The modern megaplex theatre
provides a significantly enhanced audio and visual experience for the patrons versus other formats. A significant trend
currently exists among national and local exhibitors to further enhance the customer experience. These enhancements
include reserved, luxury seating and expanded food and beverage offerings, including the addition of alcohol and more
efficient point of sale systems. The evolution of the theatre industry over the last 20 years from the sloped floor theatre
to the megaplex stadium theatre to the expanded amenity theatre has demonstrated that exhibitors and their landlords
are willing to make investments in their theatres to take the customer experience to the next level.
As exhibitors improve the customer experience with more spacious and comfortable seating options, they are required
to make physical changes to the existing seating configurations that typically result in a significant loss of existing
seats. It was once a concern that such seat loss would be a negative to theatres that thrive on opening weekend business
of new movie releases; however, customers have responded favorably to these changes. Exhibitors are learning that
enhanced amenities are changing the patrons’ movie-going habits resulting in significantly increased seat utilization
and increased food and beverage revenue.
As exhibitors pursue the renovation of theatres with enhanced amenities, we are working with our tenants generally
toward the end of their primary lease terms to extend the terms of their leases beyond the initial option periods, finance
improvements where applicable and to recapture land where seat count reductions alleviate parking requirements. In
conjunction with these changes, we may also make changes to the rental rates to better reflect the existing market
demands and additional capital invested. In addition to positioning expiring theatre assets for continued success, the
renovation of these assets creates an opportunity to diversify the Company's tenant base into other entertainment or
retail uses adjacent to a movie theatre.
The theatre box office had another record year in 2016 with revenues of approximately $11.4 billion per Box Office
Mojo, an increase of over 2% versus the prior year. We expect the development of new megaplex theatres and the
conversion or partial conversion of existing theatres to enhanced amenity formats to continue in the United States and
abroad over the long-term. As a result of the significant capital commitment involved in building new megaplex theatres
2
and redeveloping existing theatres, as well as the experience and industry relationships of our management, we believe
we will continue to have opportunities to provide capital to exhibition businesses in the future.
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 bowling, bocce ball, and
karting as well as an observation deck on the 94th floor of the John Hancock building in downtown Chicago, Illinois.
We will continue to seek opportunities for the development of, or acquisition of, other entertainment related properties
that leverage our expertise in this area.
Education
As of December 31, 2016, our Education segment consisted of investments in public charter schools, early education
centers and K-12 private schools totaling approximately $1.3 billion with interests in:
•
•
•
•
67 public charter schools located in 19 states and the District of Columbia;
41 early education centers located in 15 states;
12 private schools located in eight states; and
$105.4 million in construction in progress for real estate development or expansions of public charter schools,
early education centers and private schools.
As of December 31, 2016, our owned education real estate portfolio consisted of approximately 4.3 million square feet
and was 100% leased. We have 45 different operators for our owned public charter schools.
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
choices 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, authorizers 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.
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.
3
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. There is increased demand for
curriculum-based, child-centered learning. Within this property type, larger centers with more amenities are emerging
and enjoying enhanced economies of scale. We believe this property type is a logical extension of our education platform
and allows us to increase our diversity and geographical reach with these assets.
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 are at capacity and have
large waiting lists making admission more difficult. The demand for nonsectarian private education has increased in
recent years as parents and students become more focused on the comprehensive impact of a strong school environment.
We will continue to seek opportunities for the development of, or acquisition of, other education related properties that
leverage our expertise in this area.
Many of our education lease and mortgage agreements contain purchase or prepayment options whereby the tenant or
borrower 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. If these properties meet certain criteria, the tenants may be able to obtain
bond or other financing at lower rates and therefore be motivated to exercise these options. 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.
In accordance with GAAP, prepayment penalties related to mortgage agreements are included in mortgage and other
financing income and are included in FFO as adjusted (See Item 7 – “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Funds From Operations” for a discussion of FFO and FFO as adjusted,
which are non-GAAP measures). However, if a tenant exercises the option to purchase a property under lease, GAAP
requires that a gain on sale be recognized for the amount of cash received over the carrying value of the property and
gains on sale are typically excluded from FFO as adjusted. Accordingly, for consistency in presentation and with the
wording and intent of the lease provisions, we treat the premium over the total development cost (i.e. the undepreciated
cost) as a termination fee and include such fees in FFO as adjusted, and only the difference between the total development
cost and the carrying value is treated as gain on sale and excluded from FFO as adjusted.
During the year ended December 31, 2016, we received prepayment of $19.3 million on one mortgage note receivable
that was secured by a public charter school located in Washington D.C. and we received a prepayment fee of $3.6
million. In addition, pursuant to tenant purchase options, we completed the sale of two public charter schools located
in Colorado for net proceeds totaling $16.6 million. In connection with these sales, we recognized gains on sale of
$2.8 million. In December 2016, we also extended the tenant purchase option for a public charter school located in
Arizona. In connection with this extension, we received a fee of $1.6 million, which is included in Other income in
the accompanying consolidated statements of income for the year ended December 31, 2016 in this Annual Report on
Form 10-K.
As of December 31, 2016, the number of education properties potentially impacted by option exercises, the total
development cost and the total estimated amount of the prepayment penalties or lease termination fees in the first option
period by year are as follows (dollars in thousands):
Year Option
First
Exercisable
Number of
Education
Properties
Total
Development
Cost
Total Estimated
Termination Fees/
Prepayment
Penalties in First
Option Period
2017
2018
2019
2020
2021
Thereafter
7
10
12
9
10
5
$
71,050
$
96,914
131,894
71,101
88,362
158,386
4
16,145
17,309
22,906
12,830
15,605
22,357
Recreation
As of December 31, 2016, our Recreation segment consisted of investments in ski areas, waterparks, golf entertainment
complexes and other recreation totaling approximately $1.1 billion with interests in:
•
•
•
•
11 ski areas located in Ohio, Maryland, New York, Pennsylvania, Vermont and Virginia;
five waterparks located in Kansas, Texas and Pennsylvania;
25 golf entertainment complexes in 14 states; and
$98.4 million in construction in progress for golf entertainment complexes, the development of an indoor
waterpark hotel at the Adelaar casino and resort project located in Sullivan County, New York and a waterpark
located in North Carolina.
As of December 31, 2016, our owned recreation real estate portfolio was 100% leased. Our ski areas are leased to, or
we have mortgages receivable from, four different operators.
Our daily attendance ski parks provide a sustainable advantage for the value conscious consumer, providing outdoor
entertainment during the winter. All of the ski areas that serve as collateral for our mortgage notes in this area, 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 areas lies in the convenient, low cost and reliable experience consumers
can expect. Given that all of our ski areas 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.
Our three waterparks located in Kansas and Texas offer innovative attractions that draw a diverse segment of customers.
These waterparks serve as collateral for our mortgage notes and are operated by Schlitterbahn Waterparks and Resorts,
an industry leader. Our other two waterparks, located in Pennsylvania, are leased to the operator of Camelback Mountain
Ski Resort and include an indoor waterpark hotel and an outdoor waterpark as well as an adventure park. We also have
an indoor waterpark hotel in process at the Adelaar project in Sullivan County, New York, for which we have committed
to fund approximately $155.0 million over the next three years. As many waterparks are growing from single-day
attendance to a destination getaway, we believe indoor waterpark hotels increase the four-season appeal at many resorts.
We expect to continue to pursue opportunities in this area.
Our golf entertainment complexes are leased to, or 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 related to golf entertainment complexes.
On November 2, 2016, the Company and Ski Resort Holdings LLC ("SRH"), an entity owned by funds affiliated with
Och-Ziff Real Estate, entered into a definitive Purchase and Sale Agreement with CNL Lifestyle Properties, Inc. ("CNL")
and certain of its affiliates. The agreement provides for our acquisition of the Northstar California Ski Resort, 15
attraction properties (waterparks and amusement parks) and five small family entertainment centers for aggregate
consideration valued at approximately $456.0 million. Additionally, we have agreed to provide approximately $244.0
million of five year secured debt financing to SRH for the purchase of 14 CNL ski properties valued at approximately
$374.0 million. Our aggregate investment in this transaction is projected to be valued at approximately $700.0 million
and is expected to be funded with approximately $647.0 million of EPR common shares and $53.0 million of cash
before prorations, transaction costs and closing adjustments, a portion of which is expected to be included in the secured
debt financing to SRH. Additionally, we have also agreed to fund 65% of pre-approved, future property improvements
with such advances capped at $52.0 million. All SRH financing will bear interest at 8.5%. For further information on
this transaction, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations
- Recent Developments".
5
We will continue to seek opportunities for the development of, or acquisition of, other recreation related properties that
leverage our expertise in this area.
Other
As of December 31, 2016, our Other segment consisted primarily of land under ground lease, property under
development and land held for development totaling approximately $178.2 million related to the Adelaar casino and
resort project in Sullivan County, New York.
Business Objectives and Strategies
Our vision is to become the leading specialty REIT by focusing our unique knowledge and resources on select
underserved real estate segments which provide the potential for outsized returns.
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
Central to our growth is remaining focused on acquiring or developing properties in our primary investment segments:
Entertainment, Education and Recreation. We may also pursue opportunities to provide mortgage financing for these
investment segments in certain situations where this structure is more advantageous than owning the underlying real
estate.
Our segment focus is consistent with our strategic organizational design which is structured around building centers
of knowledge and strong operating competencies in each of our primary segments. Retention and building of this
knowledge depth creates a competitive advantage allowing us to more quickly identify key market trends.
To this end, we will deliberately apply information and our ingenuity to identify properties which represent potential
logical extensions within each of our segments, or potential future investment segments. As part of our strategic planning
and portfolio management process we assess new opportunities against the following five key underwriting principles:
Inflection Opportunity
Specialty versus commodity real estate
•
• New or emerging generation of real estate as a result of age, technology or change in consumer
lifestyle or habits
Enduring Value
• Underlying activity long-lived
• Real estate that supports commercially successful activities
• Outlook for business stable or growing
Excellent Execution
• Best-of-class executions that create market-dominant properties
•
• Tenants with a reliable track record of customer service and satisfaction
Sustainable customer demand within the category despite a potential change in tenancy
Attractive Economics
•
Initially accretive with escalating yield over time
6
• Rent participation features which allow for participation in financial performance
•
•
Scalable depth of opportunity
Strong, stable rent coverage and the potential for cross default features
Advantageous Position
First mover advantage and/or dominant player in real estate ownership or financing
Preferred tenant or borrower relationship that provides access to sites and development projects
•
•
• Data available to assess and monitor performance
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.
Lease Structure
We have structured our leasing arrangements to achieve a positive spread between our cost of capital and the rents 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 and Redevelopment
We intend to continue developing properties and redeveloping existing 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.
We will also investigate opportunities to redevelop certain of our existing properties. We may redevelop properties in
conjunction with a lease renewal or new tenant, or we may redevelop properties that have more earnings potential due
7
to the redevelopment. Additionally, certain of our properties have excess land where we will proactively seek
opportunities to further develop.
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.
Dispositions
We will consider property dispositions for reasons such as creating price awareness of a certain property type,
opportunistically taking advantage of an above market offer or reducing exposure related to a certain tenant, property
type or geographic area.
Capitalization Strategies
Debt and Equity Financing
Our ratio of net debt to adjusted EBITDA, a non-GAAP measure (see "Non-GAAP Financial Measures" for definitions
and reconciliations), is our primary measure to evaluate our capital structure and the magnitude of our debt against our
operating performance. In prior periods, we primarily utilized the ratio of debt to gross assets, but we believe this metric
is less commonly used by investors and lenders than net debt to adjusted EBITDA and is therefore less meaningful to
them in performing their evaluations. We expect to maintain our net debt to adjusted EBITDA ratio between 4.6x to
5.6x. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources” for a further discussion of this ratio.
We rely primarily on an unsecured debt structure and expect to continue to pay off our existing secured debt. 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
increases our access to capital and permits 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. See Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Recent Developments" for a discussion of our proposed transaction
with CNL.
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.
8
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 and FFO as adjusted 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, 2016, we had 57 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.
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
The proposed transaction with CNL presents certain risks to our business, financial condition, results of operations
and cash flows.
On November 2, 2016, the Company and SRH, an entity owned by funds affiliated with Och-Ziff Real Estate, entered
into a Purchase and Sale Agreement with CNL, CLP Partners, LP, CNL's operating partnership, and certain CNL
subsidiaries. The agreement provides for our acquisition of the Northstar California Ski Resort, 15 attraction properties
9
(waterparks and amusement parks) and five small family entertainment centers for aggregate consideration valued at
approximately $456.0 million. Additionally, we have agreed to provide approximately $244.0 million of five-year
secured debt financing to SRH for the purchase of 14 CNL properties valued at approximately $374.0 million, including
14 ski and mountain lifestyle assets located in the United States and Canada. Our aggregate investment in this transaction
is projected to be valued at approximately $700.0 million and is expected to be funded with approximately $647.0
million of our common shares (subject to a collar mechanism described below) and $53.0 million of cash before pro-
rations, transaction costs and closing adjustments, a portion of which is expected to be included in the secured debt
financing to SRH. The transaction is subject to customary closing conditions, including the approval of the transaction
by stockholders holding a majority of the outstanding shares of common stock of CNL and various third party consents
and governmental permits. It is anticipated that this transaction will close in early second quarter of 2017; however,
there can be no assurances as to the actual closing or the timing of the closing.
Prior to closing, the transaction may present certain risks to our business, financial condition, results of operations and
cash flows, including among other things, that:
•
•
if the transaction does not occur, we may incur significant payment obligations to CNL in certain circumstances,
failure to complete the transaction could negatively impact the market value of our common shares, preferred
shares and debt securities, and our future business, financial condition, results of operations, cash flows and
prospects, and could cause securities and industry analysts and others who follow our Company to lower their
expectations regarding our future performance and prospects,
• CNL may not obtain stockholder approval or other closing conditions may not be satisfied or waived, or such
stockholder approval or the satisfaction or waiver of such other closing conditions may be delayed,
•
•
consummation of the transaction may result in a substantial diversion of time and resources of both our
management and other employees and may limit the time available to them to focus on other aspects of our
business, including, without limitation, identifying other investments, acquisitions and strategic opportunities,
due to covenants in the Purchase and Sale Agreement, we may be unable to pursue certain strategic transactions
or financing transactions or pursue other actions that we might consider beneficial,
• we have incurred substantial expenses and expect to incur additional substantial expenses related to the
transaction, including legal, accounting, financial advisory, filing, printing and mailing expenses, and
•
our common share consideration for the transaction is subject to a two-way collar between the average of our
common share prices (calculated using a 10-day volume weighted average price) (the "Average EPR Share
Price") of $68.25 and $82.63. If our common share price increases between the signing of the Purchase and
Sale Agreement and the closing, CNL will receive fewer shares until the Average EPR Share Price reaches
$82.63, at which point the number of shares will be fixed at approximately 7.8 million. Conversely, if our
common share price decreases between signing of the Purchase and Sale Agreement and closing, CNL will
receive more shares until the Average EPR Share Price reaches $68.25, at which point the number of shares
will be fixed at approximately 9.5 million. Post transaction, CNL will be issued between approximately 11%
and 13% of our pro forma common shares outstanding before distributing the shares to the CNL stockholders
(based upon our issued and outstanding common shares as of December 31, 2016). A change in share price
between the date of signing and the closing may significantly impact the number of our common shares to be
issued in the transaction.
In addition, if the CNL transaction closes, we will face certain additional risks to our business, financial condition,
results of operations and cash flows, including among other things, that:
10
• we may encounter difficulties and incur substantial expenses in integrating the acquired properties into our
operations and systems and, in any event, the integration may require a substantial amount of time on the part
of both our management and employees and therefore divert their attention from other aspects of our business,
• CNL will distribute our common shares to CNL's stockholders who are expected to own between 11% and
13% of our issued and outstanding common shares after the transaction (based upon our issued and outstanding
common shares as of December 31, 2016), and they may decide to sell those common shares, which could
result in additional pressure on the price of our common shares,
•
•
our future business, financial condition, results of operations and cash flow will suffer if we do not effectively
manage our expanded portfolio,
the market price of our common shares, preferred shares and debt securities may decline, particularly if we
do not achieve the perceived benefits of the transaction as rapidly or to the extent anticipated by securities or
industry analysts or if the effect of the transaction on our financial condition, results of operations and cash
flows is not consistent with the expectations of these analysts,
• we may incur unanticipated capital expenditures in order to maintain or improve the properties acquired in
the transaction,
• we may encounter difficulties in managing a substantially larger and more complex portfolio of recreation
properties in new geographic areas,
• we may incur adverse tax consequences if the Company following the transaction closing fails to qualify as
a REIT for U.S. federal income tax purposes,
• we will be subject to risks associated with providing mortgage financing to SRH in connection with the
transaction, including any default under such mortgage financing,
•
•
tenants of the properties that we acquire in the transaction may default on the terms of their respective leases,
we may face litigation or other claims in connection with, or as a result of, the transaction, including claims
from terminated employees, tenants, former stockholders or other third parties, and
•
we may encounter unanticipated or unknown liabilities relating to the acquired properties.
As a result of the foregoing, we cannot assure you that our estimates of benefits and accretion from the transaction with
CNL will not be overstated. Furthermore, the occurrence of any of the risks described above could have a material
adverse effect on our business, financial condition, results of operations and cash flows. Certain of the above risks are
described in more detail under the heading "Risk Factors" in the prospectus (Registration No. 333-215099), which was
filed with the SEC by the Company on January 25, 2017.
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. Increased uncertainty in the wake of the "Brexit" referendum in
the United Kingdom in June 2016, in which the majority of voters voted in favor of an exit from the European Union,
as well as political changes in the U.S and abroad, have contributed to volatility in the global financial markets. Although
the U.S. economy is improving, there can be no assurances that the U.S. economy will continue to improve or that a
future recession will not occur. We rely 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 unable to refinance existing indebtedness on attractive
terms at its maturity, we may be forced to dispose of some of our assets. Uncertain economic conditions and disruptions
11
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.
Many of our customers, consisting of tenants and borrowers, operate in market segments that depend upon
discretionary spending by consumers. Any reduction in discretionary spending by consumers within the market
segments in which our customers or potential customers operate could adversely affect such customers' operations
and, in turn, reduce the demand for our properties or financing solutions.
Most of our portfolio is leased to or financed with customers operating service or retail businesses on our property
locations. Movie theatres, entertainment retail centers, recreation and entertainment venues, early childhood education
centers, private K-12 schools, ski areas and attractions represent some of the largest market investments in our portfolio;
and AMC, Regal Cinemas, Inc., Cinemark USA, Inc. and Topgolf represented our largest customers for the year ended
December 31, 2016. The success of most of these businesses depends on the willingness or ability of consumers to use
their discretionary income to purchase our customers' products or services. The success of the properties that we have
proposed to acquire in the CNL transaction is similarly dependent upon such discretionary spending. A downturn in
the economy could cause consumers to reduce their discretionary spending within the market segments in which our
customers or potential customers operate, which could adversely affect such customers' operations and, in turn, reduce
the demand for our properties or financing solutions.
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.
The U.S. Federal Reserve recently increased its benchmark interest rate and signaled that rates could continue to rise
more quickly than previously expected. If interest rates continue to 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 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 (the “Adelaar Project”),
which is now the subject of ongoing litigation. We cannot predict the duration or outcome of this litigation. Prolonged
litigation or an unfavorable outcome could have a material adverse effect on the Adelaar Project or our financial
condition and results of operations.
Prior proposed casino and resort developers Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha
LLC, which are affiliates of Louis Cappelli and from whom we acquired the Adelaar resort property (the "Cappelli
Group"), commenced litigation against the Company beginning in 2011 regarding matters relating to the acquisition
of that property and our relationship with Empire Resorts, Inc. ("Empire Resorts") and certain of its subsidiaries (together
with Empire Resorts, collectively, the "Empire Project Parties"). This litigation involves three separate cases filed in
state and federal court. Two of the cases, a state and the federal case, are closed and resulted in no liability to the
Company.
The remaining case was filed on October 20, 2011 by the Cappelli Group against the Company and two of its affiliates
in the Supreme Court of the State of New York, County of Westchester (the "Westchester Action"), asserting a claim
for breach of contract and the implied covenant of good faith, and seeking damages of at least $800 million, based on
12
allegations that the Company had breached an agreement (the "Casino Development Agreement"), dated June 18, 2010.
We moved to dismiss the complaint in the Westchester Action based on a decision issued by the Sullivan County
Supreme Court (one of the two closed cases discussed above) on June 30, 2014, as affirmed by the Appellate Division,
Third Department (the "Sullivan Action"). On January 26, 2016, the Westchester County Supreme Court denied the
our motion to dismiss but ordered the Cappelli Group to amend its pleading and remove all claims and allegations
previously determined by the Sullivan Action. On February 18, 2016, the Cappelli Group filed an amended complaint
asserting a single cause of action for breach of the covenant of good faith and fair dealing based upon allegations the
Company had interfered with plaintiffs’ ability to obtain financing which complied with the Casino Development
Agreement. On March 23, 2016, the Company filed a motion to dismiss the Cappelli Group’s revised amended complaint.
On January 5, 2017, the Westchester County Supreme Court denied the Company’s second motion to dismiss. Discovery
is ongoing.
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 or resolving this litigation. 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.
The success of the Adelaar Project is largely dependent upon the successful development and operation of the
Montreign Resort Casino, which requires the Empire Project Parties to comply with the terms of a gaming license,
including investing or causing the investment of no less than approximately $854 million in the initial phase of the
Adelaar Project and timely construction of the casino and related properties. If Empire Resorts is unsuccessful in
its efforts to satisfy the conditions of the gaming license, the Adelaar Project and Montreign Resort Casino 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 December 21, 2015, Montreign Operating Company, LLC (“Montreign”), a subsidiary of Empire Resorts, was
awarded a license (a “Gaming Facility License”) by the New York State Gaming Commission to operate the Montreign
Resort Casino, a key component of the Adelaar Project. The Gaming Facility License is subject to a number of conditions,
including the requirement that Montreign invest, or cause to be invested, no less than $854 million in the initial phase
of the Adelaar Project. On January 24, 2017, Montreign announced it had secured $500 million in secured debt financing
for the project, which together with additional financing commitments will be used for such investment.
There can be no assurance that Empire Resorts will fully comply with the financial or other conditions of the Gaming
Facility License. In the event that Empire Resorts fails to comply with the conditions of the Gaming Facility License,
the Adelaar Project and Montreign Resort Casino may be indefinitely delayed or canceled, and there can be 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 expect to finance the cost of construction of common infrastructure at the Adelaar Project primarily through
the issuance of tax-exempt public infrastructure bonds, and we could overrun budgeted costs for such infrastructure
construction, which could significantly exceed the proceeds from the issuance of such bonds.
We are responsible for the construction of the Adelaar Project common infrastructure, which is expected to be financed
primarily through the issuance of tax-exempt public infrastructure bonds. The debt service of these bonds is expected
to be paid primarily through special assessments levied against the property held by the benefited users. In June 2016,
the Sullivan County Infrastructure Local Development Corporation issued $110.0 million of Series 2016 Revenue
Bonds, which is expected to fund a substantial portion of such construction costs. We received an initial reimbursement
of $43.4 million of construction costs and expect to receive an additional $44.9 million of reimbursements over the
balance of the construction period, which is expected to be completed in 2018. There can be no assurance that the cost
of construction of common infrastructure for the Adelaar Project will not exceed our budgeted amounts of approximately
$90.0 million, subject to budget adjustments and related approvals. If so, such excess may not be funded by the tax-
exempt public infrastructure bonds and, to the extent they exceed certain negotiated caps, or are allocated to land held
by us for development, may not be proportionately recovered from our tenants.
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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
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 significant
delays and 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.
The base term of some of our 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.
The base term of some of our 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
14
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.
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.
In addition, some of our theatre tenants have disclosed that they are subject to pending anti-trust investigations by the
U.S. Department of Justice and several states regarding such tenants' alleged anticompetitive practices, including seeking
agreements with motion picture distributors for exclusive rights to releases in certain markets. There can be no assurances
as to the outcome of such investigations or whether such investigations will materially adversely affect such tenants'
operations and, in turn, their ability to perform under their leases.
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.
AMC theatres, one of the nation's largest movie exhibition companies, is the lessee of a substantial number of our
megaplex theatre properties. On December 21, 2016, AMC announced that it closed its acquisition of Carmike cinemas.
For the year ended December 31, 2016, approximately $90.0 million or 18.2% of our total revenues were derived from
rental payments by AMC and approximately $21.7 million or 4.4% of our total revenues were derived from rental
payments by Carmike. AMC Entertainment, Inc. (“AMCE”) has guaranteed AMC's performance under substantially
all of their leases. In addition, AMC will now be responsible for Carmike's performance under its leases. Although
AMC has agreed to divest certain theatre properties in connection with obtaining antitrust approval for the acquisition
of Carmike, such divestitures are expected to be immaterial and, therefore, the acquisition will result in increased
revenue concentration risk. 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 or by acquiring or seeking to acquire other properties,
such as pursuant to the CNL transaction. 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, including the
leases acquired in the Carmike acquisition, 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, including the leases acquired in
the Carmike acquisition, 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
15
tenants are obtained. If that happened, we cannot predict when or whether we could obtain substitute quality tenants
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.
Our master lease agreement with Imagine Schools, Inc. ("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. 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. However,
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. In addition, Imagine has in certain previous sales of properties to third parties agreed to
pay us the difference between our carrying value and the sales price. Imagine also has a mortgage note obligation to
us as a result of sales of certain properties to Imagine. 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.
We are subject to risks relating to provisions included in some of our leases or financing arrangements with operators
of our education properties pursuant to which such operators have the option to purchase leased properties or prepay
notes relating to financed education properties.
Some of our leases or financing arrangements with education operators include provisions pursuant to which tenant
operators may purchase leased properties and mortgagor operators may prepay notes relating to financed education
properties, in each case, subject to option exercise payments or prepayment penalties. Some of these tenant or mortgagor
operators may be able to obtain alternative financing on more economically favorable terms, in which case, such
operators may choose to exercise their purchase option or prepayment right. If such operators exercise their purchase
options or prepayment rights, we cannot provide any assurances that we would be able to redeploy the capital associated
with these properties in other investments or that such investments would provide comparable returns, which could
reduce our earnings going forward.
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 existing variable rate debt and any new 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.
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Most of our debt instruments contain balloon payments which may adversely impact our financial performance and
our ability to pay dividends.
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.
Some of our properties are subject to mortgages that 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 our unsecured revolving credit facility and our term loan facility is also subject
to compliance with certain other covenants. We also have senior notes issued in a private placement transaction that
are subject to certain 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.
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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.
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. Furthermore, the results of
the November 8, 2016, U.S. Presidential election create uncertainty regarding future potential tax law reform.
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:
• 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 completion 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 or decide to cease such funding which, in turn, could result in failed projects 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 57 full-time employees as of December 31, 2016 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,
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our Executive Vice President and Chief Financial Officer; Morgan G. Earnest, our Senior Vice President and Chief
Investment Officer; Craig L. Evans, our Senior Vice President, General Counsel and Secretary; Thomas B. Wright, III,
our Senior Vice President - Human Resources and Administration; Michael L. Hirons, our Senior Vice President -
Strategy & Asset Management; and Tonya L. Mater, our Vice President and Chief Accounting Officer. 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.
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.
Changes in accounting standards issued by the Financial Accounting Standards Board ("FASB") or other standard-
setting bodies may adversely affect our financial statements.
Our financial statements are subject to the application of U.S. GAAP, which is periodically revised and/or expanded.
From time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative
bodies, including the FASB and the SEC. It is possible that future accounting standards we are required to adopt, such
as the amended guidance for revenue recognition, leases and share-based payments, may require changes to the current
accounting treatment that we apply to our consolidated financial statements and may require us to make significant
changes to our systems. Such changes could result in a material adverse impact on our business, financial condition
and results of operations.
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 rents and interest we receive and the occupancy levels
at our properties may decline as a result of adverse changes in any of the factors that affect the value of our real estate.
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.
The factors that affect the value of our real estate include, among other things:
•
•
•
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;
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•
•
•
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;
•
•
•
•
•
•
•
•
•
•
how well we manage our properties;
fluctuations in interest rates;
changes in real estate taxes and other expenses;
changes in market rental rates;
the timing and costs associated with property improvements and rentals;
changes in taxation or zoning laws;
government regulation;
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;
• 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.
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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,
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 Colorado, New York, California, Virginia, 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
21
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:
•
•
•
•
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;
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 have previously disclosed our intent to undertake certain asset dispositions. In addition, we may desire to sell other
properties 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 we have 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.
22
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 ski areas and expect 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 and attracting visitors. 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 area. We also
own and finance waterparks and we have proposed to acquire and finance a significant number of additional waterparks,
amusement parks and ski areas pursuant to the CNL transaction, which would also be subject to risks relating to weather
conditions such as in the case of waterparks and amusement parks, excessive rainfall or unseasonable temperatures,
and in the case of ski areas, the risks described above. Prolonged periods of adverse weather conditions, or the occurrence
of such conditions during peak visitation periods, could have a material 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
23
• 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.
