CORPORATE INFORMA TION
BOARD OF TRUSTEES
EXECUTIVE OFFI CERS
ROBERT J. DRUTEN
Chairman of the Board of Tr ustees
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
CRAIG L. EVANS
Senior Vice President, General Counsel & Secretary
MICHAEL L. HIRONS
Senior Vice President – Strategy and Asset Management
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), June 1, 2018, 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
For further information regarding
EPR Proper ties, 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@epr kc.com
INDEPENDENT
AUDITORS
KPMG LLP
1000 Walnut Street
Suite 1000
Kansas City, MO 64106
F OR ACCESS TO ADDI TIONAL FIN ANCIA L INFORMATION, VISIT OUR WEB SITE AT
WWW.E PRKC.COM
LETTER FROM THE PRESIDENT
DEAR FELLOW SHAREHOLDER:
In 2017 we celebrated our 20th anniversary as a public company and we were
pleased to announce another record-breaking year of financial performance.
In reflecting on the history of the Company, it’s heartening to note how we’ve
grown from a company solely focused on movie theatre properties, to one which
has evolved to three primary investment segments as our growth platforms.
TOTAL INVESTMENTS *
(IN BILLIONS)
FOCUSED GROWTH
$6.7
OTHER
RECREATION
EDUCATION
ENTERTAINMENT
$3.1
$3.0
$3.2
$2.7
$2.8
$2.3
$5.3
$4.6
$4.0
$3.6
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
* Total Investments is a Non-GAAP financial measure. See investor supplemental
for quarter ended December 31, 2017 or Form 10-K’s as applicable for
reconciliation of certain Non-GAAP financial measures.
Throughout our history we have remained focused on
highly enduring and differentiated assets that have a
strong experiential orientation. This focus provides
investors the opportunity to get exposure to durable
assets which have less correlation to more traditional
REIT’s, offering a measure of defense against migration
to the internet. Our long-term strategy has delivered
strong returns for our shareholders, as we’ve significantly
outperformed the RMS REIT Index and the Russell 1000.
As we look ahead, we have enormous confidence in the
EPR team and look forward to building on our success
over the next 20 years.
On the day of our IPO, the Company established an
equity market cap of $255 million and had total
investments of approximately $249 million. Formed as
Entertainment Properties Trust, the Company was the
first and only Real Estate Investment Trust (REIT)
focused on investing in movie theatres. Due to the
thought leadership, dedication and perseverance of
our team, 20 years later, the Company had an equity
market cap of over $5 billion and total investments of
over $6.7 billion at the end of 2017.
We are thankful to the employees, tenants and
shareholders who have helped make this anniversary
possible. We are here today because of the insightful
people who recognized the opportunity that existed
outside the traditional REIT assets and those that
believed in them.
LIFETIME TOTAL RETURN TO SHAREHOLDERS
LONG-TERM OUTPERFORMANCE
EPR - 1,417%
MSCI US REIT (RMS) - 469%
RUSSELL 1000 - 332%
1997
2017
Source: SNL
Lifetime Data - 11/18/1997 to 12/29/2017
EDUCATION
Safe, attractive, purpose-built facilities are important to the success
of any school. Significant demand continues to grow across our
Education portfolio for facilities which meet the increasing demands
of the communities and the young minds they serve. We now have
145 properties in the Education segment, with our public charter
school facilities serving over 40,000 students.
As the anchor asset type in our Education portfolio, public charter
schools continue to demonstrate a very strong growth profile.
While there are over 3 million students attending 6,900 schools,
the wait lists to get into a public charter school remain at over
1 million students. Separately, the multi-year growth in our private
school portfolio reflects the potential associated with delivering
strong academic options in high demand locations.
During the year we invested $255 million
in our Education segment and at year end
Education assets constituted 21% of our
total investments.
FINANCIAL REVIEW
LETTER FROM THE PRESIDENT
LETTER FROM THE PRESIDENT
2017 OVERVIEW: DELIVERING RECORD REVENUE, EARNINGS, INVESTMENT SPENDING
In 2017 our top line revenue grew 17% to a record level of $576 million, along with a 4% increase in FFO as adjusted per share of
$5.02. Our total investment spending of $1.6 billion was highlighted by our $730 million CNL Lifestyle transaction. This transaction
added high quality assets and further diversified our tenants and geographies. At the end of 2017 our total investments stood at
over $6.7 billion and included 395 locations in 43 states, D.C. & Canada.
ENTERTAINMENT
In 2017 Box Office revenues softened a bit versus prior year as predicted.
However, this softness followed two record years in which box office increased by
approximately 10%. Year-to-year box office results are content driven. With that
said, the studios have a very successful track record of delivering this content
with year-to-year box office performance increasing in 14 of the last 20 years.
We continue to see strong investment opportunities in theatres as consumers have
fully embraced the new expanded amenity theatre experience and movie-going
remains the most popular out-of-home entertainment activity.
Family Entertainment Centers (FECs) remain an area of opportunistic growth.
Concepts such as Punch Bowl Social, Pinstripes and Main Event include everything
from upscale bowling and bocce eateries to retro-themed gathering spots
designed to appeal to socially-motivated millennials. As millennials continue to
fuel change in the industry by their emphasis on experiences, operators are
creatively combining eating and entertainment options in one location.
During the year we invested $320 million
in our Entertainment segment and at
year end Entertainment assets
constituted 44% of our total investments.
FINANCIAL STRATEGY
We continue to take a conservative approach with our balance sheet, maintaining our investment grade discipline.
This orientation has allowed us to deliver strong and consistent earnings and dividend growth.
RECREATION
In April we completed the $730 million CNL Lifestyle transaction, making it
the largest transaction in the Company’s history. This transaction included the
acquisition of the Northstar California Resort and 15 Attractions (Waterparks
and Amusement Parks). Additionally, we provided $251 million of secured
debt financing to Och-Ziff Real Estate, for its purchase of 14 CNL Lifestyle ski
properties valued at $375 million. This transaction was the culmination of a
two-year process and allowed us to significantly enhance our Recreation
portfolio using substantially all equity to fund the investments.
During the year both our Ski and Attractions Portfolios demonstrated solid
performance, in line with expectations and delivering on the long-term
durability for which they are known. Additionally, our ski properties continue
to expand their operations to offer year-round activities. Amenities such as
alpine slides, ziplines and rope courses leverage the natural contour of the
land and existing infrastructure, providing activities for visitors all year to
create new revenue streams.
Our Topgolf properties continue to enjoy strong consumer acceptance and
operating performance. The core of the Topgolf proposition is people seeking
active entertainment, which they deliver through a unique experience of an
age-old sport and an engaging social setting which appeals to golfers and
non-golfers alike.
LOW LEVERAGE
DEBT STRATEGY
Committed to a range
Target of ~60% equity/
of 4.6x-5.6x Net Debt
to Adjusted EBITDA **
~40% debt ratio based
on gross assets at cost
Focus on unsecured,
Unsecured Debt = 99%
fixed rate debt and
managing maturities
No debt maturities until 2022
Fixed ratio debt = 91% ***
Weighted average = 4.8% ***
CAPITAL STRUCTURE *
(IN MILLIONS)
GROWTH
SECURED
DEBT, $37
1%
59%
COMMON
EQUITY, $4,852
36%
4%
UNSECURED
DEBT, $3,029
PREFERRED
EQUITY, $371
TOTAL MARKET CAPITALIZATION: $8.2B
TOTAL EQUITY: $5.2B TOTAL DEBT: $3.0B
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
STRONG EARNINGS GROWTH
DRIVING STRONG DIVIDEND GROWTH
F F OA A p e r s h a r e * * C AG R 7 %
D i v i d e n d p e r s h a r e C AG R 7 %
* As of December 31, 2017.
*** Includes impact of interest rate swap agreements.
** See investor supplemental for quarter ended December 31, 2017 or Form 10-K’s as applicable for definitions and reconciliations of certain Non-GAAP financial measures.
2013
2014
2015
2016
2017
D IVI DE N D PER S HA RE
FFOAA P ER SH A RE **
During the year we invested $1.0 billion
in our Recreation segment and at year
end Recreation assets constituted
32% of our total investments.
believed in them.
2017 OVERVIEW: DELIVERING RECORD REVENUE, EARNINGS, INVESTMENT SPENDING
In 2017 our top line revenue grew 17% to a record level of $576 million, along with a 4% increase in FFO as adjusted per share of
$5.02. Our total investment spending of $1.6 billion was highlighted by our $730 million CNL Lifestyle transaction. This transaction
added high quality assets and further diversified our tenants and geographies. At the end of 2017 our total investments stood at
over $6.7 billion and included 395 locations in 43 states, D.C. & Canada.
ENTERTAINMENT
In 2017 Box Office revenues softened a bit versus prior year as predicted.
However, this softness followed two record years in which box office increased by
approximately 10%. Year-to-year box office results are content driven. With that
said, the studios have a very successful track record of delivering this content
with year-to-year box office performance increasing in 14 of the last 20 years.
We continue to see strong investment opportunities in theatres as consumers have
fully embraced the new expanded amenity theatre experience and movie-going
remains the most popular out-of-home entertainment activity.
Family Entertainment Centers (FECs) remain an area of opportunistic growth.
Concepts such as Punch Bowl Social, Pinstripes and Main Event include everything
from upscale bowling and bocce eateries to retro-themed gathering spots
designed to appeal to socially-motivated millennials. As millennials continue to
fuel change in the industry by their emphasis on experiences, operators are
creatively combining eating and entertainment options in one location.
On the day of our IPO, the Company established an
equity market cap of $255 million and had total
investments of approximately $249 million. Formed as
Entertainment Properties Trust, the Company was the
first and only Real Estate Investment Trust (REIT)
focused on investing in movie theatres. Due to the
thought leadership, dedication and perseverance of
our team, 20 years later, the Company had an equity
market cap of over $5 billion and total investments of
over $6.7 billion at the end of 2017.
We are thankful to the employees, tenants and
shareholders who have helped make this anniversary
possible. We are here today because of the insightful
people who recognized the opportunity that existed
outside the traditional REIT assets and those that
believed in them.
LETTER FROM THE PRESIDENT
LETTER FROM THE PRESIDENT
EDUCATION
Safe, attractive, purpose-built facilities are important to the success
of any school. Significant demand continues to grow across our
Education portfolio for facilities which meet the increasing demands
of the communities and the young minds they serve. We now have
145 properties in the Education segment, with our public charter
school facilities serving over 40,000 students.
As the anchor asset type in our Education portfolio, public charter
schools continue to demonstrate a very strong growth profile.
While there are over 3 million students attending 6,900 schools,
the wait lists to get into a public charter school remain at over
1 million students. Separately, the multi-year growth in our private
school portfolio reflects the potential associated with delivering
strong academic options in high demand locations.
During the year we invested $255 million
in our Education segment and at year end
Education assets constituted 21% of our
total investments.