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, which have increased in the past
year. If market interest rates continue to 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;
24
•
•
•
•
•
•
•
•
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;
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 employees calling for
severance compensation and vesting of equity compensation upon termination of employment upon a change
in control or certain events of the officers' termination of service.
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, 2016, our Series C preferred shares
are convertible, at each of the holder's option, into our common shares at a conversion rate of 0.3785 common shares
per $25.00 liquidation preference, which is equivalent to a conversion price of approximately $66.05 per common share
(subject to adjustment in certain events). Additionally, as of December 31, 2016, our Series E preferred shares are
convertible, at each of the holder's option, into our common shares at a conversion rate of 0.4569 common shares per
$25.00 liquidation preference, which is equivalent to a conversion price of approximately $54.72 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, such as in connection with the CNL transaction, with or without seeking shareholder
approval, which could result in significant dilution to our existing shareholders.
25
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 shareholdings 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
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. In addition, 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. Furthermore, the results of the November
8, 2016 U.S. Presidential election create uncertainty regarding future potential tax law reform. 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. Furthermore, any proposals seeking broader reform of U.S. federal income tax laws, 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.
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.
26
Item 2. Properties
As of December 31, 2016, 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 141 megaplex
theatre properties, eight entertainment retail centers (which include eight additional megaplex theatre properties) and
eight family entertainment centers. The Education segment included investments in 67 public charter school properties,
41 early education centers and 12 private school properties. The Recreation segment included investments in 11 ski
areas, five waterparks, 25 golf entertainment complexes and one other recreation property. The Other segment consisted
primarily of the land under ground lease, property under development and land held for development related to the
Adelaar casino and resort project in Sullivan County, New York. Our properties are located in 40 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.
27
Entertainment Properties:
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
San Antonio, TX
Dallas, TX
Sugar Land, TX (1) (8)
Leawood, KS (9)
Omaha, NE
Columbus, OH (1)
San Diego, CA (1)
Ontario, CA
Houston, TX
Creve Coeur, MO
San Antonio, TX
Houston, TX (2)
South Barrington, IL
Mesquite, TX (2)
Hampton, VA
Raleigh, NC
Davie, FL
Pompano Beach, FL
Aliso Viejo, CA
Boise, ID (1)
Mesquite, TX
Woodridge, IL (2)
Tampa, FL
Westminster, CO
Cary, NC
San Diego, CA
Houston, TX
Westminster, CO
Metairie, LA (1)
Harahan, LA
Hammond, LA
Houma, LA
Harvey, LA
Greenville, SC
Sterling Heights, MI
Olathe, KS
Greenville, SC
Livonia, MI
Alexandria, VA (1)
Little Rock, AR
Macon, GA
Southfield, MI
Southfield, MI
Lawrence, KS (7)
New Rochelle, NY
New Rochelle, NY
Columbia, SC
Suffolk, VA
Suffolk, VA
Hialeah, FL
Phoenix, AZ
Mesa, AZ
Hamilton, NJ
Mississagua, ON (17)
Kanata, ON (17)
Whitby, ON (17)
Oakville, ON (17)
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
Subtotal Entertainment Properties, carried over to next page
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
136,154 AMC
60,418 AMC
27,485 Altitude Trampoline Park
130,891 AMC
130,757 AMC
130,891 AMC
107,396 AMC
51,450 Cinemark
96,497 Cinemark
73,637 AMC
98,557 Regal
140,300 Regal
6,200 Various
82,000 AMC
84,000 AMC
89,260 AMC
77,475 Regal
88,610 AMC
7,808 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
19,852 Various
42,497 Regal
102,267 Regal
343,809 Various
56,705 Regal
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
4,986,940
2,576
2,962
4,145
962
4,668
4,461
4,173
3,411
4,925
1,029
—
5,701
2,069
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
3,443
3,997
2,950
5,962
—
2,386
4,893
—
2,938
3,036
—
4,900
1,908
1,257
4,183
3,856
4,764
4,688
4,772
176,838
14
14
23
20
24
24
20
19
30
16
—
30
21
30
24
16
24
18
20
22
—
18
20
24
20
24
—
—
12
20
10
10
16
16
30
28
—
20
21
18
16
20
—
12
18
—
14
16
—
18
10
14
24
16
24
24
24
966
28
Entertainment Properties:
Location
Subtotal from previous page
Mississagua, ON (17)
Kanata, ON (17)
Whitby, ON (17)
Oakville, ON (17)
Lafayette, LA (1)
Peoria, IL
Warrenville, IL
Hurst, TX
D'Iberville, MS (3)
Melbourne, FL
Wilmington, NC
Chattanooga, TN (10)
Burbank, CA
Burbank, CA
Conroe, TX
Indianapolis, IN (5)
Hattiesurg, MS (6)
Arroyo Grande, CA
Auburn, CA
Fresno, CA (4)
Modesto, CA (1)
Columbia, MD (1)
Garland, TX (11)
Garner, NC
Winston Salem, NC (1)
Huntsville, AL
Kalamazoo, MI
Slidell, LA (1) (12)
Pensacola, FL
Panama City Beach, FL
Austell, GA
Kalispell, MT
Greensboro, NC (1)
Glendora, CA (1)
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
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
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
4,986,940
115,934 Various
384,373 Various
149,487 Various
140,830 Various
61,579
Southern
82,330 AMC
Southern
7,500 Various
98,250 Cinemark
59,533
Southern
75,850 AMC
57,338 Regal
82,330 AMC
86,551 AMC
34,818 Various
45,000
Southern
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
90,200 AMC
65,525 Alamo Draft House Cinemas
62,300
74,400 AMC
75,605
Southern
Southern
Southern
— Various
44,650 Cinemark
74,517
Southern
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
57,202 Cinemark
79,453 Cinemark
62,658 AMC
84,202 AMC
73,634 Cinemark
111,166 Cinemark
63,829 Cinemark
63,352 Cinemark
109,986 Cinemark
109,030 Cinemark
9,101,613
176,838
—
—
—
—
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
3,028
2,619
3,496
4,150
1,007
2,695
3,361
3,636
—
2,088
3,320
2,186
—
5,602
4,317
3,094
3,772
3,544
3,493
3,000
1,624
1,329
3,264
3,098
3,194
3,211
3,775
3,152
2,805
4,597
4,742
316,455
966
—
—
—
—
16
18
—
18
18
16
16
18
16
—
14
12
18
10
10
16
10
14
17
14
18
18
10
16
15
16
—
14
18
12
—
20
18
12
18
14
14
12
16
14
16
16
20
14
15
14
15
20
20
1,662
29
Entertainment Properties:
Location
Subtotal from previous page
Grand Prairie, TX
Houston, TX
McKinney, TX
Mishawaka, IN
Pasadena, TX
Pflugerville, TX
Plano, TX
Pueblo, CO
Redding, CA
Virginia Beach, VA (1)
Dallas, TX
Merrimack, NH (14)
Hooksett, NH
Saco, ME
Westbrook, ME
Twin Falls, ID (1)
Northbrook, IL (1)
Jacksonville, FL
Indianapolis, IN
Dallas, TX (1)
Oakbrook, IL (1)
Southern Pines, NC
Albuquerque, NM (1)
Austin, TX
Champaign, IL (1)
Gainesville, VA (1)
Lafayette, LA (1) (13)
New Iberia, LA (1) (13)
San Francisco, CA
Tuscaloosa, AL (1)
Warrenville, IL (2)
Tampa, FL
Warrenville, IL
Opelika, AL
Bedford, IN (15)
Seymour, IN (15)
Wilder, KY (15)
Bowling Green, KY (15)
New Albany, IN (15)
Clarksville, TN (15)
Williamsport, PA (15)
Noblesville, IN (15)
Moline, IL (15)
O'Fallon, MO (15)
McDonough, GA (15)
Sterling Heights, MI
Virginia Beach, VA
Yulee, FL
Schaumburg, IL
Jacksonville, FL
Denham Springs, LA (1)
Crystal Lake, IL
Laredo, TX
Marietta, GA
Delmont, PA
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
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
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
2/15
2/15
4/15
5/15
5/15
7/15
12/15
2/16
6/16
9,101,613
Pinstripes
LOOK Cinemas
Pinstripes
Frank Theatres, LLC
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 Group, Inc.
33,250 GMBG
42,400 Cinemagic
55,000 Cinemagic
54,000 Cinemagic
53,000 Cinemagic
38,736 Cinema West
39,289
46,000 Main Event
65,000 Main Event
62,684
66,442
36,180
71,297 Regal
36,000 Alamo Draft House Cinemas
55,063 AMC
57,943 Regal
52,957
32,760
19,237 Alamo Draft House Cinemas
65,442 Cobb
70,000 Regal
94,774 AMC
35,000 Main Event
55,063 AMC
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
Southern
Southern
— MJR Digital Cinemas
PBS Schaumburg, LLC
43,764 Regal
36,200 AMC
25,052
82,064 AMC
46,360
73,000 Regal
31,800 Alamo Draft House Cinemas
Southern
105,470 Andretti Indoor Karting & Games
45,319 AMC
11,973,619
316,455
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
537
2,912
3,866
762
—
2,896
1,009
1,216
991
1,803
2,824
2,824
1,872
1,303
2,270
2,114
2,602
—
1,200
1,796
—
1,951
2,200
1,173
816
—
1,720
414,055
1,662
15
16
14
14
20
20
10
14
14
7
—
12
15
13
16
13
—
—
—
11
—
10
16
10
13
10
14
10
5
16
17
11
—
13
7
8
14
12
16
16
12
10
14
14
16
—
12
10
—
24
14
16
7
—
12
2,265
30
Subtotal Entertainment Properties, carried over to next page
Location
Entertainment Properties:
Subtotal from previous page
Kennewick, WA
Franklin, TN
Mobile, AL
El Paso, TX
Edinburg, TX
Hendersonville, TN
Detroit, MI
Subtotal Entertainment Properties
Education Properties:
Columbus, OH
Mesa, AZ
Surprise, AZ
Las Vegas, NV
Groveport, OH
Cleveland, OH
Washington, DC
Phoenix, AZ
Groveport, OH
Baton Rouge, LA
Goodyear, AZ
Gilbert, AZ
Phoenix, AZ
Broomfield, CO
Phoenix, AZ
Salt Lake City, UT
Hurricane, UT
Buckeye, AZ
Gilbert, AZ
Tarboro, NC
Chester Upland, PA
Hollywood, SC
Lake Pleasant, AZ
Camden, NJ
Vista, CA
Columbus, OH
Dayton, OH
Toledo, OH
Gilbert, AZ
Chicago, IL
Colorado Springs, CO
Chandler, AZ
Columbus, OH
Goodyear, AZ
Salt Lake City, UT
Oklahoma City, OK
Las Vegas, NV
Coppell, TX
Las Vegas, NV
Palm Beach, FL
Mesa, AZ
Kernersville, NC
San Jose, CA
Brooklyn, NY (1)
Acquisition
date
Screens
Seats
n/a
6/16
6/16
6/16
6/16
6/16
7/16
11/16
9/07
9/07
9/07
10/07
10/07
10/07
10/07
10/07
1/10
3/11
4/11
6/11
6/11
8/11
11/11
3/12
3/12
4/12
5/12
7/12
3/13
3/13
3/13
4/13
5/13
5/13
5/13
5/13
5/13
5/13
6/13
7/13
11/13
6/13
7/13
8/13
9/13
9/13
9/13
10/13
12/13
12/13
12/13
12/13
Building
(gross sq. ft)
11,973,619
Tenant
47,004 AMC
109,956 AMC
60,471 AMC
60,283 AMC
87,539 AMC
65,966 Regal
56,804
12,461,642
Emagine Entertainment
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
71,949
45,214
45,578
59,060
78,000
57,652 Harvard Avenue Community School
34,962
47,186
72,346
54,975 CSDC
37,502 Bradley Project Development
61,149
24,582
60,818
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
PCI ALA Gilbert LLC
Phoenix Charter Properties
Prospect Ridge Acad Project
Development
Skyline Schools Project
Development
Pacific Heritage Acad Project
Development
56,724
45,125
25,324 Valley Acad Project Development
Schoolhouse Buckeye LLC
85,154
211,440
Schoolhouse Queen Creek LLC
110,000 NE Carolina Prep Acad Project
Development
25,200 CSMI
59,181
Lowcountry Leadership Project
Development
15,309 CLA Properties
59,024 CSMI
26,454 Bella Mente Project Development
Imagine Schools, Inc.
41,575
Imagine Schools, Inc.
52,112
Imagine Schools, Inc.
48,375
52,723 CAFA Gilbert Investments
62,900 Concept Schools
110,000 GVA CS Project Development
Schoolhouse Galleria LLC
70,000
Skyline Chandler Project
Development
Imagine Schools, Inc.
67,043
20,746 CLA Properties
160,000
25,737 CLA Properties
16,534 CLA Properties
25,737 CLA Properties
25,737 CLA Properties
80,000 Discovery Schools
34,647
iLEAD Lancaster Project
Development
38,448 NC Leadership Project
Development
80,604 Highmark Independent LLC
89,556 Highmark Independent LLC
2,572,382
2,265
12
20
16
16
20
16
9
2,374
414,055
1,722
3,300
1,885
1,792
2,500
3,027
1,026
429,307
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Subtotal Education Properties, carried over to next page
31
Location
Education Properties:
Subtotal from previous page
Mesa, AZ
Fort Collins, CO
Chicago, IL
Wilson, NC
Gilbert, AZ
Baker, LA
Charlotte, NC
Chicago, IL
Cedar Park, TX
High Point, NC
Thornton, CO
Chicago, IL
Chandler, AZ
Centennial, CO
Port Royal, SC
McKinney, TX
Parker, CO
Parker, CO
Littleton, CO
Lakewood, CO
Castle Rock, CO
Arvada, CO
Memphis, TN
Macon, GA
Palm Bay, FL
Emeryville, CA
Rock Hill, SC
Lafayette, CO
East Point, GA
High Point, NC
McLean, VA
Maple Grove, MN
Memphis, TN
Carmel, IN
Bridgeton, NJ
Atlanta, GA
Atlanta, GA
Macon, GA
Galloway, NJ
Bronx, NY
Parker, CO
Holland, OH
Louisville, KY
Louisville, KY
Mission Viejo, CA
Louisville, KY
Bala Cynwyd, PA
Subtotal Education Properties
Recreation Properties:
Bellfontaine, OH (1) (16)
Allen, TX (1)
Dallas, TX (1)
Houston, TX (1)
McHenry, MD (1) (18)
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
n/a
1/14
2/14
2/14
3/14
3/14
4/14
5/14
5/14
7/14
7/14
7/14
7/14
8/14
8/14
9/14
11/14
1/15
1/15
1/15
1/15
1/15
1/15
2/15
2/15
3/15
3/15
4/15
4/15
5/15
6/15
6/15
8/15
9/15
9/15
9/15
10/15
10/15
11/15
12/15
1/16
4/16
4/16
8/16
8/16
9/16
12/16
12/16
11/05
2/12
2/12
9/12
12/12
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,572,382
25,744 CLA Properties
51,180 GVA FC Project Development
102,000 British Schools of America
29,000 Wilson Prep Project Development
25,737 CLA Properties
ICE Project Development LLC
34,033
38,607 Bradford Charter Holdings LLC
65,885 Concept Schools
25,737 CLA Properties
39,000
Phoenix Academy Project
Development
Lowcountry Charter Holdings LLC
25,737 CLA Properties
16,000
TGS Holdings, LLC
31,240 American Charter Development
25,737 CLA Properties
28,070
33,237 CLA Properties
37,180 Global Village Academy
6,260 Global Village International
8,777 Global Village International
4,995 Global Village International
8,580 Global Village International
4,995 Global Village International
135,959 DuBois Lanier Project
Development LLC
64,362 Macon Charter Academy
47,895
8,520
Pineapple Cove Classical Academy
LePort Educational Institute, Inc.
50,000 Riverwalk Academy
4,950 Global Village International
Fulton Leadership Academy
Phoenix Academy Project
Development
40,000
60,000
215,275 BASIS Independent
33,237 CLA Properties
37,310 Du Bois Consortium
33,237 CLA Properties
20,000 Bridgeton Project Development
LLC
13,797 Nobel Learning Communities Inc
13,930 Nobel Learning Communities Inc
45,045 Cirrus Education Group, Inc.
26,872 CSMI, LLC
20,000
Family Life Academy Charter
School
Parker Performing Arts School
iLead Schools Development
52,183
30,120
8,983 Cadence Education
6,319 Cadence Education
Stratford Schools
21,286
15,936 Cadence Education
20,881 Cadence Education
4,266,210
48,427
63,242
46,400
65,000
113,135
336,204
Peak Resorts, Inc.
Topgolf USA
Topgolf USA
Topgolf USA
Everbright Pacific, LLC
Subtotal Recreation Properties, carried over to next page
32
Location
Recreation Properties:
Subtotal from previous page
Colony, TX
Tannersville, PA (19)
Alpharetta, GA
Scottsdale, AZ (1)
Spring, TX
San Antonio, TX (1)
Tampa, FL (1)
Gilbert, AZ
Overland Park, KS
Ashburn, VA (1)
Atlanta, GA
Centennial, CO
Naperville, IL
Oklahoma City, OK
Webster, TX
Virginia Beach, VA
Wintergreen, VA (1) (20)
Edison, NJ (1)
Tannersville, PA (1)
Jacksonville, FL
Roseville, CA
Portland, OR (1)
Subtotal Recreation Properties
Other Properties:
Kiamesha Lake, NY (21)
Subtotal Other Properties
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
n/a
12/12
9/13
5/13
6/13
7/13
12/13
2/14
2/14
5/14
6/14
6/14
6/14
8/14
9/14
11/14
12/14
2/15
4/15
5/15
9/15
10/15
11/15
07/10
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Topgolf USA
336,204
64,100
155,669 CBK
Topgolf USA
64,232
Topgolf USA
59,850
Topgolf USA
64,232
Topgolf USA
64,232
Topgolf USA
64,232
Topgolf USA
64,232
Topgolf USA
65,000
Topgolf USA
64,232
Topgolf USA
65,000
Topgolf USA
64,232
Topgolf USA
64,232
Topgolf USA
65,000
Topgolf USA
64,232
Topgolf USA
64,232
Pacific Group Resorts Inc.
164,612
65,000
Topgolf USA
580,527 CBK Lodge & CBH20
Topgolf USA
Topgolf USA
Topgolf USA
65,000
64,232
64,232
2,456,746
— Montreign Operating Company,
LLC
—
Total
2,374
429,307
19,184,598
(1) Third-party ground leased property. Although we are the tenant under a ground lease and have assumed responsibility for performing the obligations
(2)
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 a $8.6 million mortgage note payable.
(4) Property is included as security for a $9.3 million mortgage note payable.
(5) Property is included as security for a $4.0 million mortgage note payable.
(6) Property is included as security for a $8.2 million mortgage note payable.
(7) Property is included as security for a $3.8 million mortgage note payable.
(8) Property is included as security for a $14.5 million mortgage note payable.
(9) Property is included as security for a $12.1 million mortgage note payable.
(10) Property is included as security for a $10.0 million mortgage note payable.
(11) Property is included as security for a $12.5 million mortgage note payable.
(12) Property is included as security for $10.6 million bond payable.
(13) Property is included as security for a $14.4 million bond payable.
(14) Property in included as security for a $3.3 million mortgage note payable.
(15) Property is included as security for a $88.6 million mortgage note payable.
(16) Property includes approximately 60 skiable acres.
(17) Property is located in Ontario, Canada.
(18) Property includes 690 skiable acres.
(19) Property includes 160 skiable acres.
(20) Property includes 129 skiable acres.
(21) Property includes 1,735 acres.
33
As of December 31, 2016, our owned portfolio of entertainment properties consisted of 12.5 million square feet and was
99% leased, including 10.5 million square feet of owned megaplex theatre properties that were 100% leased. The following
table sets forth lease expirations regarding EPR’s owned megaplex theatre portfolio as of December 31, 2016 (dollars in
thousands).
Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Thereafter
Number of
Properties
3
15
3
4
8
13
6
13
5
8
15 (2)
5
19 (3)
5
11 (4)
3
6
2
2
2
—
148
Megaplex Theatre Portfolio
Square
Footage
320,060
1,288,401
286,486
275,122
566,379
956,935
563,841
1,064,337
309,815
468,174
812,186
303,851
1,548,496
344,574
738,229
119,566
313,641
111,493
51,037
103,164
—
10,545,787
Revenue for the Year
Ended December 31, 2016 (1)
8,409
$
25,493
7,877
7,517
10,898
24,086
11,631
25,837
10,920
12,580
19,006
7,447
23,543
8,462
13,514
2,097
4,370
1,977
2,297
850
—
228,811
$
% of
Company's
Total
Revenue
1.7%
5.1%
1.6%
1.5%
2.2%
4.9%
2.4%
5.2%
2.2%
2.6%
3.9%
1.5%
4.8%
1.7%
2.7%
0.4%
0.9%
0.4%
0.5%
0.2%
—%
46.4%
(1) Consists of rental revenue and tenant reimbursements.
(2) Eleven of these properties are leased under a master lease.
(3) Fifteen of these theatre properties are leased under a master lease.
(4) Four of these theatre properties are leased under a master lease and five of these theatre properties are leased under a
separate master lease.
34
As of December 31, 2016, our owned portfolio of education properties consisted of 4.3 million square feet and was 100%
leased. The following table sets forth lease expirations regarding EPR’s owned education portfolio as of December 31,
2016 (dollars in thousands).
Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Thereafter
Number of
Properties
1
1
—
—
—
—
—
—
—
—
—
—
—
—
12 (1)
12 (2)
10 (3)
14
24 (4)
14
3
91
Education Portfolio
Square
Footage
Revenue for the Year
Ended December 31, 2016
% of
Company's
Total
Revenue
59,024
26,872
—
—
—
—
—
—
—
—
—
—
—
—
374,256
874,942
553,560
773,650
891,245
630,187
82,474
4,266,210
$
$
1,810
190
—
—
—
—
—
—
—
—
—
—
—
—
7,206
16,875
9,420
24,175
20,425
9,814
992
90,907
0.4%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
1.5%
3.4%
1.9%
4.9%
4.1%
2.0%
0.2%
18.4%
(1) Four of these education properties are leased under a master lease to Imagine.
(2) Four of these education properties are leased under a master lease to Imagine.
(3) Three of these education properties are leased under a master lease to Imagine.
(4) One of these education properties are leased under a master lease to Imagine.
35
As of December 31, 2016, our owned portfolio of recreation properties consisted of approximately 2.5 million square feet
of buildings and 1,239 acres of land, and was 100% leased. The following table sets forth lease expirations regarding EPR’s
owned recreation portfolio as of December 31, 2016 (dollars in thousands).
Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Thereafter
Number of
Properties
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
3
1
6
11
4
—
26
Recreation Portfolio
Square
Footage
Revenue for the Year
Ended December 31, 2016
% of
Company's
Total
Revenue
— $
—
—
—
—
—
—
—
—
—
113,135
—
—
—
—
174,642
64,100
365,205
1,481,200
258,464
—
2,456,746
$
—
—
—
—
—
—
—
—
—
—
2,896
—
—
—
—
4,506
1,676
15,342
40,160
2,110
—
66,690
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
0.6%
—%
—%
—%
—%
0.9%
0.3%
3.1%
8.2%
0.4%
—%
13.5%
36
Our properties are located in 40 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, 2016 (dollars in thousands). This data does not include the public charter schools recorded as a direct financing
lease.
Location
Texas
Virginia
Ontario, Canada
Florida
California
Arizona
Illinois
Colorado
Pennsylvania
North Carolina
Louisiana
Michigan
Georgia
New York
Tennessee
Ohio
New Jersey
Indiana
Kentucky
Kansas
Alabama
South Carolina
Utah
Idaho
Maryland
Connecticut
Mississippi
Missouri
Massachusetts
Nebraska
Maine
New Hampshire
Iowa
Oklahoma
Arkansas
New Mexico
Oregon
Washington
Montana
Nevada
Minnesota
Building (gross
sq. ft)
2,300,965
1,198,821
1,151,465
1,073,554
1,067,227
1,050,674
1,032,267
854,327
872,204
738,430
661,262
654,127
560,925
555,632
504,729
410,101
387,320
355,549
298,196
282,972
271,176
256,786
230,449
179,036
176,441
144,902
116,900
112,376
111,166
107,402
107,000
97,400
93,755
90,737
79,330
71,297
64,232
47,004
44,650
42,271
33,237
18,488,294
(1) Consists of rental revenue and tenant reimbursements.
Rental
revenue for the year ended
December 31, 2016 (1)
% of
Rental
Revenue
51,625
22,135
31,856
24,312
36,434
23,974
25,677
17,704
20,691
15,755
12,880
12,183
10,334
25,712
7,227
6,199
7,319
4,813
4,956
7,106
5,271
4,278
3,638
2,714
4,151
2,789
3,121
1,970
766
1,836
1,842
2,245
1,155
3,023
1,586
1,251
776
377
960
1,841
702
415,184
12.4%
5.3%
7.7%
5.9%
8.8%
5.8%
6.2%
4.3%
5.0%
3.8%
3.1%
2.9%
2.5%
6.2%
1.7%
1.5%
1.8%
1.1%
1.2%
1.7%
1.3%
1.0%
0.9%
0.6%
1.0%
0.7%
0.8%
0.5%
0.2%
0.4%
0.4%
0.5%
0.3%
0.7%
0.4%
0.3%
0.2%
0.1%
0.2%
0.4%
0.2%
100.0%
$
$
37
Office Location
Our executive office is located in Kansas City, Missouri and is leased from a third-party landlord. The office occupies
approximately 55 thousand square feet with projected 2017 annual rent of approximately $856 thousand. The lease is
scheduled to expire on September 30, 2026, 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 $398.9 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 17 years and our recreation portfolio has
an average remaining base term life of approximately 18 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 2016
Our property acquisitions and developments in 2016 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, decreased to approximately 72% in 2016 from approximately 81% in
2015. While build-to-suit projects remain a significant component of our investment spending, we expect this percentage
to decrease in 2017 as well due to our proposed transaction with CNL as discussed in Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Recent Developments". Many of our build-to-suit
opportunities come to us from our existing strong relationships with property operators and developers and we expect to
continue to pursue these opportunities.
Item 3. Legal Proceedings
Prior proposed casino and resort developers Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha LLC,
which are affiliates of Louis Cappelli and from whom the Company acquired the Adelaar resort property (the "Cappelli
Group"), commenced litigation against the Company beginning in 2011 regarding matters relating to the acquisition of that
property and our relationship with Empire Resorts, Inc. and certain of its subsidiaries. This litigation involves three separate
cases filed in state and federal court. Two of the cases, a state and the federal case, are closed and resulted in no liability
to the Company.
The remaining case was filed on October 20, 2011 by the Cappelli Group against the Company and two of its affiliates in
the Supreme Court of the State of New York, County of Westchester (the "Westchester Action"), asserting a claim for breach
of contract and the implied covenant of good faith, and seeking damages of at least $800 million, based on allegations that
the Company had breached an agreement (the "Casino Development Agreement"), dated June 18, 2010. The Company
moved to dismiss the complaint in the Westchester Action based on a decision issued by the Sullivan County Supreme Court
(one of the two closed cases discussed above) on June 30, 2014, as affirmed by the Appellate Division, Third Department
(the "Sullivan Action"). On January 26, 2016, the Westchester County Supreme Court denied the Company's motion to
dismiss but ordered the Cappelli Group to amend its pleading and remove all claims and allegations previously determined
by the Sullivan Action. On February 18, 2016, the Cappelli Group filed an amended complaint asserting a single cause of
action for breach of the covenant of good faith and fair dealing based upon allegations the Company had interfered with
plaintiffs’ ability to obtain financing which complied with the Casino Development Agreement. On March 23, 2016, the
Company filed a motion to dismiss the Cappelli Group’s revised amended complaint. On January 5, 2017, the Westchester
County Supreme Court denied the Company’s second motion to dismiss. Discovery is ongoing.
The Company has not determined that losses related to the remaining Westchester Action are probable. In light of 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
38
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 the outcome of the claims and related litigation.
Item 4. Mine Safety Disclosures
Not applicable.
39
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.
2016:
Fourth quarter
Third quarter
Second quarter
First quarter
2015:
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
Dividend
$
$
$
78.67
84.67
80.69
66.71
59.42
$
57.79
61.70
65.76
$
$
$
$
$
65.50
74.93
64.00
53.00
50.85
49.24
54.70
56.64
0.960
0.960
0.960
0.960
0.908
0.908
0.908
0.908
We declared dividends to common shareholders aggregating $3.84 and $3.63 per common share in 2016 and 2015,
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 pay dividends to our common shareholders on a monthly basis and expect to continue to pay such dividends
monthly. Additionally, we pay dividends to our preferred shareholders on a quarterly basis and expect to continue to
pay such dividends quarterly. 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 convertible preferred shares have a fixed dividend rate of 5.75%, our Series E convertible
preferred shares have a fixed dividend rate of 9.00% and our Series F redeemable preferred shares have a fixed dividend
rate of 6.625%.
During the year ended December 31, 2016, the Company did not sell any unregistered equity securities.
On February 27, 2017, there were approximately 1,030 holders of record of our outstanding common shares.
40
Issuer Purchases of Equity Securities
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
—
$
—
— $
6,681 (1)
1,382 (1)
8,063
$
69.40
71.32
69.73
—
—
— $
—
—
—
—
Period
October 1 through October 31,
2016 common stock
November 1 through November
30, 2016 common stock
December 1 through December
31, 2016 common stock
Total
(1) The repurchases of equity securities during November and December of 2016 were completed in conjunction with
employee stock option exercises. These repurchases were not made pursuant to a publicly announced plan or program.
41
Share Performance Graph
The following graph compares the cumulative return on our common shares during the five year period ended
December 31, 2016, to the cumulative return on the MSCI U.S. REIT Index, the Russell 2000 Index and the Russell
1000 Index for the same period. During the year ended December 31, 2016, the Company was added to the Russell
1000 Index, which includes 1,000 of the largest securities based on market capitalization and current index membership.
The Company was previously a member of the Russell 2000 Index. 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
Russell 1000 Index
Source: SNL Financial
12/31/2011
100.00
$
100.00
$
100.00
$
100.00
$
12/31/2012
112.82
$
117.77
$
116.35
$
116.42
$
12/31/2013
127.90
$
120.68
$
161.52
$
154.97
$
12/31/2014
159.69
$
157.34
$
169.43
$
175.49
$
12/31/2015
172.52
$
161.30
$
161.95
$
177.10
$
12/31/2016
223.67
$
175.17
$
196.45
$
198.44
$
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.
42
Item 6. Selected Financial Data
Operating statement data
(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
Retirement severance 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 of real estate
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, net from discontinued operations
Net income
Add: Net 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
2016
$ 399,589
15,595
9,039
69,019
493,242
22,602
5
37,543
—
905
—
97,144
7,869
—
—
107,573
Year Ended December 31,
2014 (1)
$ 286,673
17,663
1,009
79,706
385,051
24,897
771
27,566
—
301
—
81,270
2,452
3,777
—
66,739
2015
$ 330,886
16,320
3,629
70,182
421,017
23,433
648
31,021
18,578
270
—
79,915
7,518
—
—
89,617
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
219,601
619
5,315
—
—
225,535
(553)
$ 224,982
170,017
969
23,829
—
—
194,815
(482)
$ 194,333
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
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
—
—
—
—
224,982
—
224,982
(23,806)
—
199
—
—
—
194,532
—
194,532
(23,806)
—
505
3,376
—
—
179,633
—
179,633
(23,807)
—
333
620
—
—
— (20,835)
(27)
121,664
(108)
121,556
(24,508)
(3,888)
4,256
180,226
—
180,226
(23,806)
—
$ 201,176
$ 170,726
$ 155,826
$156,420
$ 93,160
$
$
$
$
$
3.17
—
3.17
3.17
—
3.17
63,381
63,474
3.84
$
$
$
$
$
2.93
0.01
2.94
2.92
0.01
2.93
58,138
58,328
3.63
$
$
$
$
$
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
(1) 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.
43
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,
2016
$3,915,402
2015
$3,427,729
2014
$2,839,333
2013
$2,394,966
2012
$2,113,434
613,978
423,780
507,955
486,337
455,752
102,698
4,865,022
190,880
4,217,270
199,332
3,686,275
242,212
3,254,372
234,089
2,931,827
26,318
24,352
22,233
19,552
41,186
2,485,625
1,981,920
1,629,750
1,457,432
1,353,929
2,679,121
2,143,402
1,759,786
1,566,358
1,471,929
2,185,901
2,073,868
1,926,489
1,688,014
1,459,898
44
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, 2016, our total assets were approximately $4.9 billion (after accumulated depreciation of
approximately $0.6 billion) which included investments in each of our four operating segments with properties located
in 40 states, the District of Columbia and Ontario, Canada.
• Our Entertainment segment included investments in 141 megaplex theatres, eight entertainment retail centers
(which include eight additional megaplex theatres) and eight family entertainment centers. Our portfolio of
owned entertainment properties consisted of 12.5 million square feet and was 99% leased, including megaplex
theatres that were 100% leased.
• Our Education segment included investments in 67 public charter schools, 41 early education centers and 12
private schools. Our portfolio of owned education properties consisted of 4.3 million square feet and was
100% leased.
• Our Recreation segment included investments in 11 ski areas, five waterparks and 25 golf entertainment
complexes. Our portfolio of owned recreation properties was 100% leased.
• Our Other segment consisted primarily of land under ground lease, property under development and land held
for development related to the Adelaar casino and resort project in Sullivan County, New York.
The combined owned portfolio consisted of 19.2 million square feet and was 99.5% leased. As of December 31, 2016,
we also had invested approximately $297.1 million in property under development.
45
Operating Results
Our total revenue, net income available to common shareholders and Funds From Operations As Adjusted ("FFOAA")
per diluted share are detailed below for the years ended December 31, 2016 and 2015 (in millions, except per share
information):
Year ended December 31,
2016
2015
Increase
Total revenue (1)
$
493.2
$
421.0
Net income available to common
shareholders per diluted share (2)
FFOAA per diluted share (3)
3.17
4.82
2.93
4.44
17%
8%
9%
(1) Total revenue for the year ended December 31, 2016, versus the year ended December 31, 2015, was favorably
impacted by the effect of acquisitions and build-to-suit projects completed during 2016 and 2015 as well as $4.7 million
in gains from insurance claims and a $3.6 million prepayment fee from the early payoff of a mortgage note secured by
a public charter school property.
(2) Net income available to common shareholders per diluted share for the year ended December 31, 2016, versus the
year ended December 31, 2015, was favorably impacted by the items impacting total revenue described above, as well
as $18.6 million in retirement severance expense recognized in 2015 related to the retirement of our former Chief
Executive Officer. Net income available to common shareholders per diluted share for the year ended December 31,
2016 versus the year ended December 31, 2015, was unfavorably impacted by an increase in interest expense (including
less capitalization) and general and administrative expense, lower gains on sales in 2016 due to a larger theatre sale
that occurred in 2015, and an increase in common shares outstanding.
(3) FFOAA per diluted share for the year ended December 31, 2016, versus the year ended December 31, 2015, was
favorably impacted by the results of investment spending in 2015 and 2016, a $3.6 million prepayment fee from the
early payoff of a mortgage note secured by a public charter school property and $2.8 million in termination fees
recognized with the exercise of tenant purchase options on two of our public charter school properties. FFOAA per
diluted share for the year ended December 31, 2016, versus the year ended December 31, 2015, was unfavorably
impacted by an increase in interest expense (including less capitalization), an increase in general and administrative
expense and an increase in common shares outstanding.
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 the section below titled "Funds From Operations (FFO), Funds From
Operations As Adjusted (FFOAA) and Adjusted Funds from Operations (AFFO)."
Investment Spending Overview
During 2016, our total investment spending was $805.0 million compared to $632.0 million in the prior year with
increases in our Entertainment and Education segments, offset by a decrease in our Recreation and Other segments.
During 2016, our investment spending in our Entertainment segment was $266.1 million compared to $106.1 million
in the prior year. The current year included an acquisition of a six theatre portfolio as well as the acquisition of two
megaplex theatres and a family entertainment center for a total of $148.4 million. We continued to have build-to-suit
opportunities available for megaplex theatres and family entertainment centers at attractive terms with both existing
and new tenants. Additionally, many megaplex theatre operators are pursuing the renovation of theatres to include
enhanced amenities such as luxury seating and expanded food and beverage offerings. This trend has provided us with
redevelopment opportunities and is expected to continue to provide redevelopment and build-to-suit opportunities for
us in the future.
During 2016, our investment spending in our Education segment was $338.7 million compared to $272.9 million in
the prior year, and primarily included build-to-suit development of public charter schools, early childhood education
centers and private schools. The current year also included an investment of $100.0 million in mortgage notes secured
46
by 20 early education centers and private schools. Additionally, in the current year, we acquired four early education
centers and a private school. During 2016, we increased our investments in education and expect to continue to do so
in the future. We also continued to significantly diversify our tenant base in public charter schools and early education
centers, and as of year-end, we had 45 different public charter school operators and seven different early education
operators. We expect to continue to expand our education tenant base in 2017.
During 2016, our investment spending in our Recreation segment was $198.3 million compared to $241.2 million in
the prior year, and primarily related to spending on build-to-suit golf entertainment complexes. Additionally, we invested
in a mortgage note secured by a ski area and redevelopment of one of our ski areas. As discussed in "Recent
Developments," we anticipate the proposed transaction with CNL Lifestyle Properties, Inc. will increase our investments
in this segment in 2017.
During 2016, our investment spending in our Other segment was $1.9 million compared to $11.8 million in prior year,
and related to the Adelaar casino and resort project in Sullivan County, New York.
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.
Consolidation
We consolidate certain entities if we are deemed to be the primary beneficiary in a variable interest entity ("VIE") in
which we have a controlling financial interest in accordance with the consolidation guidance of the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic on Consolidation.
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
47
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
30 to 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
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 typically 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 or methods similar to those used by independent appraisers 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
48
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 February 18, 2016, we prepaid in full a mortgage note payable of $4.6 million which was secured by one theatre
property. In connection with this note payoff, we paid $472 thousand in additional costs included in costs associated
with loan refinancing or payoff.
On April 21, 2016, we paid in full an unsecured note payable of $1.9 million. Additionally, on May 2, 2016, we prepaid
in full two mortgage notes payable totaling $24.5 million, which were secured by two theatre properties.
On August 8, 2016, we prepaid in full three mortgage notes payable totaling $16.4 million, which were secured by
three theatre properties. Additionally, on September 1, 2016, we prepaid in full four mortgage notes payable totaling
$21.7 million, which were secured by four theatre properties.
On August 22, 2016, we issued $340.0 million of senior unsecured notes in a private placement transaction. The notes
were issued in two tranches with $148.0 million bearing interest at 4.35% and due August 22, 2024, and $192.0 million
bearing interest at 4.56% and due August 22, 2026. The notes are guaranteed by our subsidiaries that guarantee our
unsecured credit facilities and existing senior unsecured notes. We used the net proceeds from the note offering to pay
down our unsecured revolving credit facility and for general business purposes.
On December 14, 2016, we issued $450.0 million of senior unsecured notes due on December 15, 2026 pursuant to an
underwritten public offering. The notes bear interest at an annual rate of 4.75% and interest is payable semi-annually.
The notes were issued at 98.429% of their face value and are guaranteed by our subsidiaries that guarantee our unsecured
credit facilities and existing senior unsecured notes. We used the net proceeds from the note offering to pay down our
unsecured revolving credit facility, invest in mortgage notes secured by education properties and for general business
purposes.
Subsequent to December 31, 2016, we prepaid in full two mortgage notes payable totaling $17.9 million with a weighted
average annual interest rate of 6.07%, which were secured by two theatre properties.
Issuance of Common Shares
On January 21, 2016, we issued 2,250,000 common shares in a registered public offering for a total net proceeds, after
the underwriting discount and offering expenses, of approximately $125.0 million. The net proceeds from the public
offering were used to pay down our unsecured revolving credit facility.
During the year ended December 31, 2016, we issued an aggregate of 258,263 common shares under the direct share
purchase component of our Dividend Reinvestment and Direct Share Purchase Plan ("DSPP") for total net proceeds
of $16.9 million. These proceeds were used to pay down a portion of our unsecured revolving credit facility. Subsequent
to December 31, 2016, we issued an aggregate of 548,288 common shares under our DSPP for net proceeds of $40.8
million.
49
Investment Spending
Our investment spending during the year ended December 31, 2016 totaled $805.0 million, and included investments
in each of our four operating segments.
Entertainment investment spending during the year ended December 31, 2016 totaled $266.1 million, including spending
on build-to-suit development and redevelopment of megaplex theatres, entertainment retail centers and family
entertainment centers, as well as $148.4 million in acquisitions of eight megaplex theatres and a family entertainment
center.
Education investment spending during the year ended December 31, 2016 totaled $338.7 million, including spending
on build-to-suit development and redevelopment of public charter schools, early education centers and private schools,
as well as $16.5 million in acquisitions of four early education centers and a private school. Additionally, education
investment spending included $100.0 million in mortgage notes secured by 20 early education and private school
properties. Subsequent to December 31, 2016, we funded an additional $42.9 million in mortgage notes secured by
eight early education and private school properties.
Recreation investment spending during the year ended December 31, 2016 totaled $198.3 million, including spending
on build-to-suit development of golf entertainment complexes, build-to-suit development and redevelopment of ski
areas and waterparks, as well as a $21.0 million mortgage note secured by a ski area.
Other investment spending during the year ended December 31, 2016 totaled $1.9 million and was related to the Adelaar
casino and resort project in Sullivan County, New York.
The following details our investment spending during the years ended December 31, 2016 and 2015 (in thousands):
For the Year Ended December 31, 2016
Total
Investment
Spending
$
$
266,101
338,659
198,345
1,903
805,008
New
Development
37,265
$
208,288
134,195
1,903
381,651
$
Re-
development
56,820
$
—
7,598
—
64,418
$
Asset
Acquisition
148,398
$
16,456
—
—
164,854
$
Investment in
Mortgage Notes
and Notes
Receivable
$
$
23,618
113,915
56,552
—
194,085
For the Year Ended December 31, 2015
Total
Investment
Spending
New
Development
21,570
$
253,072
149,016
11,818
435,476
$
Re-
development
20,844
$
—
240
—
21,084
$
Asset
Acquisition
63,691
$
15,990
21,865
—
101,546
$
Investment in
Mortgage Notes
—
$
3,858
70,057
—
73,915
$
$
$
106,105
272,920
241,178
11,818
632,021
Operating Segment
Entertainment
Education
Recreation
Other
Total Investment Spending
Operating Segment
Entertainment
Education
Recreation
Other
Total Investment Spending
The above amounts include $192 thousand and $171 thousand in capitalized payroll, $10.7 million and $18.5 million
in capitalized interest and $5.1 million and $2.3 million in capitalized other general and administrative direct project
costs for the years ended December 31, 2016 and 2015, respectively. In addition, we had $5.0 million and $2.9 million
of maintenance capital expenditures for the years ended December 31, 2016 and 2015, respectively.
50
Property Dispositions
On February 26, 2016, we completed the sale of a land parcel at Adelaar for net proceeds of $1.5 million and no gain
or loss was recognized.
On April 6, 2016, pursuant to a tenant purchase option, we completed the sale of a public charter school located in
Colorado for net proceeds of $11.2 million and we recognized a gain on sale of $2.3 million. In addition, on August
18, 2016, pursuant to a tenant purchase option, we completed the sale of a public charter school located in Colorado
for net proceeds of $5.4 million and we recognized a gain on sale of $0.5 million. These gains represent the premium
charged to the tenant over the total development cost for early termination in accordance with the purchase options in
the leases. These termination fees totaling $2.8 million have been included in FFO as adjusted, similar to how other
lease termination fees and fees received for early prepayment of mortgage notes receivable are reflected when applicable.
During the year ended December 31, 2016, we completed the sale of three retail parcels located in Texas for total net
proceeds of $5.3 million and recognized gains on sale totaling $2.5 million.
During the year ended December 31, 2016, we completed the sale of nine public charter school properties previously
leased to affiliates of Imagine Schools, Inc. ("Imagine") as part of a master lease. Seven of these schools were sold to
Imagine and two were sold to other third parties. These properties are located in Georgia, Indiana, Ohio, Missouri, and
South Carolina and had a total net carrying value of $91.3 million when sold. We received net cash proceeds totaling
$21.0 million (a portion of which was funded through the liquidation of the letter of credit and escrow reserve previously
provided by Imagine pursuant to the master lease) and a mortgage note receivable from Imagine for $70.3 million.
This note is due on December 20, 2021, bears interest at 7% and requires monthly principal and interest payments of
$608 thousand and additional principal pay downs if certain events occur including property sales. The note is secured
by 11 public charter schools as of December 31, 2016. There were no gains or losses recognized on these sales. As of
December 31, 2016, 12 schools operated by Imagine remain subject to the master lease.
Mortgage Notes Receivable
On January 5, 2016, we received prepayment of $19.3 million on one mortgage note receivable that was secured by a
public charter school located in Washington D.C. In connection with the full payoff of this note, we received a prepayment
fee of $3.6 million which is included in mortgage and other financing income. Additionally, $80 thousand of prepaid
mortgage fees were expensed and are included in costs associated with loan refinancing or payoff.
On April 22, 2016, we received prepayment in full on one mortgage note receivable of $44.3 million that was secured
by an entertainment retail center located in North Carolina. In conjunction with this payoff, we wrote off $335 thousand
of prepaid mortgage fees to costs associated with loan refinancing or payoff.
Proposed CNL Lifestyle Properties, Inc. Transaction
On November 2, 2016, the Company and Ski Resort Holdings LLC ("SRH"), an entity owned by funds affiliated with
Och-Ziff Real Estate, entered into a Purchase and Sale Agreement with CNL Lifestyle Properties, Inc. ("CNL"), CLP
Partners, LP, CNL's operating partnership, and certain CNL subsidiaries. The agreement provides for our acquisition
of the Northstar California Ski Resort, 15 attraction properties (waterparks and amusement parks) and five small family
entertainment centers for aggregate consideration valued at approximately $456.0 million. We anticipate earning an
average initial cash yield of 9.35% on our purchase of the Northstar California Ski Resort and the attraction properties,
based on leases currently in place or expected to be in place at the time of closing. Additionally, we have agreed to
provide approximately $244.0 million of five-year secured debt financing to SRH for the purchase of 14 CNL ski
properties valued at approximately $374.0 million. This debt financing will be secured by mortgages on all of the assets
being acquired by SRH.
Our aggregate investment in this transaction is projected to be valued at approximately $700.0 million and is expected
to be funded with approximately $647.0 million of our common shares and $53.0 million of cash before pro-rations,
transaction costs and closing adjustments, a portion of which is expected to be included in the secured debt financing
to SRH. We expect to borrow an estimated $62.0 million (the estimated $53.0 million cash purchase price plus an
estimated $9.0 million in transaction costs) under our unsecured revolving credit facility at closing. Additionally, we
51
have also agreed to fund 65% of pre-approved, future property improvements with such advances capped at $52.0
million. All SRH financing will bear interest at 8.5%.
The Company's common share consideration is subject to a two-way collar between $68.25 and $82.63 per share. If
the Company's volume weighted average share price over the ten trading days ending on the second trading day prior
to close (the "Average EPR Share Price") increases between the signing of the agreement and the closing, CNL will
receive fewer shares until the Average EPR Share Price reaches $82.63, at which point the number of shares will be
fixed at approximately 7.8 million. Conversely, if the Company's share price decreases between signing and closing,
CNL will receive more shares until the Average EPR Share Price reaches $68.25, at which point the number of shares
will be fixed at approximately 9.5 million. Post-transaction, CNL will own between approximately 11% and 13% of
the Company's pro forma common shares outstanding before distributing the shares to the CNL stockholders (based
upon the Company's issued and outstanding common shares as of December 31, 2016).
The CNL transaction is subject to customary closing conditions, including the approval of the transaction by stockholders
holding a majority of the outstanding shares of common stock of CNL and various third party consents and governmental
permits. It is anticipated that this transaction will close in the second quarter of 2017; however, there can be no assurances
as to the actual closing or the timing of the closing.
In addition, the Company and SRH, on a joint and several basis, will be required to pay a reverse termination fee of
$60.0 million plus reimbursement of expenses incurred after June 10, 2016 (up to $10.0 million) to CNL if the Purchase
and Sale Agreement is terminated because the Company and SRH fail to close the transaction as required under the
agreement after the conditions to the obligations to close have been satisfied or waived.
Results of Operations
Year ended December 31, 2016 compared to year ended December 31, 2015
Rental revenue was $399.6 million for the year ended December 31, 2016 compared to $330.9 million for the year
ended December 31, 2015. Rental revenue increased $68.7 million from the prior period, of which $65.3 million was
related to property acquisitions and developments completed in 2016 and 2015, as well as an increase of $3.4 million
in rental revenue on existing properties, partially offset by the impact of a weaker Canadian exchange rate and property
dispositions. Percentage rents of $4.7 million and $3.0 million were recognized during the years ended December 31,
2016 and 2015, respectively. Straight-line rents of $17.0 million and $12.2 million were recognized during the years
ended December 31, 2016 and 2015, respectively.
During the year ended December 31, 2016, we experienced a decrease of approximately 0.5% in rental rates on
approximately 1.3 million square feet with respect to 17 lease renewals. Additionally, we have funded or have agreed
to fund a weighted average of $31.42 per square foot in tenant improvements. There were no leasing commissions
related to these renewals.
Tenant reimbursements totaled $15.6 million for the year ended December 31, 2016 compared to $16.3 million for the
year ended December 31, 2015. These tenant reimbursements related to the operations of our entertainment retail
centers. The $0.7 million decrease was primarily due a decrease in tenant reimbursements due to vacancy at our retail
centers in Ontario, Canada as well as the impact of a weaker Canadian exchange rate.
Other income was $9.0 million for the year ended December 31, 2016 compared to $3.6 million for the year ended
December 31, 2015. The $5.4 million increase was primarily due to the recognition of gains of $4.7 million from
insurance claims during the year ended December 31, 2016, as well as an increase in fee income due to a $1.6 million
extension fee recorded in 2016 in conjunction with an extension of a tenant purchase option.
Mortgage and other financing income for the year ended December 31, 2016 was $69.0 million compared to $70.2
million for the year ended year ended December 31, 2015. The $1.2 million decrease was due primarily to the conversion
of the mortgage note for Camelback Mountain Resort to a lease agreement during the year ended December 31, 2015
and the payoff of certain mortgage notes in the first half of 2016. Additionally, participating interest income decreased
52
to $0.8 million during the year ended December 31, 2016 from $1.5 million for the year ended December 31, 2015.
These decreases were partially offset by a $3.6 million prepayment fee we received in conjunction with the full repayment
of one mortgage note receivable and by increased real estate lending activities related to our other mortgage loan
agreements.
Our property operating expense totaled $22.6 million for the year ended December 31, 2016 compared to $23.4 million
for the year ended December 31, 2015. These property operating expenses arise from the operations of our retail centers
and other specialty properties. The $0.8 million decrease resulted primarily from a decrease in bad debt expense as
well as a weaker Canadian exchange rate partially offset by higher property operating expenses at certain properties.
Other expense totaled $5 thousand for the year ended December 31, 2016 compared to $648 thousand for the year
ended December 31, 2015. The $643 thousand decrease was due to golf course expenses related to a golf course on
the Adelaar resort property which closed during the year ended December 31, 2016.
Our general and administrative expense totaled $37.5 million for the year ended December 31, 2016 compared to $31.0
million for the year ended December 31, 2015. The increase of $6.5 million was primarily due to an increase in payroll
and benefits costs including share based compensation, as well as certain professional fees.
Retirement severance expense was $18.6 million for the year ended December 31, 2015 and related to the retirement
of our former President and Chief Executive Officer. See Note 13 to the consolidated financial statements included
in this Annual Report Form 10-K for further detail. There was no retirement severance expense for the year ended
December 31, 2016.
Costs associated with loan refinancing or payoff for the year ended December 31, 2016 was $0.9 million and related
to fees associated with the repayment of a secured fixed rate mortgage note payable and the write off of prepaid mortgage
fees in conjunction with our borrowers' prepayments of two mortgage notes receivable. Costs associated with loan
refinancing or payoff totaled $0.3 million for the year ended December 31, 2015 and related to the amendment and
restatement of our unsecured credit facilities on April 24, 2015 as well as the prepayment of seven mortgages notes
payable during the year ended December 31, 2015.
Our net interest expense increased by $17.2 million to $97.1 million for the year ended December 31, 2016 from $79.9
million for the year ended December 31, 2015. This increase resulted from an increase in average borrowings as well
as a decrease in interest cost capitalized primarily related to the Adelaar project, which was $1.8 million for the year
ended December 31, 2016 compared to $8.7 million for the year ended December 31, 2015. Additionally, the hedged
rate on $300.0 million of our unsecured term loan facility increased to an average of 3.61% from an average of 2.60%
and will return to an average of 2.94% in July 2017. These increases were partially offset by a decrease in the weighted
average interest rate used to finance our real estate acquisitions and fund our mortgage notes receivable.
Depreciation and amortization expense totaled $107.6 million for the year ended December 31, 2016 compared to $89.6
million for the year ended December 31, 2015. The $18.0 million increase resulted primarily from asset acquisitions
completed in 2016 and 2015 as well as the acceleration of depreciation on certain existing assets, and was partially
offset by dispositions.
Equity in income from joint ventures was $0.6 million for the year ended December 31, 2016 compared to $1.0 million
for the year ended December 31, 2015. The $0.4 million decrease resulted from a decrease in income from our joint
venture projects located in China.
Gain on sale of real estate was $5.3 million for the year ended December 31, 2016 and related to a gain on sale of $2.5
million from the sale of three retail parcels in Texas and a gain on sale of $2.8 million from the sale of two public
charter schools in connection with the exercise of tenant purchase options. Gain on sale of real estate was $23.8 million
for the year ended December 31, 2015 and related to a gain on sale of $23.7 million from a theatre located in Los
Angeles, California and a gain on sale of $0.2 million from a parcel of land adjacent to one of our public charter school
investments. The gain was partially offset by a loss on sale of $0.1 million from a parcel of land adjacent to one of our
megaplex theatre properties.
53
Year ended December 31, 2015 compared to year ended December 31, 2014
Rental revenue was $330.9 million for the year ended December 31, 2015 compared to $286.7 million for the year
ended December 31, 2014. Rental revenue increased $44.2 million from the prior period, of which $50.7 million
was related to acquisitions or build-to-suit projects completed in 2015 and 2014 and was partially offset by a net
decrease of $6.5 million in rental revenue on existing and sold properties and by the impact of a weaker Canadian
exchange rate. Percentage rents of $3.0 million and $2.0 million were recognized during the years ended December
31, 2015 and 2014, respectively. Straight-line rents of $12.2 million and $8.7 million were recognized during the
years ended December 31, 2015 and 2014, respectively.
During the year ended December 31, 2015, we experienced an increase of approximately 4.8% in rental rates on
approximately 431,000 square feet with respect to five lease renewals. Additionally, we have funded or have agreed
to fund a weighted average of $16.47 per square foot in tenant improvements. There were no leasing commissions
related to these renewals.
Tenant reimbursements totaled $16.3 million for the year ended December 31, 2015 compared to $17.7 million for the
year ended December 31, 2014. These tenant reimbursements related to the operations of our entertainment retail
centers. The $1.4 million decrease was primarily due to the impact of a weaker Canadian exchange rate.
Other income was $3.6 million for the year ended December 31, 2015 compared to $1.0 million for the year ended
December 31, 2014. The $2.6 million increase was due to an increase of $1.7 million in income recognized upon
settlement of foreign currency swap contracts as well as $1.0 million recognized in fee income during the year ended
December 31, 2015.
Mortgage and other financing income for the year ended December 31, 2015 was $70.2 million compared to $79.7
million for the year ended year ended December 31, 2014. The $9.5 million decrease was due primarily 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 and the sale of four public charter school properties in April of 2014 which were classified
as a direct financing lease. This amount was partially offset by increased real estate lending activities. Additionally,
we recognized participating interest income of $1.5 million and $2.2 million for the years ended December 31, 2015
and 2014, respectively.
Our property operating expense totaled $23.4 million for the year ended December 31, 2015 compared to $24.9 million
for the year ended December 31, 2014. These property operating expenses arise from the operations of our retail centers
and other specialty properties. The $1.5 million decrease resulted primarily from the impact of a weaker Canadian
exchange rate and a decrease in other non-recoverable expenses at these properties. This amount was partially offset
by an increase in bad debt expense.
Our general and administrative expense totaled $31.0 million for the year ended December 31, 2015 compared to $27.6
million for the year ended December 31, 2014. The increase of $3.4 million was primarily due to an increase in payroll
and benefits costs, as well as certain professional fees.
Retirement severance expense was $18.6 million for the year ended December 31, 2015 and related to the retirement
of our former President and Chief Executive Officer. See Note 13 to the consolidated financial statements included
in this Annual Report Form 10-K for further detail. There was no retirement severance expense for the year ended
December 31, 2014.
Our net interest expense decreased by $1.4 million to $79.9 million for the year ended December 31, 2015 from $81.3
million for the year ended December 31, 2014. This decrease resulted from an increase in interest cost capitalized
primarily related to the Adelaar casino and resort project which was $8.7 million for the year ended December 31, 2015
compared to $0 for the year ended December 31, 2014, as well as a decrease in the weighted average interest rate used
to finance our real estate acquisitions and fund our mortgage notes receivable. These decreases were partially offset
by an increase in average borrowings.