FINANCIAL REVIEW
During the year we invested $320 million
in our Entertainment segment and at year
end Entertainment assets constituted
44% of our total investments.
RECREATION
In April we completed the $730 million CNL Lifestyle transaction, making it
the largest transaction in the Company’s history. This transaction included the
acquisition of the Northstar California Resort and 15 Attractions (Waterparks
and Amusement Parks). Additionally, we provided $251 million of secured
debt financing to Och-Ziff Real Estate, for its purchase of 14 CNL Lifestyle ski
properties valued at $375 million. This transaction was the culmination of a
two-year process and allowed us to significantly enhance our Recreation
portfolio using substantially all equity to fund the investments.
During the year both our Ski and Attractions Portfolios demonstrated solid
performance, in line with expectations and delivering on the long-term
durability for which they are known. Additionally, our ski properties continue
to expand their operations to offer year-round activities. Amenities such as
alpine slides, ziplines and rope courses leverage the natural contour of the
land and existing infrastructure, providing activities for visitors all year to
create new revenue streams.
Our Topgolf properties continue to enjoy strong consumer acceptance and
operating performance. The core of the Topgolf proposition is people seeking
active entertainment, which they deliver through a unique experience of an
We continue to take a conservative approach with our balance sheet, maintaining our investment grade discipline.
This orientation has allowed us to deliver strong and consistent earnings and dividend growth.
FINANCIAL STRATEGY
LOW LEVERAGE
DEBT STRATEGY
Committed to a range
of 4.6x-5.6x Net Debt
to Adjusted EBITDA **
Target of ~60% equity/
~40% debt ratio based
on gross assets at cost
Focus on unsecured,
fixed rate debt and
managing maturities
Unsecured Debt = 99%
No debt maturities until 2022
Fixed ratio debt = 91% ***
Weighted average = 4.8% ***
CAPITAL STRUCTURE *
(IN MILLIONS)
GROWTH
SECURED
DEBT, $37
1%
59%
COMMON
EQUITY, $4,852
36%
4%
UNSECURED
DEBT, $3,029
PREFERRED
EQUITY, $371
TOTAL MARKET CAPITALIZATION: $8.2B
TOTAL EQUITY: $5.2B TOTAL DEBT: $3.0B
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
STRONG EARNINGS GROWTH
DRIVING STRONG DIVIDEND GROWTH
F F OA A p e r s h a r e * * C AG R 7 %
D i v i d e n d p e r s h a r e C AG R 7 %
2013
2014
2015
DIVI DEND PER SHARE
2016
FFOAA PER SHARE **
2017
age-old sport and an engaging social setting which appeals to golfers and
* As of December 31, 2017.
non-golfers alike.
** See investor supplemental for quarter ended December 31, 2017 or Form 10-K’s as applicable for definitions and reconciliations of certain Non-GAAP financial measures.
*** Includes impact of interest rate swap agreements.
During the year we invested $1.0 billion
in our Recreation segment and at year
end Recreation assets constituted
32% of our total investments.
LETTER FROM THE PRESIDENT
LETTER FROM THE PRESIDENT
LOOKING FORWARD
I want to reiterate that the fundamentals of our segments remain strong and our
opportunities within those segments are solid and growing. However, we are
fundamentally capital allocators and we take that responsibility seriously. We
recognize that we are in the late innings of a multi-year real estate cycle, and our
focus in 2018 will be on capital recycling.
At the present stage of the cycle, capital markets are anticipating a rising interest
rate environment which, together with other economic uncertainties, has
increased the cost of capital for real estate investors and fostered a dislocation
between public and private real estate valuations. However, we are confident
that this dislocation will not persist and asset prices will, over time, realign
with public capital prices and we will once again become more acquisitive.
We want to express our sincere appreciation to our employees, shareholders
and tenants. Without each of you, we could not have produced the
outstanding record of achievement we celebrated last year.
As we look forward to 2018 and beyond, we are excited about our
opportunities, knowing that we are in the right assets, that we have the right
team to identify those assets, and that those assets will produce long-term
cash flows and returns that our shareholders value.
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, 2017
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
5.75% Series G 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, a smaller reporting company, or emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule
12b-2 of the Exchange Act.
No
No
No
Large accelerated file
r
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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 $5,341,162,143.
At February 27, 2018, there were 74,316,991 common shares outstanding.
No
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2018 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:
• 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 canceled;
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;
• The ability of our build-to-suit education tenants to achieve sufficient enrollment within expected timeframes
and therefore have capacity to pay their agreed upon rent, including the ability of our early education tenant,
Children's Learning Adventure, to successfully negotiate a restructuring and secure capital necessary to achieve
positive cash flow;
• 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 our level of indebtedness;
• 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;
i
Fluctuations in the value of real estate income and investments;
Financing arrangements that expose us to funding or purchase risks;
•
• Our reliance on a limited number of employees, the loss of which could harm operations;
• Risks associated with security breaches and other disruptions;
• 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
39
40
PART II............................................................................................................................................................
41
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.
41
44
46
69
71
136
136
137
PART III...........................................................................................................................................................
137
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.
137
137
137
137
137
PART IV ..........................................................................................................................................................
137
Item 15.
Item 16.
Exhibits and Financial Statement Schedules ...............................................................
Form 10-K Summary ...................................................................................................
137
141
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, recreation and education properties. The underwriting
of our investments is centered on key industry and property cash flow criteria, as well as the credit metrics of our tenants
and customers. 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, 2017, our total assets were approximately $6.2 billion (after
accumulated depreciation of approximately $0.7 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 $6.7 billion at December 31, 2017. 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, 2017 and 2016. We group our investments into four
reportable operating segments: Entertainment, Recreation, Education and Other. Our total investments at December 31,
2017 consisted of interests in the following:
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•
•
•
$2.9 billion or 44% 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;
$2.2 billion or 32% related to recreation properties, which includes ski properties, attractions, golf
entertainment complexes and other recreation facilities;
$1.4 billion or 21% related to education properties, which consists of investments in public charter schools,
early education centers and K-12 private schools; and
$179.3 million or 3% related to other properties, which consists of the Resorts World Catskills (formerly
Adelaar) casino and resort project in Sullivan County, New York (excluding $50.6 million related to the Resorts
World Catskills indoor waterpark project included in recreation).
We believe entertainment, recreation and education 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 a changing 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.
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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 or pursuant to contractual rights of our tenants or our customers.
Entertainment
As of December 31, 2017, our Entertainment segment consisted of investments in megaplex theatres, entertainment
retail centers, family entertainment centers and other retail parcels totaling approximately $2.9 billion with interests
in:
•
•
•
•
•
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147 megaplex theatres located in 34 states;
seven entertainment retail centers (which included seven additional megaplex theatres) located in Colorado,
New York, California, and Ontario, Canada;
11 family entertainment centers located in Colorado, Georgia, Illinois, Indiana, Florida and Texas;
land parcels leased to restaurant and retail operators adjacent to several of our theatre properties;
$101.3 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, 2017, our owned real estate portfolio of megaplex theatres consisted of approximately 11.0 million
square feet and was 100% leased and our remaining owned entertainment real estate portfolio consisted of 2.0 million
square feet and was 96% leased. The combined owned entertainment real estate portfolio consisted of 13.1 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").
For the year ended December 31, 2017, approximately $114.4 million or 19.9% of the Company's total revenues were
derived from rental payments by AMC.
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 continues to reflect solid performance. Box office revenues reached a record high during 2016
and were less than 3% lower than that record in 2017, according to Box Office Mojo. 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
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in building new megaplex theatres 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.
Recreation
As of December 31, 2017, our Recreation segment consisted of investments in ski properties, attractions, golf
entertainment complexes and other recreation totaling approximately $2.2 billion with interests in:
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26 ski properties located in 6 states;
20 attractions located in 12 states;
30 golf entertainment complexes located in 17 states;
eight other recreation properties located in 6 states; and
$125.2 million in construction in progress for golf entertainment complexes and the development of an indoor
waterpark hotel at the Resorts World Catskills casino and resort project located in Sullivan County, New York.
As of December 31, 2017, our owned recreation real estate portfolio was 100% leased.
Our ski properties provide a sustainable advantage for the experience conscious consumer, providing outdoor
entertainment during the winter. All of the ski properties that serve as collateral for our mortgage notes in this area, as
well as our five owned properties, offer snowmaking capabilities and provide a variety of terrains and vertical drop
options. We believe that the primary appeal of our ski properties lies in the convenient and reliable experience consumers
can expect. Given that all of our ski properties 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 properties that do not have such
capabilities. Our ski properties are leased to, or we have mortgage notes receivable from, 10 different operators. We
expect to continue to pursue opportunities in this area.
Our attraction portfolio consists of waterparks and amusement parks, both of which draw a diverse segment of customers.
Our attraction operators continue to deliver innovative and compelling attractions along with high standards of service,
making our attractions a day of fun that's accessible for families, teens, locals and tourists. Waterparks and amusement
parks offer experiences designed to appeal to all ages while remaining accessible in both cost and proximity. 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. Our attraction properties are leased to, or we have mortgage notes receivable
from, seven different operators. 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
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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.
Our other recreation portfolio consists of both classic and innovative activities. This includes our investments in fitness
and wellness properties, as well as in new recreation properties such as iFly, which provides a unique indoor sky-diving
experience to its guests.
We will continue to seek opportunities for the development of, or acquisition of, other recreation related properties that
leverage our expertise in this area.
Education
As of December 31, 2017, our Education segment consisted of investments in public charter schools, early education
centers and K-12 private schools totaling approximately $1.4 billion with interests in:
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65 public charter schools located in 19 states and the District of Columbia;
65 early education centers located in 17 states;
15 private schools located in 10 states;
$25.5 million in construction in progress for real estate development or expansions of public charter schools
and early education centers; and
$12.4 million in undeveloped land inventory.
As of December 31, 2017, our owned education real estate portfolio consisted of approximately 4.2 million square feet
and was 92% leased. This reflects the termination of nine CLA leases, as further discussed in Item 7 – “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments”.
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. We have 45 different operators for our owned public
charter schools.
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 education centers and private schools is
supported by strong unmet demand, and we expect to increase our investment in both of these areas.
Early 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. 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.
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We believe K-12 private schools have significant growth potential when they 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.
Additionally, it is difficult to forecast when these options will be exercised, which can create volatility in our earnings.
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, 2017, we received prepayment of $3.4 million on one mortgage note receivable
that was secured by a public charter school located in Dallas, Texas and we received a prepayment fee of $0.6 million.
In addition, pursuant to tenant purchase options, we completed the sale of eight public charter schools located in
Colorado, Arizona, North Carolina and Utah for net proceeds totaling $97.3 million. In connection with these sales,
we recognized gains on sale of $20.7 million of which $20.0 million has been included in termination fees in FFO as
adjusted (a non-GAAP financial measure) per the methodology discussed above.