54
Transaction costs totaled $7.5 million for the year ended December 31, 2015 compared to $2.5 million for the year
ended December 31, 2014. The increase of $5.0 million was due to an increase in potential and 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, 2015.
Depreciation and amortization expense totaled $89.6 million for the year ended December 31, 2015 compared to $66.7
million for the year ended December 31, 2014. The $22.9 million increase resulted primarily from asset acquisitions
completed in 2015 and 2014 as well as the acceleration of depreciation on certain existing assets.
Equity in income from joint ventures was $1.0 million for the year ended December 31, 2015 compared to $1.3 million
for the year ended December 31, 2014. The $0.3 million decrease resulted from a decrease in income from our joint
venture projects located in China.
Gain on sale of real estate was $23.8 million for the year ended December 31, 2015 and related to a gain on sale of
$23.7 million from a theatre located in Los Angeles, California and a gain on sale of $0.2 million from a parcel of land
adjacent to one of our public charter school investments. The gain was partially offset by a loss on sale of $0.1 million
from a parcel of land adjacent to one of our megaplex theatre properties. Gain on sale of real estate 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 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, 2015.
Income tax expense was $0.5 million for the year ended December 31, 2015 compared to $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. The
$3.7 million decrease related primarily to lower income tax expense on our Canadian trust and the impact of a weaker
Canadian exchange rate.
Income from discontinued operations was $0.2 million for the year ended December 31, 2015 and related to post closing
items related to the Toronto Dundas Square property. 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.
Liquidity and Capital Resources
Cash and cash equivalents were $19.3 million at December 31, 2016. In addition, we had restricted cash of $9.7 million
at December 31, 2016. Of the restricted cash at December 31, 2016, $6.8 million relates to cash held for our borrowers’
debt service reserves for mortgage notes receivable or tenants' off-season rent reserve and $1.8 million relates to escrow
deposits held related to potential acquisitions and redevelopments. The remaining $1.1 million is required in connection
with our debt service, payment of real estate taxes and capital improvements.
Mortgage Debt, Credit Facilities and Term Loan
As of December 31, 2016, we had total debt outstanding of $2.5 billion of which $174.9 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 4.95% at December 31, 2016.
At December 31, 2016, we had outstanding $1.6 billion in aggregate principal amount of unsecured senior notes
(excluding the private placement notes discussed below) ranging in interest rates from 4.50% to 7.75%. All of these
notes are guaranteed by our subsidiaries that guarantee our unsecured credit facilities and existing senior unsecured
notes. 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
55
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.
At December 31, 2016, we had no outstanding balance under our unsecured revolving credit facility, with $650.0 million
of availability and with interest at a floating rate of LIBOR plus 125 basis points, which was 2.02% at December 31,
2016. 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.
At December 31, 2016, the unsecured term loan facility had a balance of $350.0 million with interest at a floating rate
of LIBOR plus 140 basis points, which was 2.17% at December 31, 2016, and $300.0 million of this LIBOR-based
debt has been fixed with interest rate swaps at a blended rate of 3.09% through April 5, 2019. The loan matures on
April 24, 2020.
On August 22, 2016, we issued $340.0 million of senior unsecured notes in a private placement transaction. The private
placement notes were issued in two tranches with $148.0 million bearing interest at 4.35% and due August 22, 2024,
and $192.0 million bearing interest 4.56% and due August 22, 2026. The private placement notes are guaranteed by
our subsidiaries that guarantee our unsecured credit facilities and existing senior unsecured notes discussed above.
Our unsecured credit facilities and the private placement notes contain financial covenants or restrictions that limit our
levels of consolidated debt, secured debt, investment levels outside certain categories and dividend distributions, and
require us to maintain a minimum consolidated tangible net worth and meet certain coverage levels for fixed charges
and debt service. Additionally, these debt instruments contain cross-default provisions if we default under other
indebtedness exceeding certain amounts. Those cross-default thresholds vary from $25.0 million to, in the case of the
note purchase agreement governing the private placement notes, $75.0 million. We were in compliance with all financial
covenants under our debt instruments at December 31, 2016.
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. We may also fund investments with the proceeds from asset dispositions.
Certain of our other long-term 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, 2016.
During the year ended December 31, 2016, we issued 258,263 common shares under our DSPP for net proceeds of
$16.9 million. Additionally, on January 21, 2016, we issued 2,250,000 common shares in a registered public offering
for a total net proceeds, after the underwriting discount and offering expenses of approximately $125.0 million. The
net proceeds from these issuances were used to pay down our unsecured revolving credit facility.
56
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 $306.2 million, $278.5 million and $250.3 million for the years
ended December 31, 2016, 2015 and 2014, respectively. Net cash used by investing activities was $662.1 million,
$568.5 million and $376.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. Net cash
provided by financing activities was $371.1 million, $292.0 million and $121.6 million for the years ended December
31, 2016, 2015 and 2014, 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, 2016 consisted primarily of maturities of debt. Contractual obligations as of
December 31, 2016 are as follows (in thousands):
Contractual Obligations
Long Term Debt
Obligations
Interest on Long Term
Debt Obligations
Operating Lease
Obligations
Year ended December 31,
2017
2018
2019
2020
2021
Thereafter
Total
$ 163,266
$ 11,684
$
— $ 600,000
$
— $ 1,739,995
$ 2,514,945
119,928
114,210
112,357
97,688
84,821
245,375
774,379
856
856
856
856
884
4,592
8,900
Total
$ 284,050
$ 126,750
$ 113,213
$ 698,544
$ 85,705
$ 1,989,962
$ 3,298,224
Commitments
As of December 31, 2016, we had an aggregate of approximately $313.7 million of commitments to fund development
projects including 20 entertainment development projects for which we have commitments to fund approximately $82.3
million, 20 education development projects for which we have commitments to fund approximately $126.1 million of
additional improvements and seven recreation development projects for which we have commitments to fund
approximately $105.3 million. Of these amounts, approximately $263.2 million is expected to be funded in 2017.
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.
Additionally, as of December 31, 2016, we had a commitment to fund approximately $155.0 million over the next three
years, of which $1.7 million has been funded, to complete an indoor waterpark hotel and adventure park at our casino
and resort project in Sullivan County, New York. We are also responsible for the construction of this project's common
infrastructure. In June 2016, the Sullivan County Infrastructure Local Development Corporation issued $110.0 million
of Series 2016 Revenue Bonds, which is expected to fund a substantial portion of such construction costs. We received
an initial reimbursement of $43.4 million of construction costs and expect to receive an additional $44.9 million of
reimbursements over the balance of the construction period. Construction of infrastructure improvements is expected
to be completed in 2018.
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, 2016, we had four mortgage notes receivable with commitments
totaling approximately $14.2 million, of which $11.6 million is expected to be funded in 2017. If commitments are
funded in the future, interest will be charged at rates consistent with the existing investments.
We have provided guarantees of the payment of certain economic development revenue bonds totaling $24.9 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 $10.6 million as a deferred asset included in other assets and $10.6 million included
57
in other liabilities in the accompanying consolidated balance sheet included in this Annual Report on Form 10-K as of
December 31, 2016 related to these guarantees. No amounts have been accrued as a loss contingency related to this
guarantee because payment by us is not probable.
In connection with construction of our development projects and related infrastructure, certain public agencies require
posting of surety bonds to guarantee that the Company's obligations are satisfied. These bonds expire upon the
completion of the improvements or infrastructure. As of December 31, 2016. the Company had six surety bonds
outstanding totaling $24.3 million.
During the year ended December 31, 2016,we posted two letters of credit totaling $5.0 million in connection with a
performance guarantee to complete certain site improvements at two theatres. The letters of credit expire on June 1,
2018.
Additionally, on November 2, 2016, we entered into a Purchase and Sale Agreement with CNL and SRH to acquire
and finance certain ski areas, attractions and family entertainment centers. See "Recent Developments" for further
description of this proposed transaction and related commitments.
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 $158.2 million in debt balloon payments coming due in 2017. Our sources of liquidity as of December 31,
2016 to pay the 2017 commitments described above include the amount available under our unsecured revolving credit
facility of approximately $650.0 million and unrestricted cash on hand of $19.3 million. Accordingly, while there can
be no assurance, we expect that our sources of cash will exceed our existing commitments over the remainder of 2017.
We also believe that we will be able to repay, extend, refinance or otherwise settle our debt obligations for 2018 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 proceeds from asset dispositions. 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”). We may also assume mortgage debt in connection with property
acquisitions.
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 as measured primarily by our net debt to adjusted EBITDA ratio (see
"Non-GAAP Financial Measures" for definitions). We also seek to maintain conservative interest, fixed charge, debt
service coverage and net debt to gross asset ratios.
We expect to maintain our net debt to adjusted EBITDA ratio between 4.6x to 5.6x. Our net debt to adjusted EBITDA
ratio was 5.48x as of December 31, 2016 (see "Non-GAAP Financial Measures" for calculation). Because adjusted
EBITDA as defined does not include the annualization of adjustments for projects put in service during the quarter and
other items, and net debt includes the debt provided for build-to-suit projects under development that do not have any
current EBITDA, we also look at a ratio adjusted for these items. The level of this additional ratio, along with the timing
and size of our equity and debt offerings, may cause us to temporarily operate outside our stated range for the net debt
to adjusted EBITDA ratio of 4.6x to 5.6x. At December 31, 2016, our net debt to adjusted EBITDA ratio was at the
58
higher end of the range as we anticipate issuing a substantial amount of equity in 2017 in connection with the proposed
transaction with CNL and SRH which would have the effect of reducing this ratio.
Our net debt (see "Non-GAAP Financial Measures" for definition) to gross assets ratio (i.e. net debt to total assets plus
accumulated depreciation less cash and cash equivalents) was 45% as of December 31, 2016. Our net debt as a percentage
of our total market capitalization at December 31, 2016 was 34%. We calculate our total market capitalization of $7.4
billion by aggregating the following at December 31, 2016:
• Common shares outstanding of 63,647,081 multiplied by the last reported sales price of our common shares
on the NYSE of $71.77 per share, or $4.6 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
• Net debt of $2.5 billion.
59
Non-GAAP Financial Measures
Funds From Operations (FFO), Funds From Operations As Adjusted (FFOAA) and Adjusted Funds from
Operations (AFFO)
The National Association of Real Estate Investment Trusts (“NAREIT”) developed FFO as a relative non-GAAP
financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. Pursuant to the definition of FFO by the Board of Governors
of NAREIT, 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), retirement severance expense, preferred share redemption
costs, termination fees associated with tenants' exercises of education properties buy-out options and provision for loan
losses, and subtracting gain on early extinguishment of debt, gain (loss) on sale of land, gain on insurance recovery
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, 2016, 2015 and 2014 and reconciles such measures to net income available to common
shareholders, the most directly comparable GAAP measure (unaudited, in thousands, except per share information):
60
FFO:
Net income available to common shareholders of EPR Properties $
Gain on sale of real estate (excluding land sale)
Gain on sale of investment in a direct financing lease
Real estate depreciation and amortization
Allocated share of joint venture depreciation
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 of EPR
Properties
FFOAA:
FFO available to common shareholders of EPR Properties
Costs associated with loan refinancing or payoff
Gain on insurance recovery (included in other income)
Termination fee included in gain on sale
Transaction costs (benefit)
Provision for loan losses
Retirement severance expense
Gain on sale of land
Deferred income tax expense (benefit)
FFOAA available to common shareholders of EPR
Properties
FFOAA available to common shareholders of EPR Properties
Add: Preferred dividends for Series C preferred shares
Diluted 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/below market leases, net and tenant
improvements
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:
$
$
$
$
$
$
$
$
$
$
$
Shares used for computation (in thousands):
Basic
Diluted
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
2016
Year ended December 31,
2015
2014
$
$
$
$
$
$
$
$
$
$
$
$
201,176
(2,819)
—
106,049
229
304,635
304,635
7,764
312,399
304,635
905
(4,684)
2,819
7,869
—
—
(2,496)
(1,065)
307,983
307,983
7,764
315,747
307,983
1,524
4,787
11,164
(6,214)
(17,012)
(3,769)
183
298,646
4.81
4.77
4.86
4.82
63,381
63,474
63,474
2,032
65,506
$
$
$
$
$
$
$
$
$
$
$
$
170,726
(23,748)
—
87,965
255
235,198
235,198
7,763
242,961
235,198
270
—
—
7,518
—
18,578
(81)
(1,136)
260,347
260,347
7,763
268,110
260,347
1,653
4,588
8,508
(3,856)
(12,159)
(9,435)
192
249,838
4.05
4.03
4.48
4.44
58,138
58,328
58,328
2,017
60,345
155,826
(879)
(220)
65,501
225
220,453
220,453
7,763
228,216
220,453
301
—
—
(924)
3,777
—
(330)
1,796
225,073
225,073
7,763
232,836
225,073
1,238
4,248
8,902
(7,681)
(8,665)
(6,358)
192
216,949
4.06
4.04
4.15
4.13
54,244
54,444
54,444
1,989
56,433
(1) Includes maintenance capital expenditures and certain second generation tenant improvements and leasing
commissions.
61
$
3.84
$
3.63
$
3.42
The conversion of the 5.75% Series C cumulative convertible preferred shares would be dilutive to FFO per share and
to FFOAA per share for the years ended December 31, 2016, 2015 and 2014. Therefore, the additional 2.0 million
shares that would result from the conversion and the corresponding add-back of the preferred dividends declared on
those shares are included in the calculation of diluted FFO and diluted FFOAA per share for these periods. The effect
of the conversion of our 9.0% Series E cumulative convertible preferred shares do not result in more dilution to per
share results and are therefore not included in the calculation of diluted per share data for the years ended December
31, 2016, 2015 and 2014.
Net Debt
Net Debt represents debt (reported in accordance with GAAP) adjusted to exclude deferred financing costs, net and
reduced for cash and cash equivalents. By excluding deferred financing costs, net and reducing debt for cash and cash
equivalents on hand, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of
cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial
disclosure to investors in understanding our financial condition. Our method of calculating Net Debt may be different
from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
Adjusted EBITDA
Management uses Adjusted EBITDA in its analysis of the performance of the business and operations of the Company.
Management believes Adjusted EBITDA is useful to investors because it excludes various items that management
believes are not indicative of operating performance, and that it is an informative measure to use in computing various
financial ratios to evaluate the Company. We define Adjusted EBITDA as net income available to common shareholders
excluding costs associated with loan refinancing or payoff, interest expense (net), depreciation and amortization, equity
in (income) loss from joint ventures, gain (loss) on the sale of real estate, gain on insurance recovery, income tax
expense (benefit), preferred dividend requirements, the effect of non-cash impairment charges, retirement severance
expense, the provision for loan losses and transaction costs (benefit), and which is then multiplied by four to get an
annual amount.
Our method of calculating Adjusted EBITDA may be different from methods used by other REITs and, accordingly,
may not be comparable to such other REITs. Adjusted EBITDA is not a measure of performance under GAAP, does
not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all
cash needs, including distributions. This measure should not be considered as an alternative to net income for the
purpose of evaluating the Company's performance or to cash flows as a measure of liquidity.
Net Debt to Adjusted EBITDA Ratio
Net Debt to Adjusted EBITDA Ratio is a supplemental measure derived from non-GAAP financial measures that we
use to evaluate our capital structure and the magnitude of our debt against our operating performance. We believe that
investors commonly use versions of this ratio in a similar manner. In addition, financial institutions use versions of this
ratio in connection with debt agreements to set pricing and covenant limitations. Our method of calculating Net Debt
to Adjusted EBITDA may be different from methods used by other REITs and, accordingly, may not be comparable to
such other REITs.
Reconciliations of debt and net income available to common shareholders (both reported in accordance with GAAP)
to Net Debt, Adjusted EBITDA and Net Debt to Adjusted EBITDA Ratio (each of which is a non-GAAP financial
measure) are included in the following tables (unaudited, in thousands):
62
Net Debt:
Debt
Deferred financing costs, net
Cash and cash equivalents
Net Debt
Adjusted EBITDA:
Net income available to common shareholders of EPR Properties
Costs associated with loan refinancing or payoff
Interest expense, net
Transaction costs
Depreciation and amortization
Equity in income from joint ventures
Gain on sale of real estate
Income tax benefit (1)
Preferred dividend requirements
Gain on insurance recovery (2)
Adjusted EBITDA (for the quarter)
Adjusted EBITDA (3)
Net Debt/Adjusted EBITDA Ratio
(1) Includes discontinued operations
December 31,
2016
2015
2,485,625
29,320
(19,335)
2,495,610
$
$
1,981,920
18,289
(4,283)
1,995,926
Three Months Ended December 31,
2016
2015
52,190
—
26,834
2,988
28,351
(118)
(1,430)
(84)
5,951
(847)
113,835
455,340
$
$
$
46,799
9
20,792
700
24,915
(268)
—
(936)
5,951
—
97,962
391,848
5.48
5.09
$
$
$
$
$
(2) Included in other income in the accompanying consolidated statements of income. Other income includes the
following:
Income from settlement of foreign currency swap contracts
Fee income
Gain on insurance recovery
Miscellaneous income
Other income
Three Months Ended December 31,
2016
2015
$
$
705
1,588
847
87
3,227
$
$
705
—
—
508
1,213
(3) Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount.
Total Investments
Total investments is a non-GAAP financial measure defined as the sum of the carrying values of rental properties
(before accumulated depreciation), rental properties held for sale (before accumulated depreciation), land held for
development, property under development, mortgage notes receivable (including related accrued interest receivable),
investment in a direct financing lease, net, investment in joint ventures, intangible assets, gross (included in other assets)
and notes receivable and related accrued interest receivable, net (included in other assets). Total investments is a useful
measure for management and investors as it illustrates across which asset categories the Company's funds have been
invested. Our method of calculating total investments may be different from methods used by other REITs and,
accordingly, may not be comparable to such other REITs. A reconciliation of total investments to total assets (computed
in accordance with GAAP) is included in the following table (unaudited, in thousands):
63
Total Investments:
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
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
Total investments
Cash and cash equivalents
Restricted cash
Account receivable, net
Less: accumulated depreciation on rental properties
Less: accumulated amortization on intangible assets
Prepaid expenses and other current assets
Total assets
December 31, 2016
December 31, 2015
$
$
$
$
3,595,762
635,535
22,530
297,110
613,978
102,698
5,972
28,787
4,765
5,307,137
5,307,137
19,335
9,744
98,939
(635,535)
(14,008)
79,410
4,865,022
$
$
$
$
3,025,199
534,303
23,610
378,920
423,780
190,880
6,168
20,715
2,228
4,605,803
4,605,803
4,283
10,578
59,101
(534,303)
(12,079)
83,887
4,217,270
(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
Impact of Recently Issued Accounting Standards
December 31, 2016
28,787
$
(14,008)
4,765
79,410
98,954
$
December 31, 2015
20,715
$
(12,079)
2,228
83,887
94,751
$
See Note 2 to the consolidated financial statements included in this Form 10-K for additional information on the impact
of recently issued accounting standards on our business.
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.
64
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 15% 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.
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, 2016, we had a $650.0 million unsecured
revolving credit facility with no outstanding balance and $25.0 million in bonds, all of which bear interest at a floating
rate. We also had a $350.0 million unsecured term loan facility that bears interest at a floating rate and $300.0 million
of this LIBOR-based debt has been fixed with interest rate swaps at a blended rate of 3.09% through April 5, 2019.
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)
2017
2018
2019
2020
2021
Thereafter
Total
Estimated
Fair Value
$ 163.3
$ 11.7
$ — $550.0
$ — $1,715.0
$2,440.0
$2,507.8
4.9%
6.2%
—%
5.5%
$ — $ — $ — $ 50.0
—%
$ — $
4.9%
25.0
$
5.1%
75.0
$
4.2%
75.0
—%
—%
—%
2.2%
—%
0.8%
1.7%
1.7%
2016
2017
2018
2019
2020
Thereafter
Total
Estimated
Fair Value
$ 75.5
$ 165.3
$ 13.4
$ — $550.0
$ 925.0
$1,729.2
$1,829.0
6.0%
4.9%
6.3%
—%
5.0%
5.2%
5.2%
4.3%
$ — $ — $ — $196.0
$ 50.0
$
25.0
$ 271.0
$ 271.0
—%
—%
—%
1.6%
1.8%
0.1%
1.5%
1.5%
December 31, 2016:
Fixed rate debt
Average interest rate
Variable rate debt
Average interest rate
(as of December 31,
2016)
December 31, 2015:
Fixed rate debt
Average interest rate
Variable rate debt
Average interest rate
(as of December 31,
2015)
The fair value of our debt as of December 31, 2016 and 2015 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 cross currency 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
65
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
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 9 to the consolidated financial statements in this Annual Report on Form 10-K for additional information on
our derivative financial instruments and hedging activities.
66
Item 8. Financial Statements and Supplementary Data
EPR Properties
Contents
Report of Independent Registered Public Accounting Firm...............................................................................
68
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 ......................................................................................................
69
70
71
72
74
76
Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts..............................................................................................
Schedule III - Real Estate and Accumulated Depreciation.................................................................................
124
125
67
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,
2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in equity, and cash
period ended December 31, 2016. In connection with our audits of the
flows for each of the years in 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, 2016 and 2015, and the results of their operations and
their cash flows for each of the years in the
period ended December 31, 2016, 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 also have 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, 2016, 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 28, 2017 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Kansas City, Missouri
February 28, 2017
68
EPR PROPERTIES
Consolidated Balance Sheets
(Dollars in thousands except share data)
Assets
Rental properties, net of accumulated depreciation of $635,535 and $534,303 at
December 31, 2016 and 2015, 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
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; 100,000,000 shares authorized; and 66,263,487 and
63,195,182 shares issued at December 31, 2016 and 2015, respectively
Preferred Shares, $.01 par value; 25,000,000 shares authorized:
5,399,050 and 5,400,000 Series C convertible shares issued at December 31,
2016 and 2015; liquidation preference of $134,976,250
3,450,000 Series E convertible shares issued at December 31, 2016 and 2015;
liquidation preference of $86,250,000
5,000,000 Series F shares issued at December 31, 2016 and 2015; liquidation
preference of $125,000,000
Additional paid-in-capital
Treasury shares at cost: 2,616,406 and 2,371,198 common shares at December 31,
2016 and 2015, respectively
Accumulated other comprehensive income
Distributions in excess of net income
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31,
2016
2015
$
$
$
3,595,762
22,530
297,110
613,978
102,698
5,972
19,335
9,744
98,939
98,954
4,865,022
119,758
20,367
5,951
47,420
2,485,625
2,679,121
3,025,199
23,610
378,920
423,780
190,880
6,168
4,283
10,578
59,101
94,751
4,217,270
92,178
18,401
5,951
44,952
1,981,920
2,143,402
663
632
54
35
50
2,677,046
(113,172)
7,734
(386,509)
2,185,901
4,865,022
$
$
54
35
50
2,508,445
(97,328)
5,622
(343,642)
2,073,868
4,217,270
$
$
$
$
$
69
EPR PROPERTIES
Consolidated Statements of Income
(Dollars in thousands except per share data)
Year Ended December 31,
$
$
2016
399,589
15,595
9,039
69,019
493,242
22,602
5
37,543
—
905
97,144
7,869
—
107,573
219,601
619
5,315
—
225,535
(553)
224,982
—
—
224,982
(23,806)
$
$
2015
330,886
16,320
3,629
70,182
421,017
23,433
648
31,021
18,578
270
79,915
7,518
—
89,617
170,017
969
23,829
—
194,815
(482)
194,333
199
—
194,532
(23,806)
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
(23,807)
$
201,176
$
170,726
$
155,826
$
$
$
$
3.17
—
3.17
3.17
—
3.17
$
$
$
$
2.93
0.01
2.94
2.92
0.01
2.93
$
$
$
$
2.80
0.07
2.87
2.79
0.07
2.86
63,381
63,474
58,138
58,328
54,244
54,444
$
Rental revenue
Tenant reimbursements
Other income
Mortgage and other financing income
Total revenue
Property operating expense
Other expense
General and administrative expense
Retirement severance expense
Costs associated with loan refinancing or payoff
Interest expense, net
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 of real estate
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
Per share data attributable to EPR Properties common shareholders:
Basic earnings per share data:
Income from continuing operations
Income from discontinued operations
Net income available to common shareholders
Diluted earnings per share data:
Income from continuing operations
Income from discontinued operations
Net income available to common shareholders
Shares used for computation (in thousands):
Basic
Diluted
See accompanying notes to consolidated financial statements.
70
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 attributable to EPR Properties
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2016
224,982
$
2015
194,532
$
2014
179,633
5,142
(3,030)
227,094
(33,710)
26,766
(18,464)
13,837
$
187,588
$
175,006
$
$
71
EPR PROPERTIES
Consolidated Statements of Changes in Equity
Years Ended December 31, 2016, 2015 and 2014
(Dollars in thousands)
EPR Properties Shareholders’ Equity
Common Stock
Preferred Stock
Shares
53,361,261
19,685
280,193
—
—
—
—
—
5,255,302
35,963
—
58,952,404
18,036
218,285
—
—
—
—
—
—
—
3,530,057
476,400
—
—
63,195,182
Par
$ 534
—
3
—
—
—
—
—
52
—
—
$ 589
—
2
—
—
—
—
—
—
—
36
5
—
—
$ 632
Shares
13,850,000
—
—
—
—
—
—
—
—
—
—
13,850,000
—
—
—
—
—
—
—
—
—
—
—
—
—
13,850,000
Par
$ 139
—
—
—
—
—
—
—
—
—
—
$ 139
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 139
Additional
paid-in
capital
$ 2,003,863
1,054
4,866
6,482
1,359
—
—
—
264,283
1,533
—
$ 2,283,440
—
1,941
—
7,038
1,119
6,377
—
—
—
190,329
17,824
—
377
$ 2,508,445
Accumulated
other
comprehensive
income (loss)
Distributions
in excess of
net income
Treasury
shares
Noncontrolling
interests
Total
$ (62,177) $
—
(4,186)
—
—
—
—
—
—
(1,483)
—
$ (67,846) $
—
(36)
(8,222)
—
—
—
—
—
—
—
(21,224)
—
—
$ (97,328) $
17,193
—
—
—
—
(18,464)
13,837
—
—
—
—
12,566
—
—
—
—
—
—
(33,710)
26,766
—
—
—
—
—
5,622
$
$
$
(271,915) $
—
—
—
—
—
—
179,633
—
—
(210,494)
(302,776) $
—
—
—
—
—
—
—
—
194,532
—
—
(235,398)
—
(343,642) $
377
—
—
—
—
—
—
—
—
—
—
377
—
—
—
—
—
—
—
—
—
—
—
—
(377)
$ 1,688,014
1,054
683
6,482
1,359
(18,464)
13,837
179,633
264,335
50
(210,494)
$ 1,926,489
—
1,907
(8,222)
7,038
1,119
6,377
(33,710)
26,766
194,532
190,365
(3,395)
(235,398)
—
— $ 2,073,868
Balance at December 31, 2013
Restricted share units issued to Trustees
Issuance of nonvested shares,net
Amortization of nonvested shares and restricted share units
Share option expense
Foreign currency translation adjustment
Change in unrealized gain (loss) on derivatives
Net income
Issuances of common shares
Stock option exercises, net
Dividends to common and preferred shareholders
Balance at December 31, 2014
Restricted share units issued to Trustees
Issuance of nonvested shares, net
Purchase of common shares for vesting
Amortization of nonvested shares and restricted share units
Share option expense
Share-based compensation included in retirement severance expense
Foreign currency translation adjustment
Change in unrealized gain (loss) on derivatives
Net income
Issuances of common shares
Stock option exercises, net
Dividends to common and preferred shareholders
Forfeiture of noncontrolling interest
Balance at December 31, 2015
Continued on next page.
72
EPR PROPERTIES
Consolidated Statements of Changes in Equity
Years Ended December 31, 2016, 2015 and 2014
(Dollars in thousands) (continued)
EPR Properties Shareholders’ Equity
Common Stock
Preferred Stock
Shares
Par
Shares
Par
Additional
paid-in
capital
Treasury
shares
Accumulated
other
comprehensive
income (loss)
Distributions
in excess of
net income
Noncontrolling
interests
Total
63,195,182
15,805
300,752
—
—
—
—
—
—
2,521,071
358
230,319
—
66,263,487
$ 632
—
3
—
—
—
—
—
—
26
—
2
—
$ 663
13,850,000
—
—
—
—
—
—
—
—
—
(950)
—
—
13,849,050
$ 139
—
—
—
—
—
—
—
—
—
—
—
—
$ 139
$ 2,508,445
—
4,472
—
10,255
909
—
—
—
142,822
—
10,143
—
$ 2,677,046
$ (97,328) $
—
—
(4,211)
—
—
—
—
—
—
—
(11,633)
—
$ (113,172) $
5,622
—
—
—
—
—
5,142
(3,030)
—
—
—
—
—
7,734
$
$
(343,642) $
—
—
—
—
—
—
—
224,982
—
—
—
(267,849)
(386,509) $
— $ 2,073,868
—
—
4,475
—
(4,211)
—
10,255
—
909
—
5,142
—
(3,030)
—
224,982
—
142,848
—
—
—
(1,488)
—
—
(267,849)
— $ 2,185,901
Continued from previous page.
Balance at December 31, 2015
Restricted share units issued to Trustees
Issuance of nonvested shares, net
Purchase of common shares for vesting
Amortization of nonvested shares and restricted share units
Share option expense
Foreign currency translation adjustment
Change in unrealized gain (loss) on derivatives
Net income
Issuances of common shares
Conversion of Series C Convertible Preferred shares to common shares
Stock option exercises, net
Dividends to common and preferred shareholders
Balance at December 31, 2016
See accompanying notes to consolidated financial statements.
73
EPR PROPERTIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Operating activities:
Net income attributable to EPR Properties
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of real estate
Gain on insurance recovery
Deferred income tax (benefit) expense
Provision for loan losses
Non-cash fee income
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/below market leases and tenant improvements
Share-based compensation expense to management and trustees
Share-based compensation expense included in retirement severance expense
(Increase) decrease in restricted cash
Decrease (increase) in mortgage notes accrued interest receivable
Increase in accounts receivable, net
Increase in direct financing lease receivable
(Increase) decrease in other assets
Increase in accounts payable and accrued liabilities
(Decrease) increase in unearned rents and interest
Net operating cash provided by continuing operations
Net operating cash provided by discontinued operations
Net cash provided by operating activities
Investing activities:
Acquisition of and investments in 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 infrastructure related to issuance of revenue bonds
Proceeds from insurance recovery
Proceeds from sale of investment in a direct financing lease, net
Additions to properties under development
Net cash used by investing activities
Financing activities:
Proceeds from long-term debt facilities and senior unsecured notes
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 for vesting
Dividends paid to shareholders
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase (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.
$
74
Year Ended December 31,
2015
2014
2016
$
224,982
$
194,532
$
179,633
(5,315)
(4,684)
(1,065)
—
(1,588)
—
—
905
(619)
816
107,573
4,787
183
11,164
—
(1,619)
572
(37,627)
(3,255)
(3,320)
17,025
(2,713)
306,202
—
306,202
(219,169)
23,860
—
(192,539)
72,072
(1,546)
—
43,462
4,610
20,951
(413,848)
(662,147)
1,380,000
(865,266)
(14,385)
(482)
142,628
(1,488)
(4,211)
(265,662)
371,134
(137)
15,052
4,283
19,335
$
(23,829)
—
(1,136)
—
—
(199)
—
270
(969)
540
89,617
4,588
192
8,508
6,377
2,017
(4,133)
(11,623)
(3,559)
343
5,711
10,705
277,952
508
278,460
(179,820)
46,718
—
(72,698)
40,956
—
—
—
—
4,741
(408,436)
(568,539)
856,914
(503,314)
(7,047)
—
190,158
(3,394)
(8,222)
(233,073)
292,022
(996)
947
3,336
4,283
$
(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)
379,000
(310,253)
(814)
(25)
264,158
50
(2,892)
(207,637)
121,587
(278)
(4,622)
7,958
3,336
Continued from previous page.
EPR PROPERTIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Supplemental schedule of non-cash activity:
Transfer of property under development to rental property
Transfer of land held for development to property under development
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 mortgage note receivable to rental property
Adjustment of noncontrolling interest to additional paid in capital
Sale of investment in a direct financing lease, net in exchange for mortgage
note receivable
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
Cash paid during the year for income taxes
Interest cost capitalized
Increase in accrued capital expenditures
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2015
2014
2016
454,922
$
— $
— $
19,626
$
— $
— $
70,304
$
392,786
167,600
$
$
— $
14,285
120,051
377
$
$
$
236,428
—
101,441
15,525
—
—
— $
—
96,410
1,684
10,697
6,035
$
$
$
$
90,850
1,956
18,546
417
$
$
$
$
85,290
710
7,525
7,053
$
$
$
$
$
$
$
$
$
$
$
75
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
The Company consolidates certain entities when it is deemed to be the primary beneficiary in a variable interest entity
(VIE) in which it has a controlling financial interest in accordance with the consolidation guidance of the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC).
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.
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 30 to 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 typically 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 shorter-term leases or properties with
76
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 or methods similar to those used by independent appraisers 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 $7.9 million, $7.5 million and $2.5 million
for the years ended December 31, 2016, 2015 and 2014, respectively.
For rental property acquisitions (asset acquisitions or business combinations) 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.
Most of the Company’s rental property acquisitions do not involve in-place leases. 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.
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.
77
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 $13.4 million and $11.6
million, respectively
Above market lease, net of accumulated amortization of $0.6 million and $0.4
million, respectively
Below market lease, net of accumulated amortization of $12 thousand
Goodwill
Total intangible assets, net
2016
2015
$
$
13,716
$
479
(109)
693
14,779
$
7,273
670
—
693
8,636
In-place leases, net at December 31, 2016 and 2015 of approximately $13.7 million and $7.3 million, respectively,
relate to 24 theatre properties and two early education centers. Amortization expense related to in-place leases is
computed using the straight-line method and was $1.4 million for the years ended December 31, 2016, 2015 and 2014.
The weighted average life for these in-place leases at December 31, 2016 is 11.2 years.
Above market lease, net at December 31, 2016 and 2015 relates to one theatre property. Amortization expense related
to the above market lease is computed using the straight-line method and was $192 thousand for the years ended
December 31, 2016, 2015 and 2014. The life for the above market lease at December 31, 2016 is 2.5 years.
Below market lease, net at December 31, 2016 relates to one theatre property. Amortization expense related to below
market lease is computed using the straight-line method and was $12 thousand for the year ended December 31, 2016.
The life for the below market lease at December 31, 2016 is 4.7 years.
Goodwill at December 31, 2016 and 2015 relates solely to the acquisition of New Roc that was acquired on October 27,
2003.
Future amortization of in-place leases, net, above market lease, net, and below market lease, net at December 31, 2016
is as follows (in thousands):
Year:
2017
2018
2019
2020
2021
Thereafter
Total
In place leases
Above market lease
Below market lease
$
$
1,667
1,655
1,416
1,177
1,100
6,701
13,716
$
$
192
192
95
—
—
—
479
$
$
(23)
(23)
(23)
(23)
(17)
—
(109)
Deferred Financing Costs
Deferred financing costs are amortized over the terms of the related debt obligations or mortgage note receivable as
applicable. The Company early adopted the FASB issued Accounting Standards Update (ASU) No. 2015-03,
Simplifying the Presentation of Debt Issue Costs, during 2015 and applied the guidance retrospectively. Deferred
financing costs of $29.3 million and $18.3 million as of December 31, 2016 and 2015, respectively are shown as a
reduction of debt. The deferred financing costs related to the unsecured revolving credit facility are included in other
assets.
78
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 19 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
$4.7 million, $3.0 million and $2.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Mortgage and other financing income included participating interest income of $0.8 million, $1.5 million and $2.2
million for the years ended December 31, 2016, 2015 and 2014, respectively. For the years ended December 31, 2016
and 2014, mortgage and other financing income also included $3.6 million and $5.0 million in prepayment fees,
respectively, related to mortgage notes that were paid either fully or partially in advance of their maturity dates. There
was no prepayment fee included in mortgage and other financing income for the year ended December 31, 2015.
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.
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 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 where collection is not probable. 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
79
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
amounts deemed uncollectible. The allowance for doubtful accounts was $0.9 million and $3.2 million at December
31, 2016 and 2015, 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. 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. There were no impaired loans at December 31, 2016 and 2015. 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. During the year ended December
31, 2015, the Company wrote off $3.8 million of this previously impaired and fully reserved note receivable.
Income Taxes
The Company qualifies 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.
The Company owns certain real estate assets which are subject to income tax in Canada. At December 31, 2016, the
net Canadian deferred tax assets totaled $12.0 million and the temporary differences between income for financial
reporting purposes and taxable income for the Canadian operations relate primarily to depreciation, capital
improvements 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 taxing
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, 2016, the amount of this future liability was approximately
$161 thousand and represented withholding taxes on 2016 and 2015 earnings. Additionally, the Company paid $82
thousand in withholding taxes during the year ended December 31, 2016 that related to 2014 and 2015 earnings
repatriated during 2016. 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, 2016 and 2015, respectively, the Canadian operations and the taxable REIT subsidiaries had
deferred tax assets totaling approximately $17.0 million and $14.7 million and deferred tax liabilities totaling
approximately $4.7 million and $3.8 million. Prior to January 1, 2016, a full valuation allowance had been recorded
on the net taxable REIT subsidiaries deferred tax assets as it was not more-likely-than not that the TRS operations
80
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
would generate sufficient taxable income to utilize deferred tax assets in the future. For the year ended December 31,
2016, the Company reassessed the need for a valuation allowance and reversed its valuation allowance associated with
the net TRS deferred tax assets. The Company’s consolidated deferred tax position is summarized as follows:
Fixed assets
Net operating losses
Other
Less Valuation allowance
Total deferred tax assets
Capital improvements
Straight line receivable
Other
Total deferred tax liabilities
Net deferred tax asset
$
$
$
$
$
2016
2015
16,022
578
381
—
16,981
$
$
(1,716)
(2,177) $
(830)
(4,723) $
13,791
2,249
412
(1,779)
14,673
(224)
(2,731)
(848)
(3,803)
12,258
$
10,870
Additionally, during the years ended December 31, 2016 and 2015, the Company recognized current income and
withholding tax expense of $1.7 million and $1.6 million, respectively, primarily related to certain state income taxes
and foreign withholding tax. The table below details the current and deferred income tax benefit (expense) for the
years ended December 31, 2016, 2015 and 2014 (in thousands):
2016
2015
2014
Current TRS income tax
Current state income tax expense
Current foreign income tax
Current foreign withholding tax
Deferred TRS income tax
Deferred foreign withholding tax
Deferred income tax benefit (expense)
Income tax expense
$
$
(36) $
(414)
(77)
(1,130)
273
39
792
(553) $
— $
(899)
431
(1,107)
—
(43)
1,136
(482) $
—
(579)
(493)
(1,040)
—
(320)
(1,796)
(4,228)
The Company's effective tax rate for both the years ended December 31, 2016 and 2015 was 0.2%. The differences
between the income tax expense calculated at the statutory U.S. federal income tax rates of 35% and the actual income
tax 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, 2016, 2015 and 2014. 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 2013 through 2016 remain generally open to examination for U.S. federal income tax and
state tax purposes and from 2012 through 2016 for Canadian income tax purposes.
The Company’s policy is to recognize interest and penalties as general and administrative expense. The Company did
not recognize any interest and penalties in 2016. In 2015, approximately $65 thousand in interest and penalties related
81
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
to a state audit were recognized. In 2014, 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, 2016 or December 31, 2015. Additionally,
the Company did not have any unrecorded tax benefits as of December 31, 2016 and December 31, 2015.
Concentrations of Risk
On December 21, 2016, American Multi-Cinema, Inc. (AMC) announced that it closed its acquisition of Carmike
Cinemas Inc. (Carmike). Including the effects of this acquisition, AMC was the lessee of a substantial portion (36%) of
the megaplex theatre rental properties held by the Company at December 31, 2016. For the year ended December 31,
2016, approximately $90.0 million or 18.2% of the Company's total revenues were derived from rental payments by
AMC and approximately $21.7 million or 4.4% of the Company's total revenues were derived from rental payments
by Carmike. For the years ended December 31, 2015 and 2014, approximately $86.1 million or 20% and $87.4 million
or 23%, respectively, of the Company's total revenues were derived from rental payments by AMC. These rental
payments are 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.
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, and payment of real estate taxes and capital improvements.
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. Prior to May 12, 2016, share-based compensation
granted to employees and non-employee Trustees were issued under the 2007 Equity Incentive Plan. The 2016 Equity
Incentive Plan was approved by shareholders at the May 11, 2016 annual shareholder meeting and this plan replaces
the 2007 Equity Incentive Plan. Accordingly, all share-based compensation granted on or after May 12, 2016 has been
issued under the 2016 Equity Incentive Plan.
Share based compensation expense consists of share option expense and amortization of nonvested share grants issued
to employees, 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 $11.2 million, $8.5 million and $8.9 million for the years ended December 31, 2016,
2015 and 2014, respectively. Share-based compensation included in retirement severance expense in the accompanying
consolidated statements of income totaled $6.4 million for the year ended December 31, 2015 and related to the retirement
of the Company's former President and Chief Executive Officer.
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. Expense recognized related to share options and included in general and administrative
expense in the accompanying consolidated statements of income was $0.9 million, $1.1 million and $1.4 million for
the years ended December 31, 2016, 2015 and 2014, respectively. Expense recognized related to share options and
included in retirement severance expense in the accompanying consolidated statements of income was $1.4 million for
the year ended December 31, 2015 and related to the retirement of the Company's former President and Chief Executive
Officer.
82
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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). Expense recognized related to
nonvested shares and included in general and administrative expense in the accompanying consolidated statements of
income was $9.2 million, $6.3 million and $6.5 million for the years ended December 31, 2016, 2015 and 2014,
respectively. Expense related to nonvested shares and included in retirement severance expense in the accompanying
consolidated statements of income was $5.0 million for the year ended December 31, 2015 and related to the retirement
of the Company's former President and Chief Executive Officer.
Restricted Share Units Issued to Non-Employee Trustees
The Company issues restricted share units to non-employee Trustees for payment of their annual retainers under the
Company's Trustee compensation program. 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 is 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, $1.0 million and $1.1 million for the years ended December 31, 2016, 2015 and
2014, respectively.
Foreign Currency Translation
The Company accounts for the operations of its Canadian properties in Canadian dollars. The assets and liabilities
related to the Company’s Canadian properties and mortgage note are translated into U.S. dollars using the spot rates
at the respective balance sheet dates; revenues and expenses are translated at average exchange rates. Resulting
translation adjustments are recorded as a separate component of comprehensive income.
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.
The Company's policy is to measure the credit risk of its derivative financial instruments that are subject to master
netting agreements on a net basis by counterparty portfolio.
Impact of Recently Issued Accounting Standards
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.
83
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
In April 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard
which was approved in July 2015. The new standard will become effective for the Company beginning with the first
quarter 2018. The ASU does not apply to revenue recognition for lease contracts. A majority of the Company’s tenant-
related revenue is recognized pursuant to lease contracts. This standard will apply to reimbursed tenant costs and
revenues generated from the Company providing certain services at its multi-tenant properties after ASU 2016-02,
Leases, is adopted. Additionally, it may apply to certain other transactions such as the sale of real estate. The standard
permits the use of either the full retrospective method or the modified retrospective method. The Company anticipates
it will use the modified retrospective method for transition, in which case the cumulative effect of applying the standard,
if any, would be recognized at the date of initial application. The Company is beginning the process for implementing
this guidance, including performing a preliminary review of all revenue streams to identify any differences in the timing,
measurement or presentation of revenue recognition. The Company is continuing to evaluate the effect that ASU
2014-09 will have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which amends existing accounting standards for lease
accounting and is intended to improve financial reporting related to lease transactions. The ASU will require lessees
to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Lessor
accounting will remain largely unchanged from current U.S. GAAP. However, ASU 2016-02 is expected to impact
the Company’s consolidated financial statements as the Company has certain operating land lease and other
arrangements for which it is the lessee. The ASU will become effective for the Company for interim and annual
reporting periods in fiscal years beginning after December 15, 2018. The Company expects to adopt the new standard
on its effective date. A modified retrospective transition approach is required for leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements, with certain practical
expedients available. The Company is currently evaluating the impact that ASU 2016-02 will have on its consolidated
financial statements and related disclosures. The Company does not expect a significant change in its leasing activity
between now and adoption. The Company believes substantially all of its leases will continue to be classified as
operating leases under the new standard. Subsequent to the adoption of the new standard, common area maintenance
provided in lease contracts will be accounted for as a non-lease component within the scope of the new revenue standard.
As a result, the Company will be required to recognize revenues associated with leases separately from revenues
associated with common area maintenance. The Company is continuing to evaluate whether the variable payment
provisions in the new lease standard or the allocation and recognition provisions of the new revenue standard will affect
the timing of recognition of lease and non-lease revenue.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting,
which amends ASC Topic 718, Compensation - Stock Compensation. The objective of this amendment is part of the
FASB's Simplification Initiative as it applies to several aspects of the accounting for share-based payment transactions,
including income tax consequences, classification of awards as either equity or liabilities, and classification of cash
flows. The effective date of the amendment is for fiscal years beginning after December 15, 2016. The Company does
not expect that the adoption of this ASU will have a material impact on its consolidated financial statements due to the
nontaxable status of the Company as a REIT.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which
amends ASC Topic 326, Financial Instruments - Credit Losses. The standard changes the methodology for measuring
credit losses on financial instruments and timing of when such losses are recorded. ASU 2016-13 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2019. The Company is currently evaluating
the impact that the standard will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments,
which amends ASC Topic 230, Statement of Cash Flows. The standard clarifies the treatment of several cash flow
issues with the objective of reducing diversity in practice. ASU 2016-15 is effective for fiscal years beginning after
December 15, 2017. The Company is currently reviewing the ASU to assess the potential impact on its consolidated
financial statements and related disclosures but does not anticipate that this ASU will have a material impact.
84
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows, which amends ASC Topic 230,
Statement of Cash Flows. The standard requires that the statement of cash flows explain the change during the period
in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the
restrictions. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017. The Company is currently
reviewing the ASU to assess the potential impact on its consolidated financial statements and related disclosures but
does not anticipate that this ASU will have a material impact.
3. Rental Properties
The following table summarizes the carrying amounts of rental properties as of December 31, 2016 and 2015 (in
thousands):
Buildings and improvements
Furniture, fixtures & equipment
Land
Accumulated depreciation
Total
2016
3,272,865
40,684
917,748
4,231,297
(635,535)
3,595,762
$
$
2015
2,837,611
34,423
687,468
3,559,502
(534,303)
3,025,199
$
$
Depreciation expense on rental properties was $103.9 million, $85.9 million and $63.0 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
On August 1, 2015, per the terms of the mortgage note agreement, the borrower for Camelback Mountain Resort
exercised its option to convert the mortgage note agreement to a lease agreement. As a result, the Company recorded
the carrying value of its investment into rental property, which approximated the fair value of the property on the
conversion date. There was no gain or loss recognized on this transaction. The property is leased pursuant to a triple
net lease with a 20-year term.
During the year ended December 31, 2015, the Company completed the sale of a theatre located in Los Angeles,
California for net proceeds of $42.7 million and recognized a gain on sale of $23.7 million. In addition, during the
year ended December 31, 2015, the Company sold three land parcels for net proceeds of $4.0 million and recognized
a net gain of $0.1 million. The results of operations of these properties have not been classified within discontinued
operations.
On June 27, 2016, the Company completed the acquisition of six theatre properties from Carmike for a net purchase
price of $94.1 million. The theatres are located in five states. Five of the theatre properties are leased on a triple net
basis under a master lease agreement to Carmike 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 15 years. The theatre
located in Pennslyvania is leased under a separate triple net lease with the remaining initial lease term of approximately
five years.
During the year ended December 31, 2016, pursuant to tenant purchase options, the Company completed the sale of
two public charter schools located in Colorado for net proceeds totaling $16.6 million and recognized gains on sale
totaling $2.8 million. In addition, during the year ended December 31, 2016, the Company completed the sale of three
retail parcels located in Texas for total net proceeds of $5.3 million and recognized gains on sale totaling $2.5 million.
The Company also completed the sale of a land parcel at Adelaar for net proceeds of $1.5 million and no gain or loss
was recognized. The results of operations of these properties have not been classified within discontinued operations.
During the year ended December 31, 2016, the Company recognized a gain on insurance recovery of $4.5 million. This
gain is included in other income in the accompanying consolidated statements of income. The gain on insurance
recovery related to insurance proceeds received for damage from a fire at one of the Company's ski areas located in
Ohio.
85
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
4. Accounts Receivable, Net
The following table summarizes the carrying amounts of accounts receivable, net as of December 31, 2016 and 2015
(in thousands):
Receivable from tenants
Receivable from non-tenants
Receivable from insurance proceeds
Receivable from Sullivan County Infrastructure Revenue Bonds
Straight-line rent receivable
Allowance for doubtful accounts
Total
2016
2015
7,564
497
1,967
22,164
67,618
(871)
98,939
$
$
9,999
353
—
—
52,336
(3,587)
59,101
$
$
86
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
5. Investment in Mortgage Notes
Investment in mortgage notes, including related accrued interest receivable, at December 31, 2016 and 2015 consists
of the following (in thousands):
(1) Mortgage note and related accrued interest receivable,
9.50%, paid in full January 5, 2016
(2) Mortgage note and related accrued interest receivable,
9.75%, paid in full April 22, 2016
(3) Mortgage note, 5.50%, paid in full October 11, 2016
(4) Mortgage note and related accrued interest receivable,
9.00%, due March 11, 2017
(5) Mortgage note and related accrued interest receivable,
9.00%, due July 31, 2017
(6) Mortgage note and related accrued interest receivable,
7.00%, due October 19, 2018
(7) Mortgage notes, 7.00% and 10.00%, due May 1, 2019
(8) Mortgage note, 7.00%, due December 20, 2021
(9) Mortgage note and related accrued interest receivable,
7.85%, due December 28, 2026
(10) Mortgage note and related accrued interest receivable,
10.65%, due June 28, 2032
(11) Mortgage note and related accrued interest receivable,
9.00%, due December 31, 2032
(12) Mortgage notes and related accrued interest receivable,
9.50%, due April 30, 2033
(13) Mortgage note and related accrued interest receivable,
10.25%, due June 30, 2033
(14) Mortgage note, 11.31%, due July 1, 2033
(15) Mortgage note and related accrued interest receivable,
8.71%, due June 30, 2034
(16) Mortgage note and related accrued interest receivable,
9.50%, due August 31, 2034
(17) Mortgage note and related accrued interest receivable,
11.10%, due December 1, 2034
(18) Mortgage notes, 10.28%, due December 1, 2034
(19) Mortgage note, 10.72%, due December 1, 2034
(20) Mortgage note, 8.00%, due January 5, 2036
(21) Mortgage note, 10.25%, due May 31, 2036
(22) Mortgage note and related accrued interest receivable,
9.75%, due July 28, 2036
(23) Mortgage note and related accrued interest receivable,
9.75%, due July 31, 2036
(24) Mortgage note, 9.75%, due December 31, 2036
(25) Mortgage notes, 7.25%, due November 30, 2041
2016
2015
—
—
—
1,454
1,375
1,637
164,743
70,304
5,635
19,944
22,188
2,500
1,454
1,257
—
164,543
—
—
36,032
36,032
5,327
30,849
3,508
12,530
7,230
12,473
51,250
37,562
4,550
21,000
17,505
18,219
6,083
4,712
100,000
5,469
30,680
3,488
12,781
4,900
12,392
51,450
37,562
4,550
—
9,147
3,443
—
—
—
Total mortgage notes and related accrued interest
receivable
$
613,978
$
423,780
(1) The Company's first mortgage loan agreement with Basis Schools, Inc. that was secured by a public charter school
and the underlying land located in Washington D.C. was paid on January 5, 2016. In connection with the full payoff
of this note, the Company received a prepayment fee of $3.6 million, included in mortgage and other financing income.
87
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(2) The Company's first mortgage loan agreement with Fiber Mills, LLC and Music Factory Condominiums, LLC that
was secured by the North Carolina Music Factory located in Charlotte, North Carolina was amended and restated during
the year ended December 31, 2016. In conjunction with the amendment, the Company funded an additional $21.8
million. On April 22, 2016, the note was paid in full. In conjunction with this payoff, the Company wrote off $335
thousand of prepaid mortgage fees to costs associated with loan refinancing or payoff.
(3) The Company's mortgage loan agreement with Alko Ranch, LLC that was secured by approximately 159 acres of
land and a winery facility was paid in full on October 11, 2016.
(4) The Company's first mortgage loan agreement with LBE Investments, Ltd. is secured by approximately 12 acres
of land located in Queen Creek, Arizona. The note requires accrued interest and principal to be paid at maturity.
(5) 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.
(6) The Company's first mortgage loan agreement with Miramesa Star LLC, is secured by a theatre development project
on approximately seven acres of land located in Cypress, Texas. The note requires monthly interest payments and
matures the earlier of the date of substantial completion or October 19, 2018.
(7) The Company’s mortgage loan agreements with SVVI, LLC (SVVI) are secured by one waterpark and adjacent
land in Kansas City, Kansas as well as two other waterparks 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 $9.0 million at any time ranks superior
to the Company’s collateral position. The note accrues 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, 2016, 2015 and 2014, the Company recognized
$0.8 million, $1.5 million and $1.4 million of participating interest income, respectively. SVVI 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 is limited to the Company’s outstanding mortgage note and related accrued interest receivable.
On October 13, 2015, the Company received a partial pay-down of $45.0 million.
(8) The Company's first mortgage loan agreement with Imagine Schools Non-Profit, Inc. and affiliates (Imagine) is
secured by 11 charter school properties located in Georgia, Indiana, Ohio, South Carolina, and Pennsylvania. This note
requires monthly principal and interest payments of $608 thousand and additional principal pay downs if certain events
occur including property sales. See Note 6 for further discussion.
(9) The Company's first mortgage loan agreement with Genesis Health Clubs of Omaha, Sports West LLC, is secured
by a health club facility located in Omaha, Nebraska. This note requires monthly interest payments.
(10) 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. On December 22, 2016,
the Company entered into an amendment to the loan agreement with the borrower which eliminated the full prepayment
option with penalty in 2017 per the original agreement and replaced it with partial prepayment options in 2017 and
2027 with penalty. The amended note bears interest at 9.25% beginning July 1, 2017.
(11) 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.
(12) 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
88
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
(13) 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.
(14) The Company's first mortgage loan agreement with Topgolf USA Austin is secured by a golf entertainment complex
located in Austin, Texas. The note is fully amortizing and requires monthly principal and interest payments of $141
thousand.
(15) 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%. At December 31, 2016, the rate was 8.71%. The note requires monthly interest payments.
(16) 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.
(17) The Company's first mortgage loan agreement with Peak Resorts, Inc. (Peak) is secured by one ski area located
in Vermont. Mount Snow is approximately 588 acres and is located in both West Dover and Wilmington, Vermont. 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.
(18) The Company's first mortgage loan agreements with Peak are secured by four ski areas located in Ohio and
Pennsylvania with a total of approximately 510 acres. The notes require 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) The Company's first mortgage loan agreement with Peak is secured by a ski area located in Chesterland, Ohio
with approximately 135 acres. 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.
(20) The Company's first mortgage loan agreement with Peak is secured by a ski area located in Hunter, New York
with approximately 240 acres. 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.
(21) The Company's first mortgage loan agreement with Topgolf USA Midvale, LLC is secured by a golf entertainment
complex located in Midvale, Utah. On November 1, 2016, this note was amended and restated to change the maturity
date to May 31, 2036. The note requires monthly interest payments.
89
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(22) The Company's first mortgage loan agreement with Topgolf USA West Chester, LLC is secured by a golf
entertainment complex located in West Chester, Ohio. The note requires monthly interest payments.
(23) The Company's first mortgage loan agreement with Friends of Millville Public Charter School is secured by a
public charter school property located in Millville, New Jersey. The note requires monthly interest payments.
(24) The Company's first mortgage loan agreement with Friends of Vineland Public Charter School is secured by a
public charter school property located in Vineland, New Jersey. The note requires monthly interest payments upon
completion of construction.
(25) The Company's first mortgage loan agreements with Endeavor Schools are secured by 20 education facilities
including both early education and private school properties located California, Florida, Georgia, Minnesota, Nevada,
North Carolina, Ohio and Texas. The notes bear interest beginning at 7.25% with increases every three years by a
multiple of 1.0625 and require monthly interest payments. The notes contain prepayment provisions which allow the
borrower to prepay with a premium based on a multiple of the remaining loan balance. In addition, the notes contain
a loan to lease conversion option in which the borrower has the right to put the underlying real estate assets to the
Company and become the tenant under a lease structure. Interest income on the notes is being recognized using the
effective interest method without the fixed interest rate increases due to these prepayment and conversion options.
Subsequent to December 31, 2016, the Company funded an additional $42.9 million for first mortgage loan agreements
secured by eight early education and private school properties located in Minnesota and Ohio. These loan agreements
have the same terms as the notes funded in 2016.
Principal payments and related accrued interest due on mortgage notes receivable subsequent to December 31, 2016
are as follows (in thousands):
Year:
2017
2018
2019
2020
2021
Thereafter
Total
Amount
5,084
2,546
163,874
1,143
71,569
369,762
613,978
$
$
6. Investment in a Direct Financing Lease
The Company’s investment in a direct financing lease relates to the Company’s master lease of 12 public charter school
properties as of December 31, 2016 and 21 public charter school properties as of December 31, 2015, with 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, 2016 and 2015 (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
2016
2015
215,753
85,247
(198,302)
102,698
$
$
439,646
162,669
(411,435)
190,880
$
$
(1) Deferred income is net of $1.3 million and $1.4 million of initial direct costs at December 31, 2016 and 2015,
respectively.