As of December 31, 2017, an estimate of the number of education properties potentially impacted by option exercises,
the total development cost and the total potential 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 Potential
Termination Fees/
Prepayment
Penalties in First
Option Period
2018
2019
2020
2021
2022
Thereafter
9
12
7
12
3
4
$
90,730
$
136,013
51,154
92,587
35,228
155,888
17,200
24,051
9,300
19,475
5,692
22,746
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Other
As of December 31, 2017, our Other segment consisted primarily of land under ground lease, property under
development and land held for development totaling approximately $179.3 million related to the Resorts World Catskills
casino and resort project in Sullivan County, New York, which we previously referred to as the Adelaar casino and
resort project. Our ground lease tenant is expected to invest in excess of $920.0 million in the construction of the casino
and resort project, and it first opened for business in February 2018.
Business Objectives and Strategies
Our vision is to become the leading specialty REIT by focusing our unique knowledge and resources on select 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, Recreation and Education. 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
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• 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
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• Tenants with a reliable track record of customer service and satisfaction
Sustainable customer demand within the category despite a potential change in tenancy
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Attractive Economics
Initially accretive with escalating yield over time
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• Rent participation features which allow for participation in financial performance
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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
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• 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 are consistent with our growth
strategies. We generally do not begin development of a single-tenant property without a signed lease providing for
rental payments 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.
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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
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, recreation,
education and other specialty business operators and developers by providing capital for multiple properties on a
regional, national and international 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, recreation, education 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. Additionally, we utilize our ratio of net debt to gross assets as a secondary measure to evaluate
our capital structure. 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. 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.
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.
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Payment of Regular Dividends
We pay dividend distributions to our common shareholders on a monthly basis (as opposed to a quarterly basis). 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 G
cumulative redeemable preferred shares ("Series G preferred shares") have a dividend rate of 5.75%. 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, recreation, education and other specialty properties as new properties are developed or become available
for acquisition.
Employees
As of December 31, 2017, we had 63 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
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,
the formal notice by the United Kingdom in March 2017 of its 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
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has continued to improve, 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 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 properties and attractions represent some of the largest market investments in our
portfolio; and AMC, Topgolf, Regal Cinemas, Inc. and Cinemark USA, Inc. represented our largest customers for the
year ended December 31, 2017. 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. 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 increased its benchmark interest rate multiple times in 2017 and has continued signaling that
rates could continue to rise. 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 “Resorts World Catskills
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 Resorts World Catskills
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 Resorts World Catskills 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
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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.
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 Resorts World Catskills Project is largely dependent upon the successful development and
operation of the Resorts World Casino and Resort, which requires the Empire Project Parties to comply with the
terms of a gaming license. If Empire Resorts fails to satisfy its obligations under the gaming license, the Resorts
World Catskills Project 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 Resorts
World Catskills Casino and Resort, a key component of the Resorts World Catskills Project. On January 17, 2018, the
Resorts World Catskills Casino and Resort announced its plans to open the casino resort to the public on February 8,
2018. 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 Resorts World Catskills Project, as
well as additional and continuing regulatory conditions imposed by the Gaming Commission.
There can be no assurance that the Resorts World Catskills Casino and Resort will fully comply with the financial or
other conditions of the Gaming Facility License. In the event it fails to comply with the conditions of the Gaming
Facility License, the Resorts World Catskills Project 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 Resorts World Catskills 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 Resorts World Catskills 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 additional reimbursements of $23.9 million during the year
ended December 31, 2017, and we expect to receive an additional $21.0 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 Resorts World Catskills Project will not exceed our budgeted amounts
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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.
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.
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The base terms 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 terms 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 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
upon which AMC became responsible for Carmike's performance under its leases with us. For the year ended
December 31, 2017, approximately $114.4 million or 19.9% of our total revenues were derived from rental payments
by AMC (including rental payments for Carmike). AMC Entertainment, Inc. (“AMCE”) has guaranteed AMC's
performance under substantially all of their leases. We have diversified and expect to continue to diversify our real
estate portfolio by entering into lease transactions with a number of other leading operators or by acquiring or seeking
to acquire other properties. 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
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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
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.
Our build-to-suit education tenants may not achieve sufficient enrollment within expected timeframes and therefore
may not be able to pay their agreed upon rent, which could adversely affect our financial results.
A significant portion of our education investments include investments in build-to-suit projects. When construction is
completed for these projects, tenants may require some period of time to achieve full enrollment, and we may provide
them with lease terms that are more favorable to the tenant during this timeframe. Tenants that fail to achieve sufficient
enrollment within expected timeframes may be unable to pay their rent pursuant to the agreed upon lease terms or at
all. If we are required to restructure lease terms or take other action with respect to the applicable property, our financial
results may be impacted by lower lease revenues, recording an impairment loss, writing off rental amounts or otherwise.
During 2017, cash flow of Children’s Learning Adventure USA, LLC (“CLA”) was negatively impacted by challenges
brought on by its rapid expansion and related ramp up to stabilization and by adverse weather events in Texas during
the third quarter of 2017. During 2017, we participated in negotiations among CLA and other landlords regarding a
potential restructuring. Although negotiations are on-going and progress has been made toward a restructuring,
investments necessary to accomplish the restructuring have not yet been secured. Certain subsidiaries of CLA who are
tenants under our leases have filed Chapter 11 petitions in bankruptcy seeking the protections of the Bankruptcy Code.
We intend to pursue legal remedies to secure possession of these properties as expeditiously as possible. We believe
that the time it will take to achieve this outcome gives CLA ample opportunity to negotiate a restructuring which, if
successful, would obviate the need to evict CLA from these properties. There can be no assurances as to the ultimate
outcome of such a restructuring or our pursuit of our legal remedies with respect to these properties.
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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. Additionally, it can be difficult to forecast when tenants will exercise their purchase
option or borrowers will prepay, which can create volatility in our earnings.
Our indebtedness may affect our ability to operate our business and may have a material adverse effect on our
financial condition and results of operations.
We have a significant amount of indebtedness. As of December 31, 2017, we had total debt outstanding of approximately
$3.1 billion. Our indebtedness could have important consequences, such as:
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limiting our ability to obtain additional financing to fund our working capital needs, acquisitions, capital
expenditures or other debt service requirements or for other purposes;
limiting our ability to use operating cash flow in other areas of our business because we must dedicate a
substantial portion of these funds to service debt;
limiting our ability to compete with other companies who are not as highly leveraged, as we may be less
capable of responding to adverse economic and industry conditions;
restricting us from making strategic acquisitions, developing properties or exploiting business
opportunities;
restricting the way in which we conduct our business because of financial and operating covenants in the
agreements governing our existing and future indebtedness;
exposing us to potential events of default (if not cured or waived) under financial and operating covenants
contained in our debt instruments that could have a material adverse effect on our business, financial
condition and operating results;
increasing our vulnerability to a downturn in general economic conditions or in pricing of our investments;
negatively impacting our credit ratings; and
limiting our ability to react to changing market conditions in our industry and in our customers’ industries.
In addition to our debt service obligations, our operations require substantial investments on a continuing basis. Our
ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund
capital and non-capital expenditures necessary to meet our remaining commitments on existing projects and maintain
the condition of our assets, as well as to provide capacity for the growth of our business, depends on our financial and
operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive,
legal and other factors.
Subject to the restrictions in our unsecured revolving credit facility, our unsecured term loan facility and the debt
instruments governing our existing senior notes, we may incur significant additional indebtedness, including additional
secured indebtedness. Although the terms of our unsecured revolving credit facility, our unsecured term loan facility
15
and the debt instruments governing our existing senior notes contain restrictions on the incurrence of additional
indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness
incurred in compliance with these restrictions could be significant. If new debt is added to our current debt levels, the
risks described above could increase.
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 do not
have sufficient cash to pay principal and interest on the debt, we could default on our debt obligations. A small amount
of our debt financing is secured by mortgages on our properties and we may enter into additional secured mortgage
financing in the future. If we fail to meet our mortgage payments, the lenders could declare a default and foreclose on
those properties.
Most of our debt instruments contain balloon payments which may adversely impact our financial performance and
our ability to pay dividends.
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 involving our maximum total debt to total asset value; maximum
permitted investments; minimum tangible net worth; maximum secured debt to total asset value; maximum unsecured
debt to eligible unencumbered properties; minimum unsecured interest coverage; and minimum fixed charge coverage.
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
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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, recreation and education 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, recreation and education 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, recreation and education 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, recreation and education
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, recreation and education properties or, more particularly,
outside of megaplex theatre properties.
If we fail to qualify as a REIT, we would be taxed as a corporation, which would substantially reduce funds available
for payment of dividends to our shareholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be taxed as a corporation. We are organized
and believe we qualify as a REIT, and intend to operate in a manner that will allow us to continue to qualify as a REIT.
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 (the "Internal Revenue Code"), on which there are only limited judicial and
administrative interpretations, and depends on facts and circumstances not entirely within our control. In addition,
future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax
laws, the application of the tax laws to our qualification as a REIT or the federal income tax consequences of that
qualification.
If we were to fail to qualify as a REIT in any taxable year (including any prior taxable year for which the statute of
limitations remains open), we would face tax consequences that could substantially reduce the funds available for the
service of our debt and payment of dividends:
• 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
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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 limited guaranties of certain 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 63 full-time employees as of December 31, 2017 and, therefore, the impact we may feel from the loss of an
employee may be greater than the impact such a loss would have on a larger organization. We are dependent on the
efforts of the following individuals: Gregory K. Silvers, our President and Chief Executive Officer; Mark A. Peterson,
our 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; 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 and leases, 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
18
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;
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.
19
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.
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. In addition, the cost
of insurance protection against terrorist acts has risen dramatically over the years. 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, 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.
20
Retail centers are also subject to tenant turnover and fluctuations in occupancy rates, which could affect our operating
results. Multi-tenant retail centers also expose us to the risk of potential “CAM slippage,” which may occur when the
actual cost of taxes, insurance and maintenance at the property exceeds the CAM fees paid by tenants.
Failure to comply with the Americans with Disabilities Act and other laws could result in substantial costs.
Most of our properties must comply with the Americans with Disabilities Act (“ADA”). The ADA requires that public
accommodations reasonably accommodate individuals with disabilities and that new construction or alterations be
made to commercial facilities to conform to accessibility guidelines. Failure to comply with the ADA can result in
injunctions, fines, damage awards to private parties and additional capital expenditures to remedy noncompliance. Our
leases require the tenants to comply with the ADA.
Our properties are also subject to various other federal, state and local regulatory requirements. We do not know whether
existing requirements will change or whether compliance with future requirements will involve significant unanticipated
expenditures. Although these expenditures would be the responsibility of our tenants, if tenants fail to perform these
obligations, we may be required to do so.
Potential liability for environmental contamination could result in substantial costs.
Under federal, state and local environmental laws, we may be required to investigate and clean up any release of
hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or actual
responsibility, simply because of our current or past ownership of the real estate. If unidentified environmental problems
arise, we may have to make substantial payments, which could adversely affect our cash flow and our ability to service
our debt and pay dividends to our shareholders. This is because:
•
•
•
•
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
21
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.