90
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Additionally, the Company has determined that no allowance for losses on the investment in a direct financing lease
was necessary at December 31, 2016 and 2015.
During 2014, the Company completed the sale of four public charter school properties located in Florida and previously
leased to Imagine with a carrying value of $45.9 million. A gain of $0.2 million was recognized on this sale.
During 2015, the Company completed the sale of one public charter school property located in Pennsylvania and
previously leased to Imagine with a carrying value of $4.7 million. There was no gain or loss recognized on this sale.
Additionally, during 2015, the Company terminated a portion of its master lease with Imagine related to one public
charter school property located in Ohio. The property was subsequently leased to another operator pursuant to a long-
term triple net lease agreement that is classified as an operating lease. There was no gain or loss recognized on this
lease termination.
During 2016, the Company completed the sale of nine public charter school properties previously leased to Imagine
as part of a master lease. Seven of these schools were sold to Imagine and two were sold to third parties. These properties
are located in Georgia, Indiana, Ohio, Missouri and South Carolina and had a total net carrying value of $91.3 million
when sold. The Company received net cash proceeds totaling $21.0 million (a portion of which was funded through
the liquidation of the letter of credit and escrow reserve previously provided by Imagine pursuant to the master lease)
and a mortgage note receivable from Imagine for $70.3 million. The note is secured by 11 public charter schools as
of December 31, 2016. See Note 5 for more detail on this mortgage note receivable. There were no gains or losses
recognized on these sales. As of December 31, 2016, 12 schools operated by Imagine remain subject to the master
lease.
The Company’s direct financing lease has expiration dates ranging from approximately 15 to 18 years. Future minimum
rentals receivable on this direct financing lease at December 31, 2016 are as follows (in thousands):
Year:
2017
2018
2019
2020
2021
Thereafter
Total
Amount
10,856
11,182
11,518
11,863
12,219
158,115
215,753
$
$
91
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
7. Debt
Debt at December 31, 2016 and 2015 consists of the following (in thousands):
2016
2015
(1) Mortgage note payable, 7.37%, paid in full on February 18, 2016
$
— $
Note payable, 2.50%, paid in full on April 21, 2016
(2)
(3) Mortgage notes payable, 6.37%, paid in full on May 2, 2016
(4) Mortgage notes payable, 6.02%, paid in full on August 8, 2016
(5) Mortgage notes payable, 6.10%, paid in full on September 1, 2016
(6) Mortgage note payable, 6.06%, due March 1, 2017
(7) Mortgage note payable, 6.07%, due April 6, 2017
(8) Mortgage notes payable, 5.73%-5.95%, due May 1, 2017
(9) Mortgage notes payable, 4.00%, due July 6, 2017
(10) Mortgage note payable, 5.29%, due July 8, 2017
(11) Mortgage notes payable, 5.86% due August 1, 2017
(12) Mortgage note payable, 6.19%, due February 1, 2018
(13) Unsecured revolving variable rate credit facility, LIBOR + 1.25%,
due April 24, 2019
(14) Unsecured term loan payable, LIBOR + 1.40%, $300,000 fixed
through interest rate swaps at a blended rate of 3.09% through
April 5, 2019, due April 24, 2020
(15) Senior unsecured notes payable, 7.75%, due July 15, 2020
(16) Senior unsecured notes payable, 5.75%, due August 15, 2022
(17) Senior unsecured notes payable, 5.25%, due July 15, 2023
(18) Senior unsecured notes payable, 4.35%, due August 22, 2024
(19) Senior unsecured notes payable, 4.50%, due April 1, 2025
(20) Senior unsecured notes payable, 4.56%, due August 22, 2026
(21) Senior unsecured notes payable, 4.75%, due December 15, 2026
(22) Bonds payable, variable rate, due October 1, 2037
Less: deferred financing costs, net
Total
—
—
—
—
8,615
9,331
30,486
88,629
3,298
22,139
12,452
4,813
1,850
24,754
16,738
22,235
9,381
9,667
31,603
93,616
3,455
22,931
13,171
—
196,000
350,000
250,000
350,000
275,000
148,000
300,000
192,000
350,000
250,000
350,000
275,000
—
300,000
—
450,000
24,995
(29,320)
$ 2,485,625
—
24,995
(18,289)
$ 1,981,920
(1) The Company’s mortgage note payable was prepaid in full on February 18, 2016 prior to its maturity date of July
15, 2018. The note was secured by one theatre property. In connection with this note payoff, the Company paid $472
thousand in additional costs included in costs associated with loan refinancing or payoff.
(2) The Company’s note payable was paid in full on April 21, 2016.
(3) The Company’s mortgage notes payable were paid in full on May 2, 2016 prior to their maturity date of June 1,
2016. This notes were secured by two theatre properties.
(4) The Company’s mortgage notes payable were paid in full on August 8, 2016 prior to their maturity date of October
6, 2016. The notes were secured by three theatre properties.
(5) The Company’s mortgage notes payable were paid in full on September 1, 2016 prior to their maturity date of
October 1, 2016. The notes were secured by four theatre properties.
92
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(6) The Company’s mortgage note payable is secured by one theatre property, which had a net book value of
approximately $8.2 million at December 31, 2016. 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 $8.6 million. On February 1,
2017, this loan was prepaid in full.
(7) The Company’s mortgage note payable is secured by one theatre property, which had a net book value of
approximately $8.0 million at December 31, 2016. 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. On January 6,
2017, this loan was prepaid in full.
(8) The Company’s mortgage notes payable are secured by four theatre properties, which had a net book value of
approximately $32.4 million at December 31, 2016. 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%.
(9) 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 acquisition date market rate of 4.00%. The mortgage note is secured by 11 theatre
properties, which had a net book value of approximately $118.2 million at December 31, 2016. 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.
(10) 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
acquisition date market rate of 5.29%. The note is secured by one theatre property, which had a net book value of
approximately $8.0 million at December 31, 2016. The monthly payments are based on a 25-year amortization schedule
and the note requires monthly principal and interest payments of approximately $28 thousand with a final principal
payment at maturity of approximately $3.2 million.
(11) The Company’s mortgage notes payable due August 1, 2017 are secured by two theatre properties, which had a
net book value of approximately $24.8 million at December 31, 2016. 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.
(12) The Company’s mortgage note payable due February 1, 2018 is secured by one theatre property which had a net
book value of approximately $18.9 million at December 31, 2016. 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.
(13) The Company's unsecured revolving credit facility (the facility) bears interest at LIBOR plus 1.25%, which was
2.02% on December 31, 2016. Interest is payable monthly. On April 24, 2015, the Company amended, restated and
combined its unsecured revolving credit and term loan facilities. The amendments to the unsecured revolving portion
of the new credit facility, among other things, (i) increased the initial amount from $535.0 million to $650.0 million,
(ii) extended the maturity date from July 23, 2017, to April 24, 2019 (with the Company having the same right as before
to extend the loan for one additional year, subject to certain terms and conditions) and (iii) lowered the interest rate
and facility fee pricing based on a grid related to the Company's senior unsecured credit ratings which at closing was
LIBOR plus 1.25% and 0.25%, respectively. In connection with the amendment, $243 thousand of deferred financing
93
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
costs (net of accumulated amortization) were written off during the year ended December 31, 2015. As of December 31,
2016, the Company had no outstanding balance under the facility and total availability under the revolving credit facility
was $650.0 million. In addition, there is a $1.0 billion accordion feature on the combined unsecured revolving credit
and term loan facility that increases the maximum borrowing amount available under the combined facility, subject to
lender approval, from $1.0 billion to $2.0 billion. The facility contains financial covenants or restrictions that limit the
Company's levels of consolidated debt, secured debt, investment levels outside certain categories and dividend
distributions, and require the Company to maintain a minimum consolidated tangible net worth and meet certain
coverage levels for fixed charges and debt service.
(14) The Company's unsecured term loan payable bears interest at LIBOR plus 1.40%, which was 2.17% on
December 31, 2016. Interest is payable monthly. On April 24, 2015, the Company amended, restated and combined
its unsecured revolving credit and term loan facilities. The amendments to the unsecured term loan portion of the new
facility, among other things, (i) increased the initial amount from $285.0 million to $350.0 million, (ii) extended the
maturity date from July 23, 2018 to April 24, 2020 and (iii) lowered the interest rate at all senior unsecured credit rating
tiers which was LIBOR plus 1.40% at closing. In addition, there is a $1.0 billion accordion feature on the combined
unsecured revolving credit and term loan facility that increases the maximum borrowing amount available under the
combined facility, subject to lender approval, from $1.0 billion to $2.0 billion.
(15) 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.
(16) 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.
(17) 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
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.
(18) On August 22, 2016, the Company issued $148.0 million of senior unsecured notes in a private placement
transaction. The notes bear interest at an annual rate of 4.35% and are due August 22, 2024. The notes are guaranteed
by the Company's subsidiaries that guarantee the Company's unsecured credit facilities and existing senior unsecured
notes. The notes contain covenants similar to those found in the Company's unsecured revolving credit facility.
94
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(19) On March 16, 2015, the Company issued $300.0 million in aggregate principal amount of senior notes due on
April 1, 2025 pursuant to an underwritten public offering. The notes bear interest at an annual rate of 4.50%. Interest
is payable on April 1 and October 1 of each year beginning on October 1, 2015 until the stated maturity date of April
1, 2025. The notes were issued at 99.638% of their face value and are unsecured and guaranteed by certain of the
Company’s subsidiaries. The notes contain various covenants, including: (i) a limitation on incurrence of any debt
which 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.
(20) On August 22, 2016, the Company issued $192.0 million of senior unsecured notes in a private placement
transaction. The notes bear interest at an annual rate of 4.56% and are due August 22, 2026. The notes are guaranteed
by the Company's subsidiaries that guarantee the Company's unsecured credit facilities and existing senior unsecured
notes. The notes contain covenants similar to those found in the Company's unsecured revolving credit facility.
(21) On December 14, 2016, the Company issued $450.0 million in aggregate principal amount of senior notes due on
December 14, 2026 pursuant to an underwritten public offering. The notes bear interest at an annual rate of 4.75%.
Interest is payable on June 15 and December 15 of each year beginning on June 15, 2017, until the stated maturity date
of December 15, 2026. The notes were issued at 98.429% of their face value and are unsecured and guaranteed by
certain of the Company’s subsidiaries. The notes contain various covenants, including: (i) a limitation on incurrence
of any debt which 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 $21.8 million at December 31, 2016, and bear interest at a variable rate which resets on a weekly basis
and was 0.76% at December 31, 2016. 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, 2016.
Principal payments due on long-term debt obligations subsequent to December 31, 2016 (without consideration of any
extensions) are as follows (in thousands):
Year:
2017
2018
2019
2020
2021
Thereafter
Less: deferred financing costs, net
Total
Amount
163,266
11,684
—
600,000
—
1,739,995
(29,320)
2,485,625
$
$
95
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016, 2015 and 2014 (in thousands):
Interest on loans
Amortization of deferred financing costs
Credit facility and letter of credit fees
Interest cost capitalized
Interest income
Interest expense, net
8. Variable Interest Entities
2016
2015
2014
$
$
101,181
4,787
1,873
(10,697)
—
97,144
$
$
92,140
4,588
1,759
(18,547)
(25)
79,915
$
$
82,839
4,248
1,735
(7,525)
(27)
81,270
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, 2016, the Company had invested approximately $8.0 million in one real estate project which is a
VIE. This entity does not have any other significant assets or liabilities at December 31, 2016 and was established to
facilitate the development of a theatre project.
Unconsolidated VIE
At December 31, 2016, the Company’s recorded investment in SVVI, a VIE that is unconsolidated, was $164.7 million.
The Company’s maximum exposure to loss associated with SVVI is limited to the Company’s outstanding mortgage
note of $164.7 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 5.
9. 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 $2.5 million and $5.7 million recorded in “Accounts payable
and accrued liabilities” and derivative assets of $35.9 million and $42.2 million recorded in “Other assets” in the
consolidated balance sheet at December 31, 2016 and 2015, respectively. Had the Company elected to offset derivatives
in the consolidated balance sheets, the Company would have had derivative assets of approximately $35.9 million and
derivative assets of $42.2 million that would have been offset against the respective derivative liabilities of $2.5 million
and liabilities of $5.7 million, resulting in a net derivative asset of $33.4 million and $36.5 million (with no derivative
liability) at December 31, 2016 and 2015, respectively. The Company has not posted or received collateral with its
derivative counterparties as of December 31, 2016 and 2015. See Note 10 for disclosures relating to the fair value of
the derivative instruments as of December 31, 2016 and 2015.
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
96
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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.
As of December 31, 2016, the Company had three interest rate swap agreements to fix the interest rate on $240.0 million
of the unsecured term loan facility at 3.78% from January 5, 2016 to July 5, 2017. Additionally as of December 31,
2016, the Company had two interest rate swap agreements to fix the interest rate at 2.94% on an additional $60.0 million
of the unsecured term loan facility from September 8, 2015 to July 5, 2017 and on $300.0 million of the unsecured
term loan facility from July 6, 2017 to April 5, 2019.
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 ended December 31, 2016, 2015
and 2014, 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 ended December 31, 2016, 2015 and 2014.
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, 2016, the Company estimates that during the twelve months
ending December 31, 2017, $2.8 million will be reclassified from AOCI to interest expense.
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 Canadian Dollar (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, 2016, 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, 2016, 2015 and
2014. As of December 31, 2016, the Company estimates that during the twelve months ending December 31, 2017,
$2.8 million will be reclassified from AOCI to other income.
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
97
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 properties 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.
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, 2016, 2015 and 2014. 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, 2016, 2015 and 2014:
Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Income for the
Years Ended December 31, 2016, 2015 and 2014
(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 (Loss) Gain Recognized in AOCI on Derivative
(Effective Portion)
Amount of Income Reclassified from AOCI into Earnings
(Effective Portion) (2)
Currency Forward Agreements
Amount of (Loss) Gain Recognized in AOCI on Derivative
(Effective Portion)
Amount of Income Reclassified from AOCI into Earnings
(Effective Portion) (2)
Total
Year Ended December 31,
2016
2015
2014
$
(2,044) $
(2,581) $
(2,458)
(5,235)
(2,004)
(1,833)
(754)
2,663
5,380
2,396
3,560
698
(2,804)
24,359
11,600
—
—
—
Amount of (Loss) Gain Recognized in AOCI on Derivative
(Effective Portion)
Amount of (Expense) Gain Reclassified from AOCI into
Earnings (Effective Portion)
$
(5,602) $
27,158
$
12,702
(2,572)
392
(1,135)
(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.
98
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
As of December 31, 2016, the fair value of the Company’s derivatives in a liability position related to these agreements
was $2.5 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, after considering the right of offset,
of $448 thousand.
10. Fair Value Disclosures
The Company has certain financial instruments that are required to be measured under the FASB’s Fair Value
Measurement 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
Measurement 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 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, 2016, 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.
99
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December
31, 2016 and 2015, 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, 2016 and 2015
(Dollars in thousands)
Description
2016:
Cross Currency Swaps*
Currency Forward Agreements*
Interest Rate Swap Agreements**
2015:
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,
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
$
4,158
31,782
$
(2,482) $
$
7,575
34,587
$
(5,674) $
— $
— $
— $
— $
— $
— $
4,158
31,782
(2,482)
7,575
34,587
(5,674)
*Included in "Other assets" in the accompanying consolidated balance sheet.
**Included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheet.
Non-recurring fair value measurements
There were no non-recurring measurements during the years ended December 31, 2016 and 2015.
Fair Value of 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, 2016 and 2015:
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, 2016, the Company had a
carrying value of $614.0 million in fixed rate mortgage notes receivable outstanding, including related accrued
interest, with a weighted average interest rate of approximately 8.77%. The fixed rate mortgage notes bear interest
at rates of 7.00% to 11.31%. Discounting the future cash flows for fixed rate mortgage notes receivable using
rates of 7.00% to 12.00%, management estimates the fair value of the fixed rate mortgage notes receivable to be
$648.5 million with an estimated weighted average market rate of 8.48% at December 31, 2016.
At December 31, 2015, the Company had a carrying value of $423.8 million in fixed rate mortgage notes receivable
outstanding, including related accrued interest, with a weighted average interest rate of approximately 9.36%.
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 8.50% to 11.31%, management estimates the fair value of the
fixed rate mortgage notes receivable to be approximately $415.7 million with an estimated weighted average
market rate of 10.05% at December 31, 2015.
Investment in a direct financing lease, net:
The fair value of the Company’s investment in a direct financing lease as of December 31, 2016 and 2015 is
estimated by discounting the future cash flows of the instrument using current market rates. At December 31,
2016 and 2015, the Company had an investment in a direct financing lease with a carrying value of $102.7 million
and $190.9 million, respectively, and weighted average effective interest rate of 12.00%. At December 31, 2016
and 2015, the investment in direct financing lease bears interest at effective interest rates of 11.79% to 12.38%
and 11.74% to 12.38%, respectively. The carrying value of the investment in a direct financing lease approximates
the fair market value at December 31, 2016 and 2015.
100
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2016 and 2015 is estimated by discounting the future
cash flows of each instrument using current market rates. At December 31, 2016, the Company had a carrying
value of $375.0 million in variable rate debt outstanding with an average weighted interest rate of approximately
3.23%. The carrying value of the variable rate debt outstanding approximates the fair market value at December 31,
2016.
At December 31, 2015, the Company had a carrying value of $571.0 million in variable rate debt outstanding
with an average weighted interest rate of approximately 1.65%. The carrying value of the variable rate debt
outstanding approximates the fair market value at December 31, 2015.
As described in Note 9, at December 31, 2016 and 2015, $300.0 million of variable rate debt outstanding under
the Company's unsecured term loan facility had been effectively converted to a fixed rate through April 5, 2019
by interest rate swap agreements.
At December 31, 2016, the Company had a carrying value of $2.14 billion in fixed rate debt outstanding with
an average weighted interest rate of approximately 5.27%. Discounting the future cash flows for fixed rate debt
using December 31, 2016 market rates of 2.97% to 4.75%, management estimates the fair value of the fixed rate
debt to be approximately $2.21 billion with an estimated weighted average market rate of 4.26% at December 31,
2016.
At December 31, 2015, the Company had a carrying value of $1.43 billion in fixed rate debt outstanding with an
average weighted interest rate of approximately 5.66%. Discounting the future cash flows for fixed rate debt
using December 31, 2015 market rates of 3.33% to 4.94%, management estimates the fair value of the fixed rate
debt to be approximately $1.55 billion with an estimated weighted average market rate of 4.28% at December 31,
2015.
11. Common and Preferred Shares
Common Shares
The Board of Trustees declared cash dividends totaling $3.84 and $3.63 per common share for the years ended December
31, 2016 and 2015, respectively.
Of the total distributions calculated for tax purposes, the amounts characterized as ordinary income, return of capital
and long-term capital gain for cash distributions paid per common share for the years ended December 31, 2016 and
2015 are as follows:
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions Per Share
2016
2015
$
$
3.1659
0.2489
0.4077
3.8225
$
$
3.0674
0.5451
—
3.6125
(1) Of the long-term capital gain at December 31, 2016, $0.1060 is unrecaptured section 1250 gain.
101
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
During the year ended December 31, 2015, the Company issued an aggregate of 3,530,058 common shares under the
direct share purchase component of its Dividend Reinvestment and Direct Share Purchase Plan (DSPP) for total net
proceeds of $190.3 million.
During the year ended December 31, 2016, the Company issued an aggregate of 258,263 common shares under its
DSPP for net proceeds of $16.9 million.
Subsequent to December 31, 2016, the Company issued an aggregate of 548,288 common shares under its DSPP for
net proceeds of $40.8 million.
On January 21, 2016, the Company issued 2,250,000 common shares in a registered public offering for a total net
proceeds, after the underwriting discount and offering expenses of approximately $125.0 million. The net proceeds
from the public offering were used to pay down the Company's unsecured revolving credit facility.
Series C Convertible Preferred Shares
The Company has outstanding 5.4 million 5.75% Series C cumulative convertible preferred shares (Series C preferred
shares). 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, 2016, the Series C preferred shares are convertible, at the holder’s option, into the Company’s
common shares at a conversion rate of 0.3785 common shares per Series C preferred share, which is equivalent to a
conversion price of $66.05 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.
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, 2016 and 2015, respectively. For the year ended December 31, 2016, there were non-cash distributions
associated with conversion adjustments of $0.4394 per Series C preferred share. The conversion adjustment provision
entitles the shareholders of the Series C preferred shares, upon certain quarterly common share dividend thresholds
being met, to receive additional common shares of the Company upon a conversion of the preferred shares into common
shares. The increase in common shares to be received upon a conversion is a deemed distribution for federal income
tax purposes.
For tax purposes, the amounts characterized as ordinary income, return of capital and long-term capital gain for cash
distributions paid and non-cash deemed distributions per Series C preferred share for the years ended December 31,
2016 and 2015 are as follows:
102
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions per Share
2016
2015
$
$
1.2735
—
0.1640
1.4375
$
$
1.4375
—
—
1.4375
(1) Of the long-term capital gain at December 31, 2016, $0.0426 is unrecaptured section 1250 gain.
Taxable ordinary income
Return of capital
Long-term capital gain (2)
Totals
Non-cash Distributions per Share
2016
2015
$
$
0.2850
0.1177
0.0367
0.4394
$
$
—
—
—
—
(2) Of the long-term capital gain at December 31, 2016, $0.0095 is unrecaptured section 1250 gain.
Series E Convertible Preferred Shares
The Company has outstanding 3.5 million 9.00% Series E cumulative convertible preferred shares (Series E preferred
shares). 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, 2016, the Series E preferred shares are convertible, at the holder’s option, into the Company’s common
shares at a conversion rate of 0.4569 common shares per Series E preferred share, which is equivalent to a conversion
price of $54.72 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, 2016 and 2015. For the year ended December 31, 2016, there were non-cash distributions associated with conversion
adjustments of $0.2139 per Series E preferred share. The conversion adjustment provision entitles the shareholders of
the Series E preferred shares, upon certain quarterly common share dividend thresholds being met, to receive additional
common shares of the Company upon a conversion of the preferred shares into common shares. The increase in common
shares to be received upon a conversion is a deemed distribution for federal income tax purposes.
103
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
For tax purposes, the amounts characterized as ordinary income, return of capital and long-term capital gain for cash
distributions paid and non-cash deemed distributions per Series E preferred share for the years ended December 31,
2016 and 2015 are as follows:
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions per Share
2016
2015
$
$
1.9933
—
0.2567
2.2500
$
$
2.2500
—
—
2.2500
(1) Of the long-term capital gain at December 31, 2016, $0.0668 is unrecaptured section 1250 gain.
Taxable ordinary income
Return of capital
Long-term capital gain (2)
Totals
Non-cash Distributions per Share
2016
2015
$
$
0.0883
0.1142
0.0114
0.2139
$
$
—
—
—
—
(2) Of the long-term capital gain at December 31, 2016, $0.0030 is unrecaptured section 1250 gain.
Series F Preferred Shares
The Company has outstanding 5.0 million shares of 6.625% Series F cumulative redeemable preferred shares (Series
F preferred shares). 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, 2016 and 2015. For tax purposes, the amounts characterized as ordinary income, return of capital and
long-term capital gain for cash distributions paid per Series F preferred share for the years ended December 31, 2016
and 2015 are as follows:
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions per Share
2016
2015
$
$
1.4673
—
0.1889
1.6562
$
$
1.6563
—
—
1.6563
(1) Of the long-term capital gain at December 31, 2016, $0.04914 is unrecaptured section 1250 gain.
104
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
12. 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, 2016, 2015 and 2014 (amounts in thousands except per share information):
Basic EPS:
Income from continuing operations
Less: preferred dividend requirements
Net income available to common shareholders
Diluted EPS:
Net income available to common shareholders
Effect of dilutive securities:
Share options
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, 2016
Income
(numerator)
Shares
(denominator)
Per Share
Amount
224,982
(23,806)
201,176
63,381
$
3.17
201,176
63,381
—
201,176
93
63,474
$
3.17
Year Ended December 31, 2015
Income
(numerator)
Shares
(denominator)
Per Share
Amount
194,333
(23,806)
170,527
199
170,726
58,138
58,138
58,138
170,527
58,138
—
170,527
199
170,726
190
58,328
58,328
58,328
$
$
$
$
$
$
2.93
0.01
2.94
2.92
0.01
2.93
$
$
$
$
$
$
$
$
$
$
$
$
105
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Year Ended December 31, 2014
Income
(numerator)
Shares
(denominator)
Per Share
Amount
Basic EPS:
Income from continuing operations
Less: preferred dividend requirements and redemption costs
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
$
$
$
$
$
$
$
$
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
The additional 2.0 million common shares that would result from the conversion of the Company’s 5.75% Series C
cumulative convertible preferred shares and the additional 1.6 million common shares that would result from the
conversion of the Company’s 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, 2016, 2015 and 2014 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, 2016, 2015 and 2014. However, options to purchase 72 thousand, 236 thousand
and 338 thousand shares of common shares at per share prices of $61.79, ranging from $51.64 to $65.50 and ranging
from $46.86 to $65.50, were outstanding at the end of 2016, 2015 and 2014, respectively, but were not included in the
computation of diluted earnings per share because they were anti-dilutive.
13. Chief Executive Officer Retirement
On February 24, 2015, the Company announced that David Brain, its then President and Chief Executive Officer, was
retiring from the Company. In connection with his retirement, Mr. Brain and the Company entered into a Retirement
Agreement pursuant to which he agreed to retire on March 31, 2015 in consideration for certain retirement severance
benefits substantially equal to those benefits that would be payable to him under his employment agreement if he were
terminated without cause. As a result, the Company recorded retirement severance expense (including share-based
compensation costs) during the year ended December 31, 2015 of $18.6 million. Retirement severance expense includes
a cash payment of $11.8 million, $5.0 million for the accelerated vesting of 113,900 nonvested shares, $1.4 million for
the accelerated vesting of 101,640 share options and $0.4 million of related taxes and other expenses.
14. Equity Incentive Plan
All grants of common shares and options to purchase common shares were issued under the Company's 2007 Equity
Incentive Plan prior to May 12, 2016 and under the 2016 Equity Incentive Plan on and after May 12, 2016. Under the
2016 Equity Incentive Plan, an aggregate of 1,950,000 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, 2016, there
were 1,950,000 shares available for grant under the 2016 Equity Incentive Plan.
106
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Share Options
Share options granted under the 2007 Equity Incentive Plan and the 2016 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. 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:
Outstanding at December 31, 2013
Exercised
Granted
Forfeited
Outstanding at December 31, 2014
Exercised
Granted
Forfeited
Outstanding at December 31, 2015
Exercised
Outstanding at December 31, 2016
Number of
shares
840,665
(35,963)
172,178
(26,666)
950,214
(476,400)
121,546
(79,055)
516,305
(230,319)
285,986
$
$
$
$
Option price
per share
18.18 — $
32.50 —
51.64 —
45.20 —
18.18 — $
18.18 —
61.79 —
45.20 —
19.02 — $
19.41 —
19.02 — $
65.50
52.72
51.64
51.64
65.50
61.53
61.79
65.50
65.50
65.50
61.79
$
$
$
$
Weighted avg.
exercise price
40.85
42.63
51.64
50.11
42.48
37.42
61.79
63.88
48.42
44.05
51.93
The weighted average fair value of options granted was $16.35 and $13.87 during 2015 and 2014, respectively. There
were no options granted during 2016. The intrinsic value of stock options exercised was $5.2 million, $7.3 million,
and $0.4 million during the years ended December 31, 2016, 2015 and 2014, respectively. Additionally, the Company
repurchased 173,191 shares into treasury shares in conjunction with the stock options exercised during the year ended
December 31, 2016 with a total value of $11.6 million.
The expense related to share options included in the determination of net income for the years ended December 31,
2016, 2015 and 2014 was $0.9 million, $2.5 million (including $1.4 million included in retirement severance expense
in the accompanying consolidated statement of income), and $1.4 million, respectively. The following assumptions
were used in applying the Black-Scholes option pricing model at the grant dates: risk-free interest rate of 1.9% and
2.2% in 2015 and 2014, respectively, dividend yield of 5.9% and 6.4% in 2015 and 2014, respectively, volatility factors
in the expected market price of the Company’s common shares of 48.0% and 50.3% in 2015 and 2014, respectively,
0.78% and 0.28% expected forfeiture rates for 2015 and 2014, and an expected life of approximately six years for 2015
and 2014. 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, 2016, stock-option expense to be recognized in future periods was as follows (in thousands):
Year:
2017
2018
2019
2020
Total
Amount
$
$
692
287
—
—
979
107
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The following table summarizes outstanding options at December 31, 2016:
Exercise price range
$ 19.02 - 19.99
20.00 - 29.99
30.00 - 39.99
40.00 - 49.99
50.00 - 59.99
60.00 - 61.79
Options
outstanding
Weighted avg.
life remaining
Weighted avg.
exercise price
Aggregate intrinsic
value (in thousands)
11,097
—
1,428
96,122
84,934
92,405
285,986
2.4
—
3.0
4.7
6.6
7.6
6.1 $
51.93
$
5,673
The following table summarizes exercisable options at December 31, 2016:
Exercise price range
$ 19.02 - 19.99
20.00 - 29.99
30.00 - 39.99
40.00 - 49.99
50.00 - 59.99
60.00 - 61.79
Options
outstanding
Weighted avg.
life remaining
Weighted avg.
exercise price
Aggregate intrinsic
value (in thousands)
11,097
—
1,428
81,842
32,793
26,420
153,580
2.4
—
3.0
4.5
6.1
6.3
5.0 $
48.17
$
3,625
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, 2015
390,441
$
Granted
Vested
300,752
(156,876)
Outstanding at December 31, 2016
534,317
$
54.84
61.53
52.74
59.22
1.01
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 $9.2 million, $17.1
million (including $6.7 million in retirement severance expense in the accompanying consolidated statement of income),
and $7.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016,
unamortized share-based compensation expense related to nonvested shares was $16.2 million and will be recognized
in future periods as follows (in thousands):
Year:
Amount
2017
2018
2019
Total
$
$
7,602
5,806
2,814
16,222
108
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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, 2015
18,036
$
Granted
Vested
15,805
(18,036)
Outstanding at December 31, 2016
15,805
$
57.57
70.93
57.57
70.93
0.36
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, 2016, unamortized share-based compensation expense related to restricted
share units was $374 thousand which will be recognized in 2017.
15. Operating Leases
Most of the Company’s rental properties are leased under operating leases with expiration dates ranging from 1 to 33
years. Future minimum rentals on non-cancelable tenant operating leases at December 31, 2016 are as follows (in
thousands):
Year:
2017
2018
2019
2020
2021
Thereafter
Total
Amount
398,938
382,923
360,745
340,521
326,276
2,989,155
4,798,558
$
$
The Company leases its executive office from an unrelated landlord. Rental expense totaled approximately $681
thousand, $556 thousand and $521 thousand for the years ended December 31, 2016, 2015 and 2014, 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, 2016 are as follows (in thousands):
Year:
2017
2018
2019
2020
2021
Thereafter
Total
Amount
856
856
856
856
884
4,592
8,900
$
$
109
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
16. Quarterly Financial Information (unaudited)
Summarized quarterly financial data for the years ended December 31, 2016 and 2015 are as follows (in thousands,
except per share data):
2016:
Total revenue
Net income attributable to EPR Properties
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
$
118,768
54,180
$
118,033
55,135
$
125,610
57,526
$
130,831
58,141
48,228
0.77
0.77
49,183
0.77
0.77
51,575
0.81
0.81
52,190
0.82
0.82
March 31
June 30
September 30
December 31
2015:
Total revenue
Net income attributable to EPR Properties
Net income available to common
shareholders of EPR Properties
Basic net income per common share
Diluted net income per common share
$
99,436
42,821
36,869
0.65
0.64
$
101,258
48,766
$
108,335
50,195
$
111,988
52,750
42,814
0.75
0.75
44,244
0.76
0.76
46,799
0.78
0.78
17. Discontinued Operations
Included in discontinued operations for the year ended December 31, 2015 were certain post-closing items related to
the Toronto Dundas Square property. 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 of Toronto Dundas Square. These liabilities
were reversed as the related payments are not expected to occur. There were no discontinued operations for the year
ended December 31, 2016.
The operating results relating to discontinued operations are as follows (in thousands):
Rental revenue
Tenant reimbursements
Other income
Total revenue
Property operating expense (income)
Other expense (income)
Transaction costs (benefit)
Income before income taxes
Income tax expense
Net income
18. Other Commitments and Contingencies
Year ended December 31,
2014
2015
— $
68
172
240
12
—
—
228
29
199
$
3
—
—
3
(484)
(18)
(3,376)
3,881
—
3,881
$
$
As of December 31, 2016, the Company had an aggregate of approximately $313.7 million of commitments to fund
development projects including 20 entertainment development projects for which it has commitments to fund
approximately $82.3 million, 20 education development projects for which it has commitments to fund approximately
110
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
$126.1 million, and seven recreation development projects for which it has commitments to fund approximately $105.3
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.
Additionally as of December 31, 2016, the Company had a commitment to fund approximately $155.0 million over
the next three years, of which $1.7 million has been funded, to complete an indoor waterpark hotel and adventure park
at its casino and resort project in Sullivan County, New York. The Company is also responsible for the construction
of this project's common infrastructure. In June 2016, the Sullivan County Infrastructure Local Development
Corporation issued $110.0 million of Series 2016 Revenue Bonds, which is expected to fund a substantial portion of
such construction costs. The Company received an initial reimbursement of $43.4 million of construction costs and
expects to receive an additional $44.9 million of reimbursements over the balance of the construction period. As future
costs are incurred, they will be classified in accounts receivable until reimbursement is received. Construction of
infrastructure improvements is expected to be completed in 2018.
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, 2016, the Company had four mortgage notes
receivable with commitments totaling approximately $14.2 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 $24.9
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 $10.6 million as a deferred asset included in
other assets and $10.6 million included in other liabilities in the accompanying consolidated balance sheet as of
December 31, 2016 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.
In connection with construction of its development projects and related infrastructure, certain public agencies require
posting of surety bonds to guarantee that the Company's obligations are satisfied. These bonds expire upon the
completion of the improvements or infrastructure. As of December 31, 2016. the Company had six surety bonds
outstanding totaling $24.3 million.
During the year ended December 31, 2016, the Company posted two letters of credit totaling $5.0 million in connection
with a performance guarantee to complete certain site improvements at two theatres. The letters of credit expire on
June 1, 2018.
Prior proposed casino and resort developers Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha
LLC, which are affiliates of Louis Cappelli and from whom the Company acquired the Adelaar resort property (the
Cappelli Group), commenced litigation against the Company beginning in 2011 regarding matters relating to the
acquisition of that property and the Company's relationship with the Empire Resorts, Inc. and certain of its subsidiaries.
This litigation involves three separate cases filed in state and federal court. Two of the cases, a state and the federal
case, are closed and resulted in no liability by the Company.
The remaining case was filed on October 20, 2011 by the Cappelli Group against the Company and two of its affiliates
in the Supreme Court of the State of New York, County of Westchester (the Westchester Action), asserting a claim for
breach of contract and the implied covenant of good faith, and seeking damages of at least $800 million, based on
allegations that the Company had breached an agreement (the Casino Development Agreement), dated June 18, 2010.
The Company moved to dismiss the complaint in the Westchester Action based on a decision issued by the Sullivan
County Supreme Court (one of the two closed cases discussed above) on June 30, 2014, as affirmed by the Appellate
Division, Third Department (the Sullivan Action). On January 26, 2016, the Westchester County Supreme Court denied
the Company's motion to dismiss but ordered the Cappelli Group to amend its pleading and remove all claims and
allegations previously determined by the Sullivan Action. On February 18, 2016, the Cappelli Group filed an amended
111
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
complaint asserting a single cause of action for breach of the covenant of good faith and fair dealing based upon
allegations the Company had interfered with plaintiffs’ ability to obtain financing which complied with the Casino
Development Agreement. On March 23, 2016, the Company filed a motion to dismiss the Cappelli Group’s revised
amended complaint. On January 5, 2017, the Westchester County Supreme Court denied the Company’s second motion
to dismiss. Discovery is ongoing.
The Company has not determined that losses related to the remaining Westchester Action are probable. In light of 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 the outcome of the claims and related litigation.
On November 2, 2016, the Company and Ski Resort Holdings LLC (SRH), an entity owned by funds affiliated with
Och-Ziff Real Estate, entered into a Purchase and Sale Agreement with CNL Lifestyle Properties, Inc. (CNL), CLP
Partners, LP, CNL's operating partnership, and certain CNL subsidiaries. The agreement provides for the Company's
acquisition of the Northstar California Ski Resort, 15 attraction properties (waterparks and amusement parks) and five
small family entertainment centers for aggregate consideration valued at approximately $456.0 million. Additionally,
the Company has agreed to provide approximately $244.0 million of five-year secured debt financing to SRH for the
purchase of 14 CNL ski properties valued at approximately $374.0 million. This debt financing will be secured by
mortgages on all of the assets being acquired by SRH.
The Company's aggregate investment in this transaction is projected to be valued at approximately $700.0 million and
is expected to be funded with approximately $647.0 million of the Company's common shares and $53.0 million of
cash before pro-rations, transaction costs and closing adjustments, a portion of which is expected to be included in the
secured debt financing to SRH. The Company expects to borrow an estimated $62.0 million (the estimated $53.0 million
cash purchase price plus an estimated $9.0 million in transaction costs) under its unsecured revolving credit facility at
closing. Additionally, the Company has also agreed to fund 65% of pre-approved, future property improvements with
such advances capped at $52.0 million. All SRH financing will bear interest at 8.5%.
The Company's common share consideration is subject to a two-way collar between $68.25 and $82.63 per share. If
the Company's volume weighted average share price over the ten trading days ending on the second trading day prior
to close (the Average EPR Share Price) increases between the signing of the agreement and the closing, CNL will
receive fewer shares until the Average EPR Share Price reaches $82.63, at which point the number of shares will be
fixed at approximately 7.8 million. Conversely, if the Company's share price decreases between signing and closing,
CNL will receive more shares until the Average EPR Share Price reaches $68.25, at which point the number of shares
will be fixed at approximately 9.5 million. Post-transaction, CNL will own between approximately 11% and 13% of
the Company's pro forma common shares outstanding before distributing the shares to the CNL stockholders (based
upon the Company's issued and outstanding common shares as of December 31, 2016).
The CNL transaction is subject to customary closing conditions, including the approval of the transaction by stockholders
holding a majority of the outstanding shares of common stock of CNL and various third party consents and governmental
permits. It is anticipated that this transaction will close in the second quarter of 2017; however, there can be no assurances
as to the actual closing or the timing of the closing.
In addition, the Company and SRH, on a joint and several basis, will be required to pay a reverse termination fee of
$60.0 million plus reimbursement of expenses incurred after June 10, 2016 (up to $10.0 million) to CNL if the Purchase
and Sale Agreement is terminated because the Company and SRH fail to close the transaction as required under the
agreement after the conditions to the obligations to close have been satisfied or waived.
112
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
19. 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, 2016
Total Assets
$
2,168,669 $ 1,308,288 $ 1,120,498 $
202,394 $
65,173 $
4,865,022
As of December 31, 2015
Total Assets
Operating Data:
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
Entertainment Education Recreation
$
2,006,926 $ 1,013,930 $
935,266 $
Other
203,757 $
Corporate/
Unallocated Consolidated
4,217,270
57,391 $
For the Year Ended December 31, 2016
Entertainment Education Recreation Other
77,768 $
$
62,527 $ 8,635 $
250,659 $
15,588
249
6,187
272,683
21,303
—
21,303
7
1,648
32,539
111,962
—
—
—
—
4,482
30,190
97,199
8
—
8
—
—
103
8,738
662
5
667
Corporate/
Unallocated Consolidated
399,589
— $
15,595
—
9,039
2,660
—
2,660
629
—
629
69,019
493,242
22,602
5
22,607
251,380
111,962
97,191
8,071
2,031
470,635
Reconciliation to Consolidated Statements of Income:
General and administrative expense
Costs associated with loan refinancing or payoff
Interest expense, net
Transaction costs
Depreciation and amortization
Equity in income from joint ventures
Gain on sale of real estate
Income tax expense
Net income attributable to EPR Properties
Preferred dividend requirements
Net income available to common shareholders of EPR Properties
$
(37,543)
(905)
(97,144)
(7,869)
(107,573)
619
5,315
(553)
224,982
(23,806)
201,176
113
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
For the Year Ended December 31, 2015
Entertainment Education Recreation Other
51,439 $
$
—
—
238,896 $
16,343
512
—
—
40,551 $ — $
(23)
119
Corporate/
Unallocated Consolidated
330,886
— $
16,320
—
3,629
2,998
7,127
262,878
30,622
82,061
32,080
72,631
23,120
—
23,120
—
—
—
—
—
—
353
449
313
648
961
—
2,998
70,182
421,017
—
—
—
23,433
648
24,081
239,758
82,061
72,631
(512)
2,998
396,936
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
Retirement severance expense
Costs associated with loan refinancing or payoff
Interest expense, net
Transaction costs
Depreciation and amortization
Equity in income from joint ventures
Gain on sale of real estate
Income tax expense
Discontinued operations:
Income from discontinued operations
Net income attributable to EPR Properties
Preferred dividend requirements
Net income available to common shareholders of EPR Properties
$
(31,021)
(18,578)
(270)
(79,915)
(7,518)
(89,617)
969
23,829
(482)
199
194,532
(23,806)
170,726
114
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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
387
1,727
24,143
—
24,143
—
—
—
—
—
754
771
— 1,525
—
700
—
—
—
79,706
385,051
24,897
771
25,668
237,976
59,362
61,143
202
700
359,383
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
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 of real estate
Gain on sale of investment in a direct financing lease
Income tax expense
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
$
(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
115
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
20. Condensed Consolidating Financial Statements
A portion of our subsidiaries have guaranteed the Company’s indebtedness under the Company's unsecured credit
facilities and existing senior unsecured notes. 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, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 (in thousands):
Condensed Consolidating Balance Sheet
As of December 31, 2016
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
Accounts receivable, net
Intercompany notes receivable
Investments in subsidiaries
Other assets
Total assets
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities
Dividends payable
Unearned rents and interest
Intercompany notes payable
Debt
Total liabilities
Equity
Total liabilities and equity
$
EPR
Properties
(Issuer)
Wholly Owned
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
Consolidated
Elimination
Consolidated
$
— $ 3,164,622
$
431,140
$
— $ 3,595,762
—
1,010
—
—
—
16,586
365
556
—
4,521,095
21,768
1,258
247,239
612,141
102,698
—
1,157
8,352
89,145
179,589
—
23,068
21,272
48,861
1,837
—
5,972
1,592
1,027
9,238
—
—
54,118
$
4,561,380
$ 4,429,269
$
575,057
—
—
—
—
—
—
—
—
(179,589)
(4,521,095)
—
22,530
297,110
613,978
102,698
5,972
19,335
9,744
98,939
—
—
98,954
$ (4,700,684) $ 4,865,022
$
63,431
$
52,061
$
4,266
$
— $
119,758
26,318
—
—
2,285,730
2,375,479
2,185,901
4,561,380
—
46,647
—
—
98,708
4,330,561
$ 4,429,269
$
—
773
179,589
199,895
384,523
190,534
575,057
—
—
(179,589)
—
(179,589)
(4,521,095)
26,318
47,420
—
2,485,625
2,679,121
2,185,901
$ (4,700,684) $ 4,865,022
116
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Condensed Consolidating Balance Sheet
As of December 31, 2015
EPR
Properties
(Issuer)
Wholly Owned
Subsidiary
Guarantors
Non-
Guarantor
Subsidiaries
Consolidated
Elimination
Consolidated
$
— $ 2,590,158
$
435,041
$
— $ 3,025,199
—
—
—
—
—
—
—
23,610
378,920
423,780
190,880
6,168
4,283
10,578
59,101
—
—
—
(177,526)
(3,825,897)
—
94,751
$ (4,003,423) $ 4,217,270
— $
—
—
(177,526)
—
(177,526)
92,178
24,352
44,952
—
1,981,920
2,143,402
$ (3,825,897) $ 2,073,868
$ (4,003,423) $ 4,217,270
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
Accounts receivable, net
Intercompany notes receivable
Investments in subsidiaries
Other assets
Total assets
Liabilities and Equity
Liabilities:
—
—
—
—
—
1,089
475
285
—
3,825,897
23,053
1,258
324,360
400,935
190,880
—
1,289
9,059
49,237
177,526
—
10,589
22,352
54,560
22,845
—
6,168
1,905
1,044
9,579
—
—
61,109
$
3,850,799
$ 3,755,291
$
614,603
Accounts payable and accrued liabilities
$
49,671
$
39,228
$
3,279
$
Dividends payable
Unearned rents and interest
Intercompany notes payable
Debt
Total liabilities
Equity
Total liabilities and equity
24,352
—
—
1,702,908
1,776,931
2,073,868
3,850,799
$
$
—
44,012
—
63,682
146,922
$ 3,608,369
$ 3,755,291
$
$
—
940
177,526
215,330
397,075
217,528
614,603
117
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Condensed Consolidating Statement of Income
For the Year Ended December 31, 2016
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
Depreciation and amortization
Income before equity in income
from joint ventures and other
items
Equity in income from joint ventures
Gain on sale of real estate
Income before income taxes
Income tax benefit (expense)
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
345,945
5,455
6,168
64,231
—
— $
—
—
942
2,684
—
3,626
328,328
—
—
—
—
—
96,239
—
7,766
1,504
226,445
—
—
226,445
(1,463)
224,982
(23,806)
9,700
431,499
—
10,905
—
—
32,250
353
(8,189)
—
—
92,310
303,870
—
5,315
309,185
—
309,185
—
Non-
Guarantors
Subsidiaries
53,644
$
10,140
2,871
3,846
—
—
70,501
—
11,697
2,684
5
5,293
552
9,094
9,700
103
13,759
17,614
619
—
18,233
910
19,143
—
Consolidated
Elimination
$
— $
—
—
—
(2,684)
Consolidated
399,589
15,595
9,039
69,019
—
(9,700)
(12,384)
(328,328)
—
(2,684)
—
—
—
—
(9,700)
—
—
(328,328)
—
—
(328,328)
—
(328,328)
—
—
493,242
—
22,602
—
5
37,543
905
97,144
—
7,869
107,573
219,601
619
5,315
225,535
(553)
224,982
(23,806)
$
$
201,176
227,094
$
$
309,185
309,185
$
$
19,143
$ (328,328) $
201,176
18,063
$ (327,248) $
227,094
118
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Condensed Consolidating Statement of Income
For the Year Ended December 31, 2015
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
Retirement severance expense
Costs associated with loan refinancing or
payoff
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 of real estate
Income before income taxes
Income tax benefit (expense)
Income from continuing
operations
Discontinued operations:
Income from discontinued
operations
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
275,105
5,243
3
61,900
—
— $
—
—
848
2,717
111
3,676
298,657
—
—
—
—
18,578
243
78,217
—
7,182
1,629
196,484
—
—
196,484
(1,952)
9,787
352,038
—
11,280
—
—
25,315
—
27
(8,115)
—
—
74,430
249,101
—
23,653
272,754
—
Non-
Guarantor
Subsidiaries
55,781
$
11,077
3,626
7,434
—
Consolidated
Elimination
$
Consolidated
— $ 330,886
16,320
—
3,629
—
70,182
—
—
(2,717)
—
77,918
—
12,153
2,717
648
5,706
—
—
9,813
9,898
336
13,558
23,089
969
176
24,234
1,470
(9,898)
(12,615)
(298,657)
—
(2,717)
—
—
—
—
—
(9,898)
—
—
(298,657)
—
—
(298,657)
—
—
421,017
—
23,433
—
648
31,021
18,578
270
79,915
—
7,518
89,617
170,017
969
23,829
194,815
(482)
194,532
272,754
25,704
(298,657)
194,333
—
199
194,532
(23,806)
272,953
—
—
25,704
—
—
199
(298,657)
—
194,532
(23,806)
$
$
170,726
187,588
$
$
272,953
272,730
$
$
25,704
$ (298,657) $ 170,726
19,559
$ (292,289) $ 187,588
119
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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 of real estate
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
228,847
5,103
1
71,535
—
— $
—
—
765
3,124
Non-
Guarantor
Subsidiaries
57,826
$
12,560
1,008
7,406
—
Consolidated
Elimination
$
— $
—
—
—
(3,124)
Consolidated
286,673
17,663
1,009
79,706
—
—
3,889
241,921
—
—
—
—
—
63,056
—
1,319
—
1,224
180,211
—
—
—
180,211
(578)
$
—
305,486
—
11,422
—
—
20,545
285
9,132
—
54
—
51,271
212,777
—
—
220
212,997
—
$
23,509
102,309
—
13,475
3,124
771
7,021
16
9,082
23,509
1,079
3,777
14,244
26,211
1,273
1,209
—
28,693
(3,650)
(23,509)
(26,633)
(241,921)
—
(3,124)
—
—
—
—
(23,509)
—
—
—
(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
212,997
25,043
(241,921)
175,752
—
—
179,633
(23,807)
155,826
175,006
$
$
487
3,376
216,860
—
216,860
217,000
$
$
18
—
—
—
505
3,376
25,061
—
(241,921)
—
179,633
(23,807)
25,061
$ (241,921) $
155,826
20,919
$ (237,919) $
175,006
120
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2016
EPR
Properties
(Issuer)
$
2,684
Wholly
Owned
Subsidiary
Guarantors
$
Non-
Guarantor
Subsidiaries
— $
(2,684) $
Consolidated
—
—
(79,945)
9,700
338,267
(9,700)
47,880
—
306,202
(77,261)
347,967
35,496
306,202
(357)
—
—
—
—
—
—
—
(1,010)
—
(356,784)
(358,151)
1,380,000
(786,000)
(14,358)
—
142,628
(1,488)
(4,211)
(265,662)
(216,245)
22,383
(190,922)
50,252
(1,546)
43,462
4,209
20,951
(399,452)
(2,063)
384,599
(284,372)
(2,567)
1,477
(1,617)
21,820
—
—
401
—
(13,386)
2,063
(27,815)
(19,624)
(219,169)
23,860
(192,539)
72,072
(1,546)
43,462
4,610
20,951
(413,848)
—
—
(662,147)
—
(63,727)
—
— 1,380,000
(865,266)
(14,385)
(15,539)
(27)
—
—
—
—
—
(482)
—
—
—
—
450,909
—
15,497
1,089
16,586
$
(63,727)
—
(132)
1,289
1,157
$
(16,048)
(137)
(313)
1,905
1,592
$
(482)
142,628
(1,488)
(4,211)
(265,662)
371,134
(137)
15,052
4,283
19,335
Intercompany fee income (expense)
Interest income (expense) on intercompany receivable/
payable
Net cash (used) provided by other operating activities
Net cash (used) provided by operating
activities
Investing activities:
Acquisition of and investments in rental properties
and other assets
Proceeds from sale of real estate
Investment in mortgage notes receivable
Proceeds from mortgage note receivable paydown
Investment in promissory notes receivable
Proceeds from sale of infrastructure related to
issuance of revenue bonds
Proceeds from insurance recovery
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 used by investing activities
Financing activities:
Proceeds from long-term debt facilities and senior
unsecured notes
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 for vesting
Dividends paid to shareholders
Net cash provided (used) by financing
activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
$
121
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2015
EPR
Properties
(Issuer)
$
2,717
Wholly
Owned
Subsidiary
Guarantors
$
Non-
Guarantor
Subsidiaries
— $
(2,717) $
Consolidated
—
111
(91,731)
9,787
324,760
(9,898)
44,923
—
277,952
(88,903)
334,547
32,308
277,952
—
508
—
508
(88,903)
335,055
32,308
278,460
(618)
—
—
—
—
(112)
—
(406,389)
(407,119)
701,914
(142,000)
(7,038)
190,158
(3,394)
(8,222)
(233,073)
498,345
—
2,323
(1,234)
1,089
(178,964)
45,637
(27,835)
38,456
4,741
(404,289)
(1,769)
386,222
(137,801)
155,000
(353,024)
(9)
—
—
—
—
(198,033)
(6)
(785)
2,074
(238)
1,081
(44,863)
2,500
—
(4,035)
1,769
20,167
(23,619)
—
(8,290)
—
—
—
—
—
(8,290)
(990)
(591)
2,496
(179,820)
46,718
(72,698)
40,956
4,741
(408,436)
—
—
(568,539)
856,914
(503,314)
(7,047)
190,158
(3,394)
(8,222)
(233,073)
292,022
(996)
947
3,336
$
1,289
$
1,905
$
4,283
Intercompany fee income (expense)
Interest income (expense) on intercompany receivable/
payable
Net cash (used) provided by other operating activities
Net cash (used) provided by operating activities
of continuing operations
Net cash provided by operating activities of
discontinued operations
Net cash (used) provided by operating
activities
Investing activities:
Acquisition of rental properties and other assets
Proceeds from sale of real estate
Investment in mortgage note receivable
Proceeds from mortgage note receivable paydown
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 used in investing activities
Financing activities:
Proceeds from debt facilities
Principal payments on debt
Deferred financing fees paid
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 increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
$
122
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
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)
—
262,860
—
47,976
—
250,152
(57,560)
262,860
44,852
250,152
—
47
96
143
(57,560)
262,907
44,948
250,295
(438)
—
—
—
—
—
—
—
(821)
(16,206)
(17,465)
20,000
—
(337)
—
264,158
50
(2,892)
(207,637)
(58,918)
—
—
(26,716)
52,834
(721)
(25,849)
12,055
5,725
(67,161)
23,422
(3,666)
(85,205)
12,055
5,725
(93,877)
76,256
(4,387)
—
1,750
1,750
46,092
(325,624)
(7,078)
(320,131)
359,000
(303,544)
(279)
(25)
—
—
—
—
—
(8,190)
23,284
(38,630)
—
(6,709)
(198)
—
—
—
—
—
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
73,342
—
(1,683)
449
(1,234) $
55,152
39
(2,033)
4,107
2,074
$
(6,907)
(317)
(906)
3,402
2,496
$
Intercompany fee income (expense)
Interest income (expense) on intercompany receivable/
payable
Net cash (used) provided by other operating activities
Net cash (used) provided by operating activities
of continuing operations
Net cash provided by operating activities of
discontinued operations
Net cash (used) provided 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
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
$
123
EPR Properties
Schedule II - Valuation and Qualifying Accounts
December 31, 2016
Description
Reserve for Doubtful Accounts
Allowance for Loan Losses
Balance at
December 31, 2015
3,210,000
$
—
$
Additions
During 2016
Deductions
During 2016
— $
—
(2,339,000) $
—
Balance at
December 31, 2016
871,000
—
See accompanying report of independent registered public accounting firm.
EPR Properties
Schedule II - Valuation and Qualifying Accounts
December 31, 2015
Description
Reserve for Doubtful Accounts
Allowance for Loan Losses
Balance at
December 31, 2014
1,554,000
$
3,777,000
Additions
During 2015
Deductions
During 2015
$
1,829,000
—
$
(173,000) $
(3,777,000)
Balance at
December 31, 2015
3,210,000
—
See accompanying report of independent registered public accounting firm.
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.