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 properties 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 property 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 property. We
also own and finance attractions (including waterparks) 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.
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 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 encounter difficulties and incur substantial expenses in integrating 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;
• 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;
22
• we may incur construction costs in connection with developments, which may be higher than projected,
potentially making the project unfeasible or unprofitable;
• we may incur unanticipated capital expenditures in order to maintain or improve acquired properties;
• 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 incur adverse tax consequences if we fail to qualify as a REIT for U.S. federal income tax purposes
following an acquisition;
• we may be subject to risks associated with providing mortgage financing to third parties in connection with
transactions, including any default under such mortgage financing;
• we may face litigation or other claims in connection with, or as a result of, acquisitions, including claims
from terminated employees, tenants, former stockholders or other third parties;
•
the market price of our common shares, preferred shares and debt securities may decline, particularly if we
do not achieve the perceived benefits of any acquisition as rapidly or to the extent anticipated by securities
or industry analysts or if the effect of an acquisition on our financial condition, results of operations and
cash flows is not consistent with the expectations of these analysts;
• we may issue shares in connection with acquisitions resulting in dilution to our existing shareholders; and
• we may assume debt or other liabilities in connection with acquisitions.
In addition, there is no assurance that planned third-party financing related to development and acquisition opportunities
will be provided on a timely basis or at all, thus increasing the risk that such opportunities are delayed or fail to be
completed as originally contemplated. We may also abandon development or acquisition opportunities that we have
begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a
matter not consummated. In some cases, we may agree to lease or other financing terms for a development project in
advance of completing and funding the project, in which case we are exposed to the risk of an increase in our cost of
capital during the interim period leading up to the funding, which can reduce, eliminate or result in a negative spread
between our cost of capital and the payments we expect to receive from the project. Furthermore, our acquisitions of
new properties or companies will expose us to the liabilities of those properties or companies, some of which we may
not be aware at the time of acquisition. In addition, development of our existing properties presents similar risks. If a
development or acquisition is unsuccessful, either because it is not meeting our expectations or was not completed
according to our plans, we could lose our investment in the development or acquisition.
23
Risks That May Affect the Market Price of Our Shares
We cannot assure you we will continue paying cash dividends at current rates.
Our dividend policy is determined by our Board of Trustees. Our ability to continue paying dividends on our common
shares, to pay dividends on our preferred shares at their stated rates or to increase our common share dividend rate will
depend on a number of factors, including our liquidity, our financial condition and results of future operations, the
performance of lease and mortgage terms by our tenants and customers, our ability to acquire, finance and lease additional
properties at attractive rates, and provisions in our loan covenants. If we do not maintain or increase our common share
dividend rate, that could have an adverse effect on the market price of our common shares and possibly our preferred
shares. Furthermore, if the Board of Trustees decides to pay dividends on our common shares partially or substantially
all in common shares, that could have an adverse effect on the market price of our common shares and possibly our
preferred shares.
Market interest rates may have an effect on the value of our shares.
One of the factors that investors may consider in deciding whether to buy or sell our common shares or preferred shares
is our dividend rate as a percentage of our share price, relative to market interest rates. If market interest rates increase,
prospective investors may desire a higher dividend rate on our common shares or seek securities paying higher dividends
or interest.
Market prices for our shares may be affected by perceptions about the financial health or share value of our tenants
and mortgagors or the performance of REIT stocks generally.
To the extent any of our tenants or customers, or their competition, report losses or slower earnings growth, take charges
against earnings or enter bankruptcy proceedings, the market price for our shares could be adversely affected. The
market price for our shares could also be affected by any weakness in the performance of REIT stocks generally or
weakness in any of the sectors in which our tenants and customers operate.
Limits on changes in control may discourage takeover attempts which may be beneficial to our shareholders.
There are a number of provisions in our Declaration of Trust and Bylaws and under Maryland law and agreements we
have with others, any of 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:
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•
•
•
•
a staggered Board of Trustees that can be increased in number without shareholder approval;
a limit on beneficial ownership of our shares, which acts as a defense against a hostile takeover or acquisition
of a significant or controlling interest, in addition to preserving our REIT status;
the ability of the Board of Trustees to issue preferred or common shares, to reclassify preferred or common
shares, and to increase the amount of our authorized preferred or common shares, without shareholder approval;
limits on the ability of shareholders to remove trustees without cause;
requirements for advance notice of shareholder proposals at shareholder meetings;
provisions of Maryland law restricting business combinations and control share acquisitions not approved by
the Board of Trustees and unsolicited takeovers;
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;
24
•
•
•
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, 2017, our Series C preferred shares
are convertible, at each of the holder's option, into our common shares at a conversion rate of 0.3857 common shares
per $25.00 liquidation preference, which is equivalent to a conversion price of approximately $64.82 per common share
(subject to adjustment in certain events). Additionally, as of December 31, 2017, our Series E preferred shares are
convertible, at each of the holder's option, into our common shares at a conversion rate of 0.4616 common shares per
$25.00 liquidation preference, which is equivalent to a conversion price of approximately $54.16 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 G preferred shares may elect to convert some or all of their Series G preferred shares
into a number of our common shares per Series G 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) 0.7389 shares.
Depending upon the number of Series C, Series E and Series G preferred shares being converted at one time, a conversion
of Series C, Series E and Series G preferred shares could be dilutive to or otherwise adversely affect the interests of
holders of our common shares. In addition, we may issue a significant amount of equity securities in connection with
acquisitions or investments, with or without seeking shareholder approval, which could result in significant dilution to
our existing shareholders.
Future offerings of debt or equity securities, which may rank senior to our common shares, may adversely affect
the market price of our common shares.
If we decide to issue debt securities in the future, which would rank senior to our common shares, it is likely that they
will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
Additionally, any equity securities or convertible or exchangeable securities that we issue in the future may have rights,
preferences and privileges more favorable than those of our common shares and may result in dilution to owners of
our common shares. We and, indirectly, our shareholders, will bear the cost of issuing and servicing such securities.
Because our decision to issue debt or equity securities in any future offering will depend on market conditions and
other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Thus, holders of our common shares will bear the risk of our future offerings reducing the market price of our common
shares and diluting the value of their 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
25
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 with respect to tax laws, including proposals to adopt a flat tax or replace the income tax system
with a national sales tax or value-added tax.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act made many significant
changes to the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their
shareholders. Pursuant to this legislation, as of January 1, 2018, (1) the federal income tax rate applicable to corporations
is reduced to 21%, (2) the highest marginal individual income tax rate is reduced to 37%, and (3) the corporate alternative
minimum tax is repealed. In addition, individuals, estates and trusts may deduct up to 20% of certain pass-through
income, including ordinary REIT dividends that are not “capital gain dividends” or “qualified dividend income,” subject
to complex limitations. For taxpayers qualifying for the full deduction, the effective maximum tax rate on ordinary
REIT dividends would be 29.6% (through taxable years ending in 2025). The maximum rate of withholding with respect
to our distributions to non-U.S. shareholders that are treated as attributable to gains from the sale or exchange of U.S.
real property interests is also reduced from 35% to 21%. The deduction of net interest expense is limited for all businesses,
other than certain electing businesses, including real estate businesses, which limitation could adversely affect our
taxable REIT subsidiaries.
While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive
changes to non-REIT provisions in the Internal Revenue Code may have unanticipated effects on us or our shareholders.
Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount
of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification
and unintended consequences that will have to be reviewed in subsequent tax legislation. At this point, it is not clear
when Congress will address these issues or when the Internal Revenue Service will be able to issue administrative
guidance on the changes made in the Tax Cuts and Jobs Act.
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.
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Item 2. Properties
As of December 31, 2017, 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 147 megaplex
theatre properties, seven entertainment retail centers (which include seven additional megaplex theatre properties) and
11 family entertainment centers. The Recreation segment included investments in 26 ski properties, 20 attractions, 30
golf entertainment complexes and eight other recreation properties. The Education segment included investments in
65 public charter school properties, 65 early education centers and 15 private school properties. The Other segment
consisted primarily of the land under ground lease, property under development and land held for development related
to the Resorts World Catskills casino and resort project in Sullivan County, New York. Our properties are located in
42 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 (except for certain attraction properties where such number is not meaningful), and the tenant.
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Location
Entertainment Properties:
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
San Antonio, TX
Dallas, TX
Sugar Land, TX (1)
Leawood, KS
Omaha, NE
Columbus, OH (1)
San Diego, CA (1)
Ontario, CA
Houston, TX
Creve Coeur, MO
San Antonio, TX
Houston, TX
South Barrington, IL
Mesquite, TX
Hampton, VA
Raleigh, NC
Davie, FL
Pompano Beach, FL
Aliso Viejo, CA
Boise, ID (1)
Woodridge, IL (2)
Tampa, FL
Westminster, CO
Cary, NC
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
New Rochelle, NY
New Rochelle, NY
Columbia, SC
Hialeah, FL
Phoenix, AZ
Mesa, AZ
Hamilton, NJ
Mississagua, ON (6)
Kanata, ON (6)
Whitby, ON (6)
Oakville, ON (6)
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
6/99
6/99
6/99
12/99
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
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
82,000 AMC
84,000 AMC
89,260 AMC
77,475 Regal
7,808 Various
138,051 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
Southern
66,400
112,119 AMC
19,852 Various
42,497 Regal
102,267 Regal
343,809 Various
56,705 Regal
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
4,737,831
2,722
2,962
4,367
962
4,668
4,461
4,173
2,350
4,925
1,029
—
5,115
2,069
3,095
4,673
2,596
4,180
3,424
4,238
4,883
4,397
2,124
4,693
3,883
—
—
2,127
4,116
1,530
1,766
3,053
2,814
4,925
4,191
—
3,604
3,640
3,997
2,950
5,962
—
2,386
4,893
—
2,938
4,900
1,783
1,257
4,183
3,856
4,764
4,688
4,772
167,084
14
14
24
20
24
24
20
20
30
16
—
29
21
30
24
16
24
18
20
22
18
24
24
20
—
—
11
20
10
10
16
16
30
28
—
20
22
18
16
20
—
12
18
—
14
18
17
14
24
16
24
24
24
938
28
Location
Entertainment Properties:
Subtotal from previous page
Mississagua, ON (6)
Kanata, ON (6)
Whitby, ON (6)
Oakville, ON (6)
Lafayette, LA (1)
Peoria, IL
Warrenville, IL
Hurst, TX
D'Iberville, MS
Melbourne, FL
Wilmington, NC
Chattanooga, TN
Burbank, CA
Burbank, CA
Conroe, TX
Indianapolis, IN
Hattiesurg, MS
Arroyo Grande, CA
Auburn, CA
Fresno, CA
Modesto, CA (1)
Columbia, MD (1)
Garland, TX (3)
Garner, NC
Winston Salem, NC (1)
Huntsville, AL
Kalamazoo, MI
Slidell, LA (1) (4)
Pensacola, FL
Panama City Beach, FL
Kalispell, MT
Greensboro, NC (1)
Glendora, CA (1)
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
Tenant
Building
(gross sq. ft)
4,737,831
115,934 Various
384,373 Various
149,487 Various
140,830 Various
61,579
82,330 AMC
Southern
Southern
Southern
Southern
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
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 AMC
62,300
74,400 AMC
75,605
Southern
44,650 Cinemark
74,517
Southern
50,710 AMC
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
8,831,098
Acquisition
date
Screens
Seats
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
8/07
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
6/10
6/10
6/10
167,084
—
—
—
—
2,744
4,063
—
3,914
2,802
3,600
1,165
4,133
3,809
—
2,403
942
2,675
1,714
1,563
3,866
3,866
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
306,001
938
—
—
—
—
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
1,634
29
Location
Entertainment Properties:
Acquisition
date
Screens
Seats
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
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) (4)
New Iberia, LA (1) (4)
San Francisco, CA
Tuscaloosa, AL (1)
Warrenville, IL (2)
Tampa, FL
Warrenville, IL
Opelika, AL
Bedford, IN
Seymour, IN
Wilder, KY
Bowling Green, KY
New Albany, IN
Clarksville, TN
Williamsport, PA
Noblesville, IN
Moline, IL
O'Fallon, MO
McDonough, GA
Virginia Beach, VA
Yulee, FL
Schaumburg, IL
Jacksonville, FL
Denham Springs, LA (1)
Crystal Lake, IL
Laredo, TX
Corpus Christi, TX
Marietta, GA
Stapleton, CO
Orlando, FL
Delmont, PA
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
2/15
2/15
4/15
5/15
5/15
7/15
12/15
12/15
2/16
5/16
5/16
6/16
Subtotal Entertainment Properties, carried over to next page
306,001
2,654
4,369
2,603
2,999
3,156
4,654
1,612
2,649
2,101
630
—
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
708
2,270
2,114
2,602
1,200
1,796
—
1,951
2,200
1,173
816
794
—
—
—
1,720
403,790
1,634
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
12
14
14
16
12
10
—
24
14
16
7
7
—
—
—
12
2,246
30
Building
(gross sq. ft)
8,831,098
Tenant
Pinstripes
Southern
Southern
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
43,764 Regal
36,200 AMC
25,052
82,064 AMC
46,360
73,000 Regal
31,800 Alamo Draft House Cinemas
30,360 Alamo Draft House Cinemas
105,470 Andretti Indoor Karting & Games
24,799
128,000 Andretti Indoor Karting & Games
45,319 AMC
Punch Bowl Social
Punch Bowl Social
Southern
11,886,263
Location
Entertainment Properties:
Subtotal from previous page
Kennewick, WA
Franklin, TN
Mobile, AL
El Paso, TX
Edinburg, TX
Hendersonville, TN
Houston, TX
Detroit, MI
Dallas, TX
Fort Wayne, IN
Wichita, KS
Wichita, KS
Richmond, TX
Tomball, TX
Cleveland, OH (2)
Cleveland, OH
Subtotal Entertainment Properties
Education Properties:
Columbus, OH
Mesa, AZ
Surprise, AZ
Las Vegas, NV
Groveport, OH
Cleveland, OH
Washington, DC
Phoenix, AZ
Baton Rouge, LA
Goodyear, AZ
Phoenix, AZ
Buckeye, 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
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
Acquisition
date
Screens
Seats
n/a
6/16
6/16
6/16
6/16
6/16
7/16
10/16
11/16
12/16
05/17
05/17
05/17
8/17
8/17
8/17
8/17
9/07
9/07
9/07
10/07
10/07
10/07
10/07
10/07
3/11
4/11
11/11
4/12
7/12
3/13
3/13
3/13
4/13
5/13
5/13
5/13
5/13
5/13
5/13
7/13
11/13
6/13
7/13
8/13
9/13
9/13
9/13
10/13
12/13
12/13
Building
(gross sq. ft)
11,886,263
Tenant
47,004 AMC
109,956 AMC
60,471 AMC
60,283 AMC
87,539 AMC
65,966 Regal
46,525
56,804
49,950
69,212 Regal
93,905 Regal
28,875 Regal
180,000 Regal
100,000 Regal
100,717 Cinemark
25,739 Various
Star Cinema Grill
Emagine Entertainment
Pinstack
13,069,209
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
Imagine Schools, Inc.
38,808
45,214
45,578
49,690
150,346
57,652 Harvard Avenue Community School
34,962
47,186
54,975 CSDC
37,502 Bradley Project Development
56,724
Imagine Schools, Inc.
Imagine Schools, Inc.
Skyline Schools Project
Development
Schoolhouse Buckeye LLC
85,154
110,000 NE Carolina Prep Acad Project
Development
25,200 CSMI
59,181
Lowcountry Leadership Project
Development
15,309 CLA Properties
59,024 Mastery Academy
26,454 Bella Mente Project Development
Imagine Schools, Inc.
40,905
Imagine Schools, Inc.
56,385
48,375
Imagine Schools, Inc.
52,723 CAFA Gilbert Investments
62,900 Concept Schools
70,000
Skyline Chandler Project
Development
Imagine Schools, Inc.
Schoolhouse Galleria LLC
67,059
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
1,995,052
2,246
12
20
16
16
20
16
10
9
—
14
18
7
22
19
24
—
2,469
403,790
1,722
3,300
1,885
1,792
2,500
3,027
1,082
1,026
—
1,200
4,044
690
5,221
2,138
2,198
—
435,615
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31
San Jose, CA
Brooklyn, NY (1)
12/13
12/13
Subtotal Education Properties, carried over to next page
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
Thornton, CO
Chicago, IL
Chandler, AZ
Centennial, CO
Port Royal, SC
McKinney, TX
Parker, CO
Parker, CO
Lakewood, CO
Castle Rock, CO
Memphis, TN
Macon, GA
Palm Bay, FL
Emeryville, CA
Rock Hill, SC
Lafayette, CO
East Point, GA
McLean, VA
Ashburn, VA (20)
West Chester, OH (20)
Ellisville, MO (20)
Trenton, NJ
Chanhassen, MN (20)
Maple Grove, MN
Memphis, TN
Carmel, IN
Atlanta, GA
Atlanta, GA
Macon, GA
Galloway, NJ
Fishers, IN (20)
Bronx, NY
Parker, CO
Holland, OH
Westerville, OH (20)
Las Vegas, NV (20)
Louisville, KY
Louisville, KY
Mission Viejo, CA
Cheshire, CT
Edina, MN
Eagan, MN
Louisville, KY
Bala Cynwyd, PA
Kennesaw, GA
New Berlin, WI
Oak Creek, WI
Holly Springs, NC
Minnetonka, MN
4/16
4/16
4/16
6/16
8/16
8/16
9/16
11/16
11/16
11/16
12/16
12/16
1/17
2/17
2/17
3/17
3/17
Subtotal Education Properties, carried over to next page
Acquisition
date
Screens
Seats
n/a
1/14
2/14
2/14
3/14
3/14
4/14
5/14
5/14
7/14
7/14
7/14
8/14
8/14
9/14
11/14
1/15
1/15
1/15
1/15
2/15
2/15
3/15
3/15
4/15
4/15
5/15
6/15
06/15
07/15
07/15
07/15
08/15
8/15
9/15
9/15
10/15
10/15
11/15
12/15
12/15
1/16
Building
(gross sq. ft)
1,995,052
Tenant
25,744 CLA Properties
51,180 GVA FC Project Development
102,000 British Schools of America
52,355 Wilson Prep Project Development
25,737 CLA Properties
34,033
ICE Project Development LLC
38,607 Bradford Charter Holdings LLC
65,885 Concept Schools
25,737 CLA Properties
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
4,995
8,619 Global Village International
Jacob Academy
Lowcountry Charter Holdings LLC
135,959 DuBois Lanier Project Development
LLC
64,362 Vacant
47,895
8,520
Pineapple Cove Classical Academy
LePort Educational Institute, Inc.
50,000 Riverwalk Academy
4,950 Autana Montessori Bilingual School
Fulton Leadership Academy
40,000
215,275 BASIS Independent
33,237 Vacant
33,237 Vacant
33,237 Vacant
76,785
SABIS
33,237 Vacant
33,237 CLA Properties
37,310 Du Bois Consortium
33,237 CLA Properties
13,797 Nobel Learning Communities Inc
13,930 Nobel Learning Communities Inc
45,045 Cirrus Education Group, Inc.
26,872 CSMI, LLC
33,237 Vacant
20,000
Family Life Academy Charter
School
Parker Performing Arts School
iLead Schools Development
52,183
30,120
33,237 Vacant
33,237 Vacant
8,983 Cadence Education
6,319 Cadence Education
Stratford Schools
21,286
EPC
16,005
TGS Holdings, LLC
20,060
TGS Holdings, LLC
16,068
15,936 Cadence Education
20,881 Cadence Education
7,156 Cadence Education
11,093 Cadence Education
11,487 Cadence Education
46,057
17,762
4,034,634
Pine Springs Preparatory Academy
TGS Holdings, LLC
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
32
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
Location
Education Properties:
Subtotal from previous page
Wallingford, CT
Chicopee, MA
Fort Worth, TX
Crowley, TX
Berlin, CT
Walnut Creek, CA
Subtotal Education Properties
Recreation Properties:
n/a
3/17
5/17
5/17
5/17
6/17
7/17
Bellfontaine, OH (1) (5)
Allen, TX (1)
Dallas, TX (1)
Houston, TX (1)
McHenry, MD (1) (7)
Colony, TX
Tannersville, PA (8)
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) (9)
Edison, NJ (1)
Tannersville, PA (1)
Jacksonville, FL
Roseville, CA
Portland, OR (1)
Orlando, FL
Charlotte, NC
Fort Worth, TX
Powells Point, NC (10)
Nashville, TN (1)
Denver, CO
Fort Worth, TX
Olathe, KS
Northstar, CA (11)
Huntsville, AL
Corfu, NY (12)
Oklahoma City, OK (13)
Hot Springs, AR (14)
Riviera Beach, FL (15)
Oklahoma City, OK (16)
Palm Springs, CA (17)
Spring, TX (18)
Glendale, AZ (1)
Kapolei, HI (1)
Federal Way, WA (1)
Colony, TX (1)
11/05
2/12
2/12
9/12
12/12
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
1/16
4/16
8/16
10/16
12/16
2/17
3/17
3/17
4/17
8/17
4/17
4/17
4/17
4/17
4/17
4/17
4/17
4/17
4/17
4/17
4/17
Subtotal Recreation Properties, carried over to next page
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33
4,034,634
4,918 KLA Schools
53,862 Hampden Charter School of Science
14,850 Nobel Learning Communities Inc
15,063 Nobel Learning Communities Inc
11,000
43,702 Contra Costa School of Performing
EPC
Arts
4,178,029
Peak Resorts, Inc.
Topgolf USA
Topgolf USA
Topgolf USA
Everbright Pacific, LLC
Topgolf USA
48,427
63,242
46,400
65,000
113,135
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
Topgolf USA
Topgolf USA
Topgolf USA
64,232
64,232
64,232
65,000
65,000
65,000
— OBX Waterpark Adventure
72,900
4,081
5,000
Topgolf USA
iFly Indoor Skydiving
iFly Indoor Skydiving
106,250 Genesis Health Clubs
126,412 Vail Resorts
52,796
Topgolf USA
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Premier Parks
— Source Capital
3,018,417
Location
Acquisition
date
Screens
Seats
Building
(gross sq. ft)
Tenant
Subtotal from previous page
Garland, TX (1)
Santa Monica, CA (1)
Concord, CA (1)
Tampa, FL (1)
Roseville, CA
Fort Lauderdale, FL (1)
Subtotal Recreation Properties
Other Properties:
Kiamesha Lake, NY (19)
Subtotal Other Properties
n/a
4/17
4/17
4/17
8/17
9/17
10/17
07/10
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,018,417
— Source Capital
— Santa Monica Amusements
— Six Flags
6,062
34,000
6,062
3,064,541
iFly Indoor Skydiving
24 Hour Fitness, Inc.
iFly Indoor Skydiving
— Montreign Operating Company,
LLC
—
Total
2,469
435,615
20,311,779
(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 $11.7 million mortgage note payable.
(4) Property is included as security for $25.0 million bond payable.
(5) Property includes 324 acres, of which 60 are skiable.
(6) Property is located in Ontario, Canada.
(7) Property includes 690 acres, of which 172 are skiable.
(8) Property includes 354 acres, of which 166 are skiable.
(9) Property includes 809 acres, of which 129 are skiable.
(10) Property includes 81 acres.
(11) Property includes 6,627 acres, of which 3,170 are skiable.
(12) Property includes 969 acres.
(13) Property includes 108 acres.
(14) Property includes 70 acres.
(15) Property includes 29 acres.
(16) Property includes 23 acres.
(17) Property includes 22 acres.
(18) Property includes 80 acres.
(19) Property includes 1,735 acres.
(20) These leases have been terminated, however, the former tenant, CLA, continues to occupy the property.
34
As of December 31, 2017, our owned portfolio of entertainment properties consisted of 13.1 million square feet and was
99% leased, including 11.0 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, 2017 (dollars in
thousands).
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
Thereafter
Number of
Properties
4
3
3
8
10
8
14
4
7
20
8
10
22
11
5
8
2
2
2
3
—
154
Megaplex Theatre Portfolio
Square
Footage
424,613
286,486
186,512
566,379
822,146
718,900
1,133,549
248,315
405,874
1,174,176
540,534
714,593
1,844,099
738,229
242,346
422,466
111,493
51,037
103,164
310,360
—
11,045,271
Revenue for the Year
Ended December 31, 2017 (1)
8,572
$
8,261
3,943
10,966
19,949
16,163
27,156
9,399
12,961
29,070
12,749
12,397
31,309
18,117
3,748
4,816
1,977
2,297
2,393
3,175
—
239,418
$
% of
Company's
Total
Revenue
1.5%
1.4%
0.7%
1.9%
3.5%
2.8%
4.7%
1.6%
2.3%
5.0%
2.2%
2.2%
5.5%
3.1%
0.7%
0.8%
0.3%
0.4%
0.4%
0.6%
—%
41.6%
(1) Consists of rental revenue and tenant reimbursements.
35
As of December 31, 2017, our owned portfolio of education properties consisted of 4.2 million square feet and was 92%
leased. This reflects the termination of nine CLA leases, as further discussed in Item 7 – “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Recent Developments”.The following table sets forth lease
expirations regarding EPR’s owned education portfolio as of December 31, 2017 (dollars in thousands).
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
Thereafter
Number of
Properties
1
—
—
—
—
—
1
—
—
—
—
—
—
13
10
9
14
20
14
9 (1)
3 (2)
94
Education Portfolio
Square
Footage
Revenue for the Year
Ended December 31, 2017
% of
Company's
Total
Revenue
26,872
—
—
—
—
—
59,024
—
—
—
—
—
—
350,719
561,560
442,906
812,260
693,322
630,187
292,091
76,429
3,945,370
$
$
272
—
—
—
—
—
3,064
—
—
—
—
—
—
6,171
10,960
8,145
24,140
10,508
14,049
3,104
1,505
81,918
—%
—%
—%
—%
—%
—%
0.5%
—%
—%
—%
—%
—%
—%
1.1%
1.9%
1.4%
4.2%
1.8%
2.4%
0.5%
0.4%
14.2%
(1) Excludes five leases that have been terminated, however the former tenant, CLA, continues to occupy the properties.
(2) Excludes two leases that have been terminated, however the former tenant, CLA, continues to occupy the properties.
36
As of December 31, 2017, our owned portfolio of recreation properties consisted of approximately 3.1 million square feet
of buildings and 10,458 acres of land, and was 100% leased. The following table sets forth lease expirations regarding
EPR’s owned recreation portfolio as of December 31, 2017 (dollars in thousands).
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
Thereafter
Number of
Properties
—
—
—
—
—
—
—
1
1
3
—
2
—
—
5
2
7
11
5
15
2
54
Recreation Portfolio
Square
Footage
Revenue for the Year
Ended December 31, 2017
% of
Company's
Total
Revenue
— $
—
—
—
—
—
—
—
—
239,547
—
—
—
—
183,723
64,100
399,205
1,481,200
263,758
433,008
—
3,064,541
$
—
—
—
—
—
—
—
1,233
3,806
14,005
—
1,875
—
—
5,726
3,131
11,094
40,887
9,567
20,172
1,267
112,763
—%
—%
—%
—%
—%
—%
—%
0.2%
0.8%
2.4%
—%
0.3%
—%
—%
1.0%
0.5%
1.9%
7.1%
1.7%
3.5%
0.2%
19.6%
37
Our properties are located in 42 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, 2017 (dollars in thousands). This data does not include the public charter schools recorded as a direct financing
lease.
Location
Texas
Florida
California
Ontario, Canada
Ohio
Virginia
Illinois
Pennsylvania
North Carolina
Arizona
Colorado
Louisiana
Michigan
Tennessee
New York
Georgia
Kansas
Indiana
New Jersey
Alabama
Kentucky
South Carolina
Idaho
Connecticut
Maryland
Massachusetts
Utah
Missouri
Minnesota
Mississippi
Nebraska
Maine
New Hampshire
Iowa
Oklahoma
Arkansas
Nevada
New Mexico
Oregon
Washington
Montana
Wisconsin
Hawaii
Building (gross
sq. ft)
2,801,513
1,277,910
1,182,731
1,151,465
1,062,561
1,052,528
1,032,267
872,204
773,842
753,503
702,481
661,262
654,127
577,629
555,632
543,333
512,002
457,998
444,105
323,972
298,196
256,786
179,036
176,825
176,441
165,028
160,000
145,613
120,364
116,900
107,402
107,000
97,400
93,755
90,737
79,330
75,508
71,297
64,232
47,004
44,650
22,580
—
20,089,149
(1) Consists of rental revenue and tenant reimbursements.
Rental
revenue for the year ended
December 31, 2017 (1)
% of
Rental
Revenue
59,524
32,729
54,853
34,247
9,054
24,508
26,497
21,868
19,166
21,552
15,411
13,608
11,551
10,955
31,605
10,938
10,226
5,922
12,210
6,303
5,474
5,127
2,743
3,244
4,151
1,213
3,450
1,970
(194)
3,265
1,836
1,870
2,279
1,170
4,327
2,166
74
1,251
2,165
1,822
936
345
792
484,203
12.3 %
6.8 %
11.3 %
7.1 %
1.9 %
5.1 %
5.4 %
4.5 %
4.0 %
4.4 %
3.2 %
2.8 %
2.4 %
2.3 %
6.5 %
2.3 %
2.1 %
1.2 %
2.5 %
1.3 %
1.1 %
1.1 %
0.6 %
0.7 %
0.9 %
0.2 %
0.7 %
0.4 %
— %
0.7 %
0.4 %
0.4 %
0.5 %
0.2 %
0.9 %
0.3 %
— %
0.3 %
0.3 %
0.4 %
0.2 %
0.1 %
0.2 %
100.0 %
$
$
38
Office Location
Our executive office is located in Kansas City, Missouri and is leased from a third-party landlord. The lease has projected
2018 annual rent of approximately $856 thousand and 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 $474.6 million (not including periodic rent escalations, percentage
rent or straight-line rent). Our entertainment portfolio has an average remaining base lease term life of approximately 12
years, our recreation portfolio has an average remaining base lease term life of approximately 17 years, and our education
portfolio has an average remaining base lease term life of approximately 15 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 2017
Our property acquisitions and developments in 2017 consisted primarily of spending in each of our primary segments of
Entertainment, Recreation and Education. The percentage of total investment spending related to build-to-suit projects,
including investment spending for mortgage notes, decreased to approximately 47% in 2017, from approximately 72% in
2016. Excluding our transaction with CNL Lifestyle Properties Inc. ("CNL Lifestyle"), the percentage of total investment
spending related to build-to-suit projects in 2017 decreased to approximately 59%. Build-to-suit projects remain a significant
component of our investment spending and we expect this to continue to be the case in future years. 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
Resort Project in Sullivan County, New York
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 Resorts World Catskills 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 referenced 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
39
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.
Early Childhood Education Tenant
During 2017, cash flow of Children’s Learning Adventure USA, LLC (“CLA Parent”) and its subsidiaries (“CLA”) was
negatively impacted by challenges brought on by its rapid expansion and related ramp up to stabilization and by adverse
weather conditions in Texas during the third quarter of 2017. During 2017, the Company participated in negotiations among
CLA and other landlords regarding a potential restructuring. Although negotiations are on-going and progress has been
made toward a restructuring, investments necessary to accomplish the restructuring have not yet been secured. As a result,
the Company sent CLA notices of lease termination on October 12, 2017 for the following CLA properties: (i) Broomfield,
Colorado, (ii) Ashburn, Virginia, (iii) West Chester, Ohio, (iv) Chanhassen, Minnesota, (v) Ellisville, Missouri, (vi) Farm
Road-Las Vegas, Nevada, (vii) Fishers, Indiana, (viii) Tredyffrin, Pennsylvania, and (ix) Westerville, Ohio.
On December 18, 2017, ten subsidiaries of CLA Parent filed separate voluntary petitions for bankruptcy under Chapter 11
of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the District of Arizona (Jointly Administered
under Case No. 2:17-bk-14851-BMW). The debtors in those cases include CLA Properties SPE, LLC, CLA Maple Grove,
LLC, CLA Carmel, LLC, CLA West Chester, LLC, CLA One Loudoun, LLC, LLC, CLA Fishers, LLC, CLA Chanhassen,
LLC, CLA Ellisville, LLC, CLA Farm, LLC, and CLA Westerville, LLC (collectively, the “CLA Debtors”). CLA Parent
has not filed a petition for bankruptcy. The CLA Debtors include each of the Company's tenants to 24 out of our 25 CLA
properties, including 21 operating properties, two partially completed properties and one unimproved land parcel. The only
CLA tenant unaffected by the bankruptcy is CLA King of Prussia, LLC, which is the CLA tenant entity for an unimproved
land parcel located in Tredyffrin, Pennsylvania. It is the Company's understanding that the CLA Debtors filed bankruptcy
petitions to stay the termination of the remaining CLA leases and delay the eviction process.
CLA continues to negotiate a restructuring with third parties. The Company will continue to consider whether all or a portion
of the Company's properties should be leased to other operators based on results of the restructuring process. Absent an
acceptable restructuring, the Company's intention is to vigorously pursue the process of regaining possession of the properties
with the goal of securing leases with one or more new tenants. On January 8, 2018, the Company filed with the Court
motions seeking rent for the post-petition period beginning on December 18, 2017. The hearing for these motions has been
scheduled for March 14, 2018. On January 8, 2018, the Company also filed with the Court motions seeking relief from the
automatic stay seeking the right to terminate the remaining leases and evict the CLA Debtors from the properties. There
can be no assurance as to the outcome or timing of such proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
40
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.
2017:
Fourth quarter
Third quarter
Second quarter
First quarter
2016:
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
Dividend
$
$
71.43
$
63.10
$
74.15
76.90
77.70
66.66
68.13
70.08
78.67
$
65.50
$
84.67
80.69
66.71
74.93
64.00
53.00
1.020
1.020
1.020
1.020
0.960
0.960
0.960
0.960
We declared dividends to common shareholders aggregating $4.08 and $3.84 per common share in 2017 and 2016,
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 G redeemable preferred shares have a fixed dividend
rate of 5.75%.
During the year ended December 31, 2017, the Company did not sell any unregistered equity securities.
On February 27, 2018, there were approximately 8,319 holders of record of our outstanding common shares.
41
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
$
—
—
244 (1)
244
$
—
—
63.37
63.37
— $
—
—
— $
—
—
—
—
Period
October 1 through October 31,
2017 common stock
November 1 through November
30, 2017 common stock
December 1 through December
31, 2017 common stock
Total
(1) The repurchases of equity securities during December of 2017 were completed in conjunction with employee stock
option exercises. These repurchases were not made pursuant to a publicly announced plan or program.
42
Share Performance Graph
The following graph compares the cumulative return on our common shares during the five year period ended
December 31, 2017, to the cumulative return on the MSCI U.S. REIT Index and the Russell 1000 Index for the same
period.The comparisons assume an initial investment of $100 and the reinvestment of all dividends during the
comparison period. Performance during the comparison period is not necessarily indicative of future performance.
Total Return Analysis
EPR Properties
MSCI US REIT Index
Russell 1000 Index
Source: SNL Financial
12/31/2012
100.00
$
100.00
$
100.00
$
12/31/2013
113.37
$
102.47
$
133.11
$
12/31/2014
141.54
$
133.60
$
150.73
$
12/31/2015
152.91
$
136.97
$
152.12
$
12/31/2016
198.25
$
148.78
$
170.45
$
12/31/2017
189.54
$
156.29
$
207.42
$
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.
43
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 benefit
Gain on sale, net from discontinued operations
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 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
Cash dividends declared per common share
2017
$ 468,648
15,555
3,095
88,693
575,991
31,653
242
43,383
—
1,549
(977)
133,124
523
—
10,195
132,946
223,353
72
41,942
—
—
265,367
(2,399)
$ 262,968
Year Ended December 31,
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
2016
$ 399,589
15,595
9,039
69,019
493,242
22,602
5
37,543
—
905
—
97,144
7,869
—
—
107,573
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
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
2013
$248,709
18,401
1,682
74,272
343,064
26,016
658
25,613
—
6,166
(4,539)
81,056
1,955
—
—
53,946
152,193
1,398
3,017
—
4,853
161,461
14,176
$175,637
—
—
—
262,968
(24,293)
(4,457)
—
—
—
224,982
(23,806)
—
199
—
—
194,532
(23,806)
—
505
3,376
—
179,633
(23,807)
—
333
—
4,256
180,226
(23,806)
—
$ 234,218
$ 201,176
$ 170,726
$155,826
$156,420
$
$
$
$
$
3.29
—
3.29
3.29
—
3.29
71,191
71,254
4.08
$
$
$
$
$
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
(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.
44
Balance sheet data
(Dollars in thousands)
Net real estate investments
Mortgage notes and related accrued interest
receivable, net
Investment in direct financing leases, net
Total assets
Dividends payable
Debt
Total liabilities
Equity
December 31,
2017
$4,895,552
2016
$3,915,402
2015
$3,427,729
2014
$2,839,333
2013
$2,394,966
970,749
57,903
613,978
102,698
423,780
190,880
507,955
199,332
486,337
242,212
6,191,493
4,865,022
4,217,270
3,686,275
3,254,372
30,185
26,318
24,352
22,233
19,552
3,028,827
2,485,625
1,981,920
1,629,750
1,457,432
3,264,168
2,679,121
2,143,402
1,759,786
1,566,358
2,927,325
2,185,901
2,073,868
1,926,489
1,688,014
45
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, recreation and education 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.
We group our investments into four reportable operating segments: Entertainment, Recreation, Education and Other.
As of December 31, 2017, our total assets were approximately $6.2 billion (after accumulated depreciation of
approximately $0.7 billion) which included investments in each of our four operating segments with properties located
in 42 states, the District of Columbia and Ontario, Canada.
• Our Entertainment segment included investments in 147 megaplex theatres, seven entertainment retail centers
(which included seven additional megaplex theatres) and 11 family entertainment centers. Our portfolio of
owned entertainment properties consisted of 13.1 million square feet and was 99% leased, including megaplex
theatres that were 100% leased.
• Our Recreation segment included investments in 26 ski properties, 20 attractions, 30 golf entertainment
complexes and eight other recreation facilities. Our portfolio of owned recreation properties was 100% leased.
• Our Education segment included investments in 65 public charter schools, 65 early education centers and 15
private schools. Our portfolio of owned education properties consisted of 4.2 million square feet and was 92%
leased. This reflects the termination of nine CLA leases, as further discussed in Recent Developments below.
• Our Other segment consisted primarily of land under ground lease, property under development and land held
for development related to the Resorts World Catskills casino and resort project in Sullivan County, New York.
The combined owned portfolio consisted of 20.3 million square feet and was 98% leased. As of December 31, 2017,
we also had invested approximately $257.6 million in property under development.
46
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, 2017 and 2016 (in millions, except per share
information):
Year ended December 31,
2017
2016
Increase
Total revenue (1)
$
576.0
$
493.2
Net income available to common
shareholders per diluted share (2)
FFOAA per diluted share (3)
3.29
5.02
3.17
4.82
17%
4%
4%
(1) Total revenue for the year ended December 31, 2017, versus the year ended December 31, 2016, was favorably
impacted by the effect of investment spending in 2017 and 2016, including our transaction with CNL Lifestyle Properties
Inc. ("CNL Lifestyle") and funds affiliated with Och-Ziff Real estate ("OZRE") which closed on April 6, 2017. Total
revenue for the year ended December 31, 2017 versus the year ended December 31, 2016 was unfavorably impacted
by lower straight-line rental revenue and the reversal of prior period straight-line rent receivables of $4.0 million and
$7.4 million, respectively, as well as a reduction in rental revenue of $2.7 million relating to one of our early education
tenants. In addition, total revenue for the year ended December 31, 2017 was unfavorably impacted by property
dispositions and note payoffs that occurred in 2017 and 2016, and by lower gains related to insurance claims in 2017.
Total revenue for the year ended December 31, 2017 was also unfavorably impacted by $2.8 million less recognized
in prepayment fees from the early payoff of mortgage notes than recognized for the year ended December 31, 2016.
(2) Net income available to common shareholders per diluted share for the year ended December 31, 2017, versus the
year ended December 31, 2016, was also impacted by the items affecting total revenue as described above. Additionally,
net income available to common shareholders per diluted share for the year ended December 31, 2017, versus the year
ended December 31, 2016 was favorably impacted by lower transaction costs, higher gains on sale of real estate and
a gain on early extinguishment of debt recognized in 2017. Net income available to common shareholders per diluted
share for the year ended December 31, 2017, versus the year ended December 31, 2016 was unfavorably impacted by
increases in interest expense, general and administrative expense, bad debt expense (relating to one of our early education
tenants), income tax expense and common shares outstanding primarily due to shares issued in connection with the
transactions with CNL Lifestyle and OZRE. Additionally, net income available to common shareholders per diluted
share for the year ended December 31, 2017, versus the year ended December 31, 2016 was unfavorably impacted by
a $10.2 million impairment charge recognized in 2017 and $4.5 million in preferred share redemption costs.
(3) FFOAA per diluted share for the year ended December 31, 2017, versus the year ended December 31, 2016, was
favorably impacted by the effect of investment spending in 2017 and 2016, including our transaction with CNL Lifestyle
and OZRE which closed on April 6, 2017, and higher termination fees primarily recognized with the exercise of tenant
purchase options. FFOAA per diluted share for the year ended December 31, 2017, versus the year ended December
31, 2016 was unfavorably impacted by increases in interest expense, general and administrative expense, common
shares outstanding (primarily due to shares issued in connection with the transactions with CNL Lifestyle and OZRE),
as well as property dispositions and note payoffs that occurred in 2017 and 2016. Additionally, FFOAA per diluted
share for the year ended December 31, 2017, versus the year ended December 31, 2016, was unfavorably impacted by
lower straight-line rental revenue and the reversal of prior period straight-line rent receivables of $4.0 million and $7.4
million, respectively, a reduction in rental revenue of $2.7 million and in increase in bad debt expense of $6.0 million
relating to one of our early education tenants. FFOAA per diluted share for the year ended December 31, 2017 was
also unfavorably impacted by $2.8 million less recognized in prepayment fees from the early payoff of mortgage notes
than recognized for the year ended December 31, 2016.
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)."
47
Investment Spending Overview
During 2017, our total investment spending was $1.6 billion compared to $805.0 million in the prior year with increases
in our Entertainment and Recreation segments, offset by a decrease in our Education and Other segments.
During 2017, our investment spending in our Entertainment segment was $319.7 million compared to $266.1 million
in the prior year. The current year included spending on build-to-suit development and redevelopment of megaplex
theatres, entertainment retail centers and family entertainment centers, as well as $154.1 million in acquisitions of six
megaplex theatres. 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 and build-to-suit opportunities that are
expected to continue in the future.
During 2017, our investment spending in our Recreation segment was $1.0 billion compared to $198.3 million in the
prior year, and primarily related to our transaction with CNL Lifestyle and OZRE valued at $730.8 million discussed
below. Additionally, included in recreation investment spending was build-to-suit golf entertainment complexes and
attractions, redevelopment of ski properties, $62.7 million in acquisitions of six other recreation facilities and an
investment of $10.8 million in a mortgage note secured by one other recreation facility. We expect to continue to pursue
opportunities in this segment.
On April 6, 2017, we completed a transaction with CNL Lifestyle and OZRE. We acquired the Northstar California
Resort, 15 attraction properties (waterparks and amusement parks), five small family entertainment centers and certain
related working capital for aggregate consideration valued at $479.8 million, including final purchase price adjustments.
Additionally, we provided $251.0 million of secured debt financing to OZRE for its purchase of 14 CNL Lifestyle ski
properties valued at $374.5 million. Subsequent to the transaction, we sold the five family entertainment centers for
approximately $6.8 million and one waterpark for approximately $2.5 million. No gain or loss was recognized on these
sales. See Note 3 to the consolidated financial statements included in this Annual Report Form 10-K for further detail.
During 2017, our investment spending in our Education segment was $255.1 million compared to $338.7 million in
the prior year. The current year included spending on build-to-suit development and redevelopment of public charter
schools, early education centers and private schools, as well as $38.5 million in acquisitions of seven early education
centers and two public charter schools and an investment of $97.6 million in mortgage notes receivable. The current
year investment spending decreased over the prior year, primarily due to a large investment of $100.0 million in mortgage
notes that occurred at the end of 2016. During 2017, we continued to significantly diversify our tenant base in public
charter schools and early education centers and we expect to continue to do so in 2018.
During 2017, our investment spending in our Other segment was $1.1 million compared to $1.9 million in prior year,
and related to the Resorts World Catskills 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 the valuation of real estate, accounting for real estate acquisitions,
estimating reserves for uncollectible receivables and the impairment of 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.
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
48
of a property may not be recoverable. Certain factors may indicate that impairments exist which 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 property.
Real Estate Acquisitions
Upon acquisition of real estate properties, we evaluate the acquisition to determine if it is a business combination or
an asset acquisition. In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The update
clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether
acquisitions should be accounted for as business combinations or asset acquisitions. The standard is effective for annual
reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early
adoption of the guidance permitted. We have elected to early adopt ASU 2017-01 as of January 1, 2017. As a result,
we expect that fewer of our real estate acquisitions will be accounted for as business combinations.
Prior to the adoption of ASU 2017-01, we typically accounted for (1) acquired vacant properties, (2) acquired single
tenant properties when a new lease or leases were signed at the time of acquisition, and (3) acquired single tenant
properties that had an existing long-term triple-net lease or leases (greater than seven 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) were treated as business
combinations.
If the acquisition is determined to be an asset acquisition, we record the purchase price and other related costs incurred
to the 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) on a relative fair value
basis. Typically, relative fair values are based on recent independent appraisals or methods similar to those used by
independent appraisers and management judgment. In addition, costs incurred for asset acquisitions including
transaction costs, are capitalized.
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. Typically, fair
values are based on recent independent appraisals. 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.
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 monitors 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.
49
Impairment of Mortgage Notes and Other Notes Receivable
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. Certain factors that may occur and indicate
that impairments may exist include, but are not limited to: underperformance relative to projected future operating
results, borrower difficulties and significant adverse industry or market economic trends. 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
During the year ended December 31, 2017, we prepaid in full nine mortgage notes payable totaling $73.0 million that
were secured by nine theatre properties. In addition, we prepaid in full a mortgage note payable of $87.0 million that
was secured by 11 theatre properties. In connection with this note payoff, we recorded a gain on early extinguishment
of debt of $1.0 million for the year ended December 31, 2017. The gain represents the difference between the carrying
value of the note and the amount due at payoff as the note was recorded at fair value upon acquisition and was not
anticipated to be paid off in advance of maturity.
On May 23, 2017, we issued $450.0 million in aggregate principal amount of senior notes due on June 1, 2027 pursuant
to an underwritten public offering. The notes bear interest at an annual rate of 4.50%. Interest is payable on June 1 and
December 1 of each year beginning on December 1, 2017 until the stated maturity date of June 1, 2027. The notes were
issued at 99.393% of their face value and are unsecured. 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.
On August 30, 2017, we refinanced our variable-rate bonds payable totaling $25.0 million which are secured by three
theatre properties. The maturity date was extended from October 1, 2037 to August 1, 2047 and the outstanding principal
balance and interest rate were not changed.
On September 27, 2017, we amended our unsecured consolidated credit agreement which governs our unsecured
revolving credit facility and our unsecured term loan facility.
The amendments to the unsecured revolving portion of the credit facility, among other things, (i) increase the initial
maximum available amount from $650.0 million to $1.0 billion, (ii) extend the maturity date from April 24, 2019, to
February 27, 2022 (with us having the right to extend the loan for an additional seven months) and (iii) lower the interest
rate and facility fee pricing based on a grid related to our senior unsecured credit ratings which at closing was LIBOR
plus 1.00% and 0.20%, versus LIBOR plus 1.25% and 0.25%, respectively, under the previous terms. In connection
with the amendment, $19 thousand of deferred financing costs (net of accumulated amortization) were written off
during the year ended December 31, 2017 and are included in costs associated with loan refinancing. At December 31,
2017, we had $210.0 million outstanding under this portion of the facility.
The amendments to the unsecured term loan portion of the credit facility, among other things, (i) increase the initial
amount from $350.0 million to $400.0 million, (ii) extend the maturity date from April 24, 2020, to February 27, 2023
and (iii) lower the interest rate based on a grid related to our senior unsecured credit ratings which at closing was LIBOR
plus 1.10% versus LIBOR plus 1.40% under the previous terms. In connection with the amendment, $1.5 million of
deferred financing costs (net of accumulated amortization) were written off during the year ended December 31, 2017
and are included in costs associated with loan refinancing. At closing, we borrowed the remaining $50.0 million available
on the $400.0 million term loan portion of the facility, which was used to pay down a portion of our unsecured revolving
50
credit facility. On October 31, 2017, we entered into three interest rate swap agreements to fix the interest rate at 3.15%
on an additional $50.0 million of borrowings under our unsecured term loan facility from November 6, 2017 to April
4, 2019 and on $350.0 million of borrowings under the unsecured term loan facility from April 5, 2019 to February 7,
2022.
In addition, there is a $1.0 billion accordion feature on the combined unsecured revolving credit and term loan facility
that increases the maximum amount available under the combined facility, subject to lender approval, from $1.4 billion
to $2.4 billion. If we exercise all or any portion of the accordion feature, the resulting increase in the facility may have
a shorter or longer maturity date and different pricing terms.
In connection with the amendment to the unsecured consolidated credit agreement, the obligations of our subsidiaries
that were co-borrowers under our prior senior unsecured revolving credit and term loan facility were released. As a
result, simultaneously with the amendment, the guarantees by our subsidiaries that were guarantors with respect to our
outstanding 4.50% Senior Notes due 2027, 4.75% Senior Notes due 2026, 4.50% Senior Notes due 2025, 5.25% Senior
Notes due 2023, 5.75% Senior Notes due 2022, and 7.75% Senior Notes due 2020 were released in accordance with
the terms of the applicable indentures governing such notes.
In addition, the guarantees by our subsidiaries that were guarantors of our outstanding 4.35% Series A Guaranteed
Senior Notes due August 22, 2024 and 4.56% Series B Guaranteed Senior Notes due August 22, 2026 (referred to herein
as the "private placement notes") were also released. The foregoing release was effected by us entering into an
amendment to the Note Purchase Agreement, dated as of September 27, 2017. The amendment to the private placement
notes releases our subsidiary guarantors as described above and among other things: (i) amends certain financial and
other covenants and provisions in the Note Purchase Agreement to conform generally to the corresponding covenants
and provisions contained in the amended unsecured consolidated credit agreement; (ii) provides the investors thereunder
certain additional guaranty and lien rights, in the event that certain subsequent events occur; (iii) expands the scope of
the “most favored lender” covenant contained in the Note Purchase Agreement; and (iv) imposes restrictions on debt
that can be incurred by certain of our subsidiaries.
Subsequent to December 31, 2017, we prepaid in full a mortgage note payable totaling $11.7 million that was secured
by a theatre property. Additionally, on February 28, 2018, we redeemed all of the outstanding 7.75% Senior Notes due
July 15, 2020. The notes were redeemed at a price equal to the principal amount of $250.0 million plus a premium
calculated pursuant to the terms of the indenture of $28.6 million (which will be expensed in the first quarter of 2018),
together with accrued and unpaid interest up to, but not including the redemption date.
Issuance of Common Shares
During the year ended December 31, 2017, we issued an aggregate of 1,382,730 common shares under the direct share
purchase component of our Dividend Reinvestment and Direct Share Purchase Plan ("DSPP") for total net proceeds
of $98.2 million. These proceeds were used to pay down a portion of our unsecured revolving credit facility.
During the year ended December 31, 2017, we also issued 8,851,264 common shares in connection with our transaction
with CNL Lifestyle and OZRE.
Issuance of Series G Preferred Shares
On November 30, 2017, we issued 6.0 million shares of 5.75% Series G cumulative redeemable preferred shares ("Series
G preferred shares") in a registered public offering at a purchase price of $25.00 per share resulting in net proceeds of
approximately $144.5 million, after underwriting discounts and expenses. We will pay cumulative dividends on the
Series G 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 $25.00 liquidation preference per share. See Note 11 to the consolidated financial statements
in this Annual Report on Form 10-K for further details.
Redemption of Series F Preferred Shares
On December 21, 2017, we redeemed all 5.0 million of our 6.625% Series F cumulative redeemable preferred shares
("Series F preferred shares"). The shares were redeemed at a redemption price of $25.299045 per share ($25.00 per
share liquidation preference plus accrued dividends up to, but not including the redemption date) for a total aggregate
51
redemption price of approximately $126.5 million. In conjunction with the redemption, we recognized a charge
representing the original issuance costs that were paid in 2012 and other redemption related expenses. The aggregate
reduction to net income available to common shareholders was approximately $4.5 million. See Note 11 to the
consolidated financial statements in this Annual Report on Form 10-K for further details.
Investment Spending
Our investment spending during the year ended December 31, 2017 totaled $1.6 billion, and included investments in
each of our four operating segments.
Entertainment investment spending during the year ended December 31, 2017 totaled $319.7 million, including spending
on build-to-suit development and redevelopment of megaplex theatres, entertainment retail centers and family
entertainment centers, as well as $154.1 million in acquisitions of six megaplex theatres.
Recreation investment spending during the year ended December 31, 2017 totaled $1.0 billion, including the transaction
with CNL Lifestyle and OZRE valued at $730.8 million discussed below. Additionally, included in recreation investment
spending was build-to-suit development of golf