124
Location
Megaplex Theatres
Omaha, NE
Sugar Land, TX
San Antonio, TX
Columbus, OH
San Diego, CA
Ontario, CA
Houston, TX
Creve Coeur, MO
Leawood, KS
Houston, TX
South Barrington, IL
Mesquite, TX
Hampton, VA
Pompano Beach, FL
Raleigh, NC
Davie, FL
Aliso Viejo, CA
Boise, ID
Woodridge, IL
Cary, NC
Tampa, FL
San Diego, CA
Metairie, LA
Harahan, LA
Hammond, LA
Houma, LA
Harvey, LA
Greenville, SC
Sterling Heights, MI
Olathe, KS
Livonia, MI
Alexandria, VA
Little Rock, AR
Macon, GA
Lawrence, KS
Columbia, SC
Hialeah, FL
Phoenix, AZ
Hamilton, NJ
Mesa, AZ
Peoria, IL
Lafayette, LA
Hurst, TX
Melbourne, FL
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
Total
Accumulated
depreciation
Date
acquired
Depreciation
life
—
14,513
—
—
—
—
—
—
12,137
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,772
—
—
—
—
—
—
—
—
—
5,215
—
3,006
—
—
5,521
6,023
4,985
3,714
4,304
6,577
2,912
3,822
6,771
2,919
2,000
8,000
—
9,926
3,352
6,000
7,500
—
5,264
2,404
2,404
4,378
1,660
5,975
4,000
4,500
—
3,858
1,982
1,500
1,000
7,985
4,276
4,869
4,446
2,948
—
5,000
3,817
16,700
19,100
13,662
12,685
16,028
19,449
20,037
12,601
12,086
21,496
27,723
20,288
24,678
9,899
5,559
13,000
14,000
16,003
8,968
11,653
12,809
17,750
11,740
14,820
6,780
6,780
12,330
7,570
17,956
15,935
17,525
22,035
7,990
5,056
3,526
10,534
—
15,934
18,143
16,565
11,177
10,318
11,729
8,830
5,215
—
3,006
—
—
5,521
6,023
4,985
3,714
4,304
6,577
2,912
3,822
6,771
2,919
2,000
8,000
—
9,926
3,352
6,000
7,500
—
5,264
1,839
2,404
4,266
1,660
5,975
4,000
4,500
—
3,858
1,982
1,500
1,000
7,985
4,276
4,869
4,446
2,948
—
5,000
3,817
59
67
5,832
—
—
—
—
4,075
4,110
76
4,618
4,885
4,510
3,845
3,492
8,512
—
—
—
155
1,452
—
—
—
(565)
—
(112)
206
3,400
3,014
—
—
—
—
2,017
(2,447)
—
—
—
3,263
—
—
1,015
320
125
16,759
19,167
19,494
12,685
16,028
19,449
20,037
16,676
16,196
21,572
32,341
25,173
29,188
13,744
9,051
21,512
14,000
16,003
8,968
11,808
14,261
17,750
11,740
14,820
6,780
6,780
12,330
7,776
21,356
18,949
17,525
22,035
7,990
5,056
5,543
8,087
—
15,934
18,143
19,828
11,177
10,318
12,744
9,150
21,974
19,167
22,500
12,685
16,028
24,970
26,060
21,661
19,910
25,876
38,918
28,085
33,010
20,515
11,970
23,512
22,000
16,003
18,894
15,160
20,261
25,250
11,740
20,084
8,619
9,184
16,596
9,436
27,331
22,949
22,025
22,035
11,848
7,038
7,043
9,087
7,985
20,210
23,012
24,274
14,125
10,318
17,744
12,967
(7,960)
(9,104)
(6,976)
(5,867)
(7,413)
(8,995)
(9,267)
(6,399)
(5,981)
(10,202)
(13,212)
(9,991)
(11,586)
(6,773)
(2,803)
(9,591)
(6,300)
(7,201)
(8,096)
(5,019)
(6,445)
(7,507)
(4,354)
(5,496)
(2,514)
(2,514)
(4,572)
(2,801)
(9,320)
(6,661)
(6,316)
(7,850)
(2,813)
(1,738)
(1,216)
(2,715)
—
(5,079)
(5,783)
(5,310)
(3,470)
(3,219)
(3,861)
(2,745)
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
11/97
02/98
03/98
04/98
06/98
08/98
08/98
11/98
12/98
12/98
06/99
12/99
06/99
02/00
03/02
03/02
03/02
03/02
03/02
06/02
06/02
06/02
08/02
10/02
12/02
03/03
06/03
11/03
12/03
03/04
03/04
03/04
07/04
07/04
11/04
12/04
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
n/a
40 years
40 years
40 years
40 years
40 years
40 years
40 years
Location
D'Iberville, MS
Wilmington, NC
Chattanooga, TN
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
Pensacola, FL
Slidell, LA
Panama City Beach, FL
Kalispell, MT
Greensboro, NC
Glendora, CA
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
Pasadena, TX
Plano, TX
McKinney, TX
Mishawaka, IN
Grand Prairie, TX
Redding, CA
Pueblo, CO
Beaumont, TX
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
Total
Accumulated
depreciation
Date
acquired
Depreciation
life
8,615
—
10,002
—
4,027
8,174
—
—
9,331
—
—
12,452
—
—
—
—
—
10,635
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,001
1,650
2,799
1,836
1,481
1,978
2,641
2,178
7,600
2,542
—
8,028
1,305
—
3,508
5,125
5,316
—
6,486
2,505
—
—
4,716
3,628
3,628
3,599
2,630
1,270
3,719
970
5,442
5,379
1,723
4,979
1,578
2,540
1,361
2,951
1,052
1,917
2,399
1,873
2,044
2,238
1,065
8,043
7,047
11,467
8,230
4,565
7,733
3,810
6,185
11,613
3,910
12,204
14,825
6,899
12,153
14,802
12,216
15,099
11,499
11,156
7,323
12,606
10,588
227
11,474
1,769
6,068
11,791
1,723
4,716
3,891
1,061
3,311
9,614
6,567
6,630
3,755
1,741
10,684
1,968
3,319
5,454
3,245
4,500
5,162
11,669
808
1,650
2,799
1,836
1,481
1,978
2,641
2,178
7,600
2,542
—
8,028
1,305
—
3,508
5,125
5,316
—
6,486
2,505
—
—
4,716
3,628
3,628
3,564
2,630
1,270
3,719
970
3,458
5,379
1,723
4,979
1,578
2,540
635
2,951
1,052
1,917
2,399
1,873
2,044
2,238
1,065
1,239
—
—
—
2,375
2,432
—
—
—
—
—
—
—
1,925
—
2,308
—
—
—
—
914
—
—
—
—
(35)
—
—
—
—
2,000
—
—
—
—
—
—
—
—
—
1,383
2,104
—
—
—
126
10,475
7,047
11,467
8,230
6,940
10,165
3,810
6,185
11,613
3,910
12,204
14,825
6,899
14,078
14,802
14,524
15,099
11,499
11,156
7,323
13,520
10,588
227
11,474
1,769
6,068
11,791
1,723
4,716
3,891
5,045
3,311
9,614
6,567
6,630
3,755
2,467
10,684
1,968
3,319
6,837
5,349
4,500
5,162
11,669
11,283
8,697
14,266
10,066
8,421
12,143
6,451
8,363
19,213
6,452
12,204
22,853
8,204
14,078
18,310
19,649
20,415
11,499
17,642
9,828
13,520
10,588
4,943
15,102
5,397
9,632
14,421
2,993
8,435
4,861
8,503
8,690
11,337
11,546
8,208
6,295
3,102
13,635
3,020
5,236
9,236
7,222
6,544
7,400
12,734
(3,043)
(2,100)
(3,392)
(2,365)
(1,319)
(2,783)
(1,056)
(1,714)
(3,626)
(1,083)
(3,280)
(3,984)
(1,840)
(3,695)
(3,824)
(6,788)
(3,775)
(2,875)
(2,673)
(1,709)
(3,031)
(2,162)
(40)
(2,008)
(310)
(1,062)
(2,063)
(302)
(825)
(681)
(1,162)
(579)
(1,682)
(1,149)
(1,160)
(657)
(326)
(1,736)
(320)
(539)
(913)
(622)
(731)
(839)
(1,896)
12/04
02/05
03/05
06/05
06/05
09/05
12/05
12/05
12/05
12/05
03/06
03/06
04/06
07/06
08/06
11/06
12/06
12/06
05/07
08/07
11/07
10/08
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
06/10
06/10
06/10
06/10
06/10
06/10
06/10
06/10
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
Location
Pflugerville, TX
Houston, TX
El Paso, TX
Colorado Springs, CO
Virginia Beach, VA
Hooksett, NH
Saco, ME
Merrimack, NH
Westbrook, ME
Twin Falls, ID
Dallas, TX
Albuquerque, NM
Southern Pines, NC
Austin, TX
Champaign, IL
Gainesville, VA
Lafayette, LA
New Iberia, LA
Tuscaloosa, AL
Tampa, FL
Warrenville, IL
San Francisco, CA
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, MI
Virginia Beach, VA
Yulee, FL
Jacksonville, FL
Denham Springs, LA
Crystal Lake, IL
Laredo, TX
Delmont, PA
Kennewick, WA
Franklin, TN
Mobile, AL
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
Total
Accumulated
depreciation
Date
acquired
Depreciation
life
—
—
—
—
—
—
—
3,298
—
—
—
—
—
—
—
—
14,360
—
—
—
—
—
—
1,371
2,341
10,032
8,087
12,183
14,487
6,299
5,883
8,570
5,917
13,459
—
—
—
—
—
—
—
—
—
—
—
4,356
4,109
4,598
4,134
—
2,639
1,508
3,160
2,273
—
—
—
1,709
2,608
—
—
—
—
—
1,700
14,000
2,077
1,314
349
1,028
983
1,241
2,461
3,764
2,243
886
1,963
1,046
2,235
10,849
2,544
1,036
5,080
—
2,980
1,353
673
2,484
10,158
2,116
11,533
9,739
13,207
11,220
1,736
11,605
3,826
5,642
7,119
4,783
12,146
13,733
4,747
6,373
9,381
10,846
12,728
1,630
11,287
23,483
17,318
12,914
8,951
1,594
2,291
11,233
10,222
14,807
16,769
6,684
7,453
10,183
7,342
16,842
—
6,478
6,934
22,064
5,093
13,521
7,886
621
4,901
17,549
16,657
4,356
4,109
4,598
2,938
—
2,639
1,508
3,160
2,273
—
—
—
1,709
2,608
—
—
—
—
1,815
1,700
14,000
2,077
1,314
349
1,028
983
1,241
2,461
3,764
2,243
886
1,963
1,046
2,235
10,919
2,544
1,036
5,080
—
2,980
1,353
673
2,484
10,158
2,116
—
—
—
(1,196)
—
—
—
—
—
—
750
—
—
—
125
—
—
—
—
3,769
—
—
—
—
—
2,004
—
—
—
—
—
—
—
—
70
—
—
—
—
568
—
—
—
—
—
127
11,533
9,739
13,207
11,220
1,736
11,605
3,826
5,642
7,119
4,783
12,896
13,733
4,747
6,373
9,506
10,846
12,728
1,630
9,472
27,252
17,318
12,914
8,951
1,594
2,291
13,237
10,222
14,807
16,769
6,684
7,453
10,183
7,342
16,842
—
6,478
6,934
22,064
5,093
14,089
7,886
621
4,901
17,549
16,657
15,889
13,848
17,805
14,158
1,736
14,244
5,334
8,802
9,392
4,783
12,896
13,733
6,456
8,981
9,506
10,846
12,728
1,630
11,287
28,952
31,318
14,991
10,265
1,943
3,319
14,220
11,463
17,268
20,533
8,927
8,339
12,146
8,388
19,077
10,919
9,022
7,970
27,144
5,093
17,069
9,239
1,294
7,385
27,707
18,773
(1,874)
(1,583)
(2,146)
(1,823)
(969)
(1,692)
(558)
(823)
(1,038)
(548)
(1,242)
(1,059)
(534)
(544)
(733)
(836)
(1,034)
(133)
(770)
(2,568)
(2,211)
(323)
(559)
(122)
(164)
(796)
(725)
(1,030)
(1,170)
(490)
(527)
(717)
(514)
(1,182)
—
(297)
(318)
(1,386)
(95)
(814)
(197)
(15)
(110)
(392)
(354)
06/10
06/10
06/10
06/10
12/10
03/11
03/11
03/11
03/11
04/11
03/12
06/12
06/12
09/12
09/12
02/13
08/13
08/13
09/13
10/13
10/13
08/13
11/12
04/14
04/14
04/14
04/14
04/14
04/14
04/14
04/14
04/14
04/14
04/14
12/14
02/15
02/15
05/15
05/15
07/15
12/15
06/16
06/16
06/16
06/16
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
n/a
40 years
40 years
25 years
40 years
25 years
40 years
25 years
25 years
25 years
25 years
Location
El Paso, TX
Edinburg, TX
Hendersonville, TN
Detroit, MI
ERC's/Retail
Dallas, TX
Mesquite, TX
Westminster, CO
Westminster, CO
Houston, TX
Southfield, MI
New Rochelle, NY
Suffolk, VA
Kanata, ON
Mississagua, ON
Oakville, ON
Whitby, ON
Warrenville, IL
Burbank, CA
Austell, GA
Suffolk, VA
Other Entertainment
Northbrook, IL
Oakbrook, IL
Jacksonville, FL
Indianapolis, IN
Warrenville, IL
Schaumburg, IL
Marietta, GA
Public Charter Schools
Cleveland, OH
Gilbert, AZ
Baton Rouge, LA
Goodyear, AZ
Phoenix, AZ
Broomfield, CO
Phoenix, AZ
Salt Lake City, UT
Hurricane, UT
Buckeye, AZ
Queen Creek, AZ
Tarboro, NC
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,957
1,982
2,784
4,299
3,060
3,119
6,205
5,850
3,653
8,000
6,100
3,382
9,384
8,615
9,384
9,532
3,919
16,584
1,596
3,256
—
—
4,510
4,298
—
598
3,116
640
2,580
996
766
1,253
1,084
1,060
897
475
914
1,887
350
10,961
16,964
8,034
13,810
15,281
990
12,600
17,314
1,365
20,518
97,696
9,971
34,224
16,438
22,093
20,518
900
35,016
—
9,206
7,025
8,068
5,061
6,321
6,469
5,372
11,872
5,613
6,418
5,638
6,517
4,834
9,659
8,140
4,488
4,939
9,715
14,543
12,560
10,961
16,964
8,034
13,810
34,143
1,350
22,109
17,314
79
26,748
104,620
15,740
61,536
29,128
26,160
39,672
900
42,113
—
14,357
7,611
8,604
7,040
9,163
8,685
5,372
11,872
5,613
8,927
5,638
6,517
4,834
9,490
8,140
4,433
4,939
24,199
25,660
15,597
2,957
1,982
2,784
4,299
3,060
319
6,205
5,850
3,408
8,000
6,100
4,471
9,384
11,330
9,384
12,243
1,983
16,584
1,596
3,298
—
—
4,510
4,377
—
598
3,116
640
2,580
996
766
1,253
1,084
1,060
897
475
914
1,887
350
—
—
—
—
18,862
(2,440)
9,509
—
(1,531)
6,230
6,924
6,858
27,312
15,405
4,067
21,865
(1,936)
7,097
—
5,193
586
536
1,979
2,921
2,216
—
—
—
2,509
—
—
—
(169)
—
(55)
—
14,484
11,117
3,037
128
Total
13,918
18,946
10,818
18,109
37,203
1,669
28,314
23,164
3,487
34,748
110,720
20,211
70,920
40,458
35,544
51,915
2,883
58,697
1,596
17,655
7,611
8,604
11,550
13,540
8,685
5,970
14,988
6,253
11,507
6,634
7,283
6,087
10,574
9,200
5,330
5,414
25,113
27,547
15,947
Accumulated
depreciation
Date
acquired
Depreciation
life
(240)
(356)
(112)
(77)
(14,425)
(348)
(17,330)
(6,529)
(3)
(20,945)
(35,390)
(4,046)
(18,627)
(8,395)
(9,465)
(12,433)
(735)
(11,668)
—
(3,792)
(961)
(866)
(1,115)
(874)
(743)
(179)
(423)
(281)
(1,011)
(785)
(935)
(634)
(1,164)
(1,250)
(505)
(775)
(1,793)
(2,669)
(1,633)
06/16
06/16
07/16
11/16
11/97
01/99
12/01
06/99
05/00
05/03
10/03
11/03
03/04
03/04
03/04
03/04
07/04
03/05
07/07
06/09
07/11
03/12
02/12
02/12
10/13
04/15
02/16
10/04
06/11
03/11
04/11
06/11
08/11
11/11
03/12
03/12
04/12
05/12
07/12
25 years
25 years
30 years
30 years
40 years
40 years
40 years
40 years
40 years
15 years
40 years
40 years
40 years
40 years
40 years
40 years
15 years
40 years
n/a
40 years
40 years
40 years
30 years
40 years
40 years
30 years
35 years
30 years
40 years
40 years
30 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
Location
Chester Upland, PA
Hollywood, SC
Camden, NJ
Queen Creek, AZ
Chicago, IL
Gilbert, AZ
Vista, CA
Colorado Springs, CO
Chandler, AZ
Salt Lake City, UT
Palm Beach, FL
Mesa, AZ
Kernersville, NC
Fort Collins, CO
Wilson, NC
Baker, LA
Charlotte, NC
Chicago, IL
High Point, NC
Chandler, AZ
Port Royal, SC
Macon, GA
Memphis, TN
Parker, CO
Rock Hill, SC
Palm Bay, FL
East Point, GA
High Point, NC
Bridgeton, NJ
Memphis, TN
Macon, GA
Galloway, NJ
Bronx, NY
Parker, CO
Holland, OH
Early Childhood Education
Lake Pleasant, AZ
Goodyear, AZ
Oklahoma City, OK
Coppell, TX
Las Vegas, NV
Las Vegas, NV
Mesa, AZ
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
Total
Accumulated
depreciation
Date
acquired
Depreciation
life
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
518
806
548
2,612
509
1,336
1,283
1,205
1,039
8,173
3,323
2,109
1,362
618
424
190
1,559
1,544
1,298
1,530
387
401
1,535
2,190
2,046
782
553
1,180
153
910
351
575
1,232
1,248
549
986
1,308
1,149
1,547
944
985
762
5,900
5,776
10,569
—
5,895
6,593
3,354
6,350
9,590
10,982
15,824
6,032
8,182
5,031
5,342
6,563
1,477
6,074
7,322
6,877
4,383
7,883
4,089
6,815
8,024
6,212
5,938
9,393
2,392
7,927
7,460
3,692
8,472
12,892
4,642
3,524
7,275
9,839
10,168
9,191
6,721
6,987
518
806
548
767
509
1,336
1,283
1,205
1,039
8,173
3,323
2,109
1,362
618
449
190
1,559
1,544
1,298
1,530
387
401
1,535
2,190
2,046
782
553
1,180
153
910
351
575
1,232
1,248
549
986
1,308
1,149
1,547
944
985
762
—
1,805
7,271
(1,845)
4,614
—
6,056
(194)
—
1,928
(81)
166
(244)
5,134
(71)
203
8,651
4,239
(38)
144
1,259
—
2,646
111
—
2,250
—
—
—
—
—
—
—
—
—
—
11
385
—
—
145
—
129
5,900
7,581
17,840
—
10,509
6,593
9,410
6,156
9,590
12,910
15,743
6,198
7,938
10,165
5,246
6,766
10,128
10,313
7,284
7,021
5,642
7,883
6,735
6,926
8,024
8,462
5,938
9,393
2,392
7,927
7,460
3,692
8,472
12,892
4,642
3,524
7,286
10,224
10,168
9,191
6,866
6,987
6,418
8,387
18,388
767
11,018
7,929
10,693
7,361
10,629
21,083
19,066
8,307
9,300
10,783
5,695
6,956
11,687
11,857
8,582
8,551
6,029
8,284
8,270
9,116
10,070
9,244
6,491
10,573
2,545
8,837
7,811
4,267
9,704
14,140
5,191
4,510
8,594
11,373
11,715
10,135
7,851
7,749
(632)
(598)
(1,729)
—
(682)
(536)
(446)
(563)
(1,074)
(742)
(1,056)
(425)
(665)
(620)
(352)
(349)
(350)
(477)
(345)
(261)
(178)
(433)
(273)
(341)
(158)
(310)
(125)
(470)
(77)
(49)
(151)
(62)
(88)
(83)
(45)
(450)
(739)
(807)
(615)
(828)
(616)
(882)
03/13
03/13
04/13
04/13
05/13
05/13
05/13
06/13
07/13
07/13
10/13
12/13
12/13
02/14
03/14
04/14
05/14
05/14
07/14
08/14
09/14
02/15
02/15
01/15
04/15
03/15
05/15
06/15
09/15
09/15
11/15
12/15
01/16
04/16
04/16
03/13
06/13
08/13
09/13
09/13
09/13
01/14
30 years
40 years
30 years
n/a
40 years
40 years
40 years
40 years
40 years
40 years
30 years
30 years
40 years
40 years
30 years
40 years
30 years
40 years
40 years
40 years
40 years
40 years
30 years
40 years
30 years
40 years
30 years
30 years
40 years
40 years
30 years
30 years
40 years
40 years
40 years
30 years
30 years
40 years
30 years
30 years
30 years
30 years
Location
Gilbert, AZ
Cedar Park, TX
Thornton, CO
Chicago, IL
Centennial, CO
McKinney, TX
Parker, CO
Littleton, CO
Lakewood, CO
Castle Rock, CO
Arvada, CO
Emeryville, CA
Lafayette, CO
Maple Grove, MN
Carmel, IN
Atlanta, GA
Atlanta, GA
Louisville, KY
Louisville, KY
Louisville, KY
Bala Cynwyd, PA
Private Schools
San Jose, CA
Brooklyn, NY
Chicago, IL
McLean, VA
Mission Viejo, CA
Ski Areas
Bellfontaine, OH
Tannersville, PA
McHenry, MD
Wintergreen, VA
Waterparks
Tannersville, PA
Golf Entertainment Complexes
Colony, TX
Allen, TX
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
Total
Accumulated
depreciation
Date
acquired
Depreciation
life
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,295
1,520
1,384
1,294
1,249
1,812
279
467
291
250
224
1,814
293
3,743
1,567
956
1,262
377
216
481
1,785
9,966
—
3,057
12,792
1,378
5,108
34,940
8,394
5,739
9,192
10,500
10,542
4,375
10,771
12,419
1,017
1,248
823
1,646
788
5,780
663
14,927
12,854
1,850
2,038
1,526
1,006
2,050
3,759
25,535
46,440
46,784
43,472
3,687
5,994
34,629
15,910
16,126
—
(402)
—
—
534
—
—
—
—
—
—
—
47
—
—
—
—
—
—
—
—
—
417
—
—
—
8,441
913
3,207
—
1,295
1,278
1,384
1,294
1,249
1,812
279
467
291
250
224
1,814
293
3,743
1,567
956
1,262
377
216
481
1,785
9,966
—
3,057
12,792
1,378
5,251
34,940
9,708
5,739
9,192
10,340
10,542
4,375
11,305
12,419
1,017
1,248
823
1,646
788
5,780
710
14,927
12,854
1,850
2,038
1,526
1,006
2,050
3,759
25,535
46,857
46,784
43,472
3,687
14,292
35,542
17,803
16,126
10,487
11,618
11,926
5,669
12,554
14,231
1,296
1,715
1,114
1,896
1,012
7,594
1,003
18,670
14,421
2,806
3,300
1,903
1,222
2,531
5,544
35,501
46,857
49,841
56,264
5,065
19,543
70,482
27,511
21,865
(673)
(506)
(308)
(24)
(514)
(473)
(71)
(80)
(52)
(101)
(50)
(161)
(46)
(282)
(87)
(77)
(85)
(21)
(14)
(6)
(10)
(1,922)
(2,077)
(1,754)
(364)
(41)
(2,975)
(8,754)
(4,465)
(1,747)
03/14
07/14
07/14
07/14
08/14
11/14
01/15
01/15
01/15
01/15
01/15
03/15
04/15
08/15
09/15
10/15
10/15
08/16
08/16
12/16
12/16
12/13
12/13
02/14
06/15
09/16
11/05
09/13
12/12
02/15
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
30 years
40 years
40 years
40 years
40 years
30 years
40 years
40 years
40 years
40 years
—
120,354
—
—
120,354
120,354
(4,263)
05/15
40 years
4,004
—
13,665
10,007
(240)
1,151
4,004
—
13,425
11,158
17,429
11,158
(1,007)
(1,776)
12/12
02/12
40 years
29 years
130
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
Location
Dallas, TX
Houston, TX
Alpharetta, GA
Scottsdale, AZ
Spring, TX
San Antonio, TX
Tampa, FL
Gilbert, AZ
Overland Park, KS
Centennial, CO
Atlanta, GA
Ashburn VA
Naperville, IL
Oklahoma City, OK
Webster, TX
Virginia Beach, VA
Edison, NJ
Jacksonville, FL
Roseville, CA
Portland, OR
Other
Kiamesha Lake, NY
Property under development
Land held for development
Senior unsecured notes payable and
term loan
Less: deferred financing costs, net
Initial cost
Buildings,
Equipment &
improvements
Additions
(Dispositions)
(Impairments)
Subsequent to
acquisition
Debt
Land
Gross Amount at December 31, 2016
Buildings,
Equipment &
Improvements
Land
Total
Accumulated
depreciation
Date
acquired
Depreciation
life
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,315,000
(29,320)
—
—
5,608
—
4,928
—
—
4,735
5,519
3,013
8,143
—
8,824
3,086
5,631
6,948
—
6,732
6,868
—
155,658
297,110
22,530
—
—
10,007
12,403
16,616
16,942
14,522
15,976
15,726
16,130
17,330
19,106
17,289
16,873
20,279
16,421
17,732
18,715
22,792
21,823
23,959
23,466
—
—
—
—
—
1,771
394
—
—
—
—
(67)
(267)
—
403
—
—
(665)
(252)
1,220
296
—
—
—
—
—
—
—
—
—
—
—
5,608
—
4,928
—
—
4,735
5,519
3,013
8,143
—
8,824
3,086
5,631
6,948
—
6,732
6,868
—
155,658
297,110
22,530
—
—
11,778
12,797
16,616
16,942
14,522
15,976
15,659
15,863
17,330
19,509
17,289
16,873
19,614
16,169
18,952
19,011
22,792
21,823
23,959
23,466
—
—
—
—
—
11,778
12,797
22,224
16,942
19,450
15,976
15,659
20,598
22,849
22,522
25,432
16,873
28,438
19,255
24,583
25,959
22,792
28,555
30,827
23,466
155,658
297,110
22,530
—
—
02/12
09/12
05/13
06/13
07/13
12/13
02/14
02/14
05/14
06/14
06/14
06/14
08/14
09/14
11/14
12/14
04/15
09/15
10/15
11/15
07/10
n/a
n/a
n/a
30 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
40 years
30 years
40 years
n/a
n/a
n/a
n/a
(1,778)
(1,334)
(1,038)
(1,059)
(968)
(732)
(824)
(793)
(642)
(645)
(612)
(562)
(654)
(606)
(530)
(472)
—
(129)
(176)
(232)
—
—
—
—
—
Total
$ 2,485,625
$ 1,240,264
$
3,008,117
$
302,556
$ 1,237,388
$
3,313,549
$ 4,550,937
$
(635,535)
131
EPR Properties
Schedule III - Real Estate and Accumulated Depreciation (continued)
Reconciliation
(Dollars in thousands)
December 31, 2016
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.
$
$
$
$
3,962,032
613,311
(24,406)
4,550,937
534,303
105,121
(3,889)
635,535
132
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.
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 the Committee of Sponsoring Organizations of the Treadway
Commission. 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, 2016. 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.
133
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, 2016, 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, 2016, 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, 2016 and 2015, 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, 2016, and our report dated February 28, 2017 expressed an unqualified
opinion on those consolidated financial statements.
Kansas City, Missouri
February 28, 2017
134
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 31, 2017 (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.
135
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, 2016 and 2015
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and
2014
Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
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)
Item 16. Form 10-K Summary
None.
136
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 28, 2017
By /s/ Gregory K. Silvers
EPR Properties
Gregory K. Silvers, President and Chief Executive
Officer (Principal Executive 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, Executive Vice President, Chief
Financial Officer and Treasurer (Principal Financial
Officer)
Date
February 28, 2017
February 28, 2017
February 28, 2017
/s/ Tonya L. Mater
February 28, 2017
Tonya L. Mater, Vice President and Chief Accounting
Officer (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
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
137
Subsidiary
Jurisdiction of Incorporation or Formation
Subsidiaries of the Company
EXHIBIT 21
3 Theatres, Inc.
30 West Pershing, LLC
Adelaar Developer, LLC
Adelaar Developer II, LLC
Atlantic - EPR I
Atlantic - EPR II
Burbank Village, Inc.
Burbank Village, LP
Cantera 30, Inc.
Cantera 30 Theatre, LP
Cinescape Equity, LLC
Cinescape Mezz, LLC
Cinescape Property, LLC
Early Childhood Education, LLC
ECE I, LLC
ECE II, LLC
ECS Douglas I, LLC
Education Capital Solutions, LLC
EPR Apex, Inc.
EPR Camelback, LLC
EPR Canada, Inc.
EPR Concord II, L.P.
EPR Escape, LLC
EPR Fitness, LLC
EPR Gaming Properties, LLC
EPR Hialeah, Inc.
EPR Karting, 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 Parks, LLC
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
EPT 301, LLC
Missouri
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Ontario
British Columbia
British Columbia
Ontario
Ontario
Kansas
Delaware
Delaware
Delaware
Delaware
Missouri
Missouri
Missouri
Missouri
Missouri
Delaware
Missouri
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 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.
EPT Pensacola, Inc.
EPT Pompano, Inc.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
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
Missouri
Delaware
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.
International Hotel Ventures, Inc.
Kanata Entertainment Holdings, Inc.
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
Tampa Veterans 24, Inc.
Tampa Veterans 24, LP
Theatre Sub, Inc.
WestCol Center, LLC
Whitby Entertainment Holdings, Inc.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Louisiana
Delaware
New Brunswick
Delaware
Missouri
Missouri
New Brunswick
New Brunswick
New York
New Brunswick
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
New Brunswick
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 (Nos. 333-211813 and 333-211812) on Form S-3, the
registration statements (Nos. 333-215099 and 333-78803) on Form S-4, and the registration statements (Nos. 333-211815,
333-189028, 333-159465, 333-142831, and 333-76625) on Form S-8 of EPR Properties of our reports dated February 28, 2017,
with respect to the consolidated balance sheets of EPR Properties and subsidiaries as of December 31, 2016 and 2015, 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, 2016, 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, 2016, which reports appear in the December 31,
2016 annual report on Form
of EPR Properties.
Kansas City, Missouri
February 28, 2017
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 28, 2017
/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 28, 2017
/s/ Mark A. Peterson
Mark A. Peterson
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial 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, 2016 (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 28, 2017
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, Executive 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, 2016 (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
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial
Officer)
Date: February 28, 2017
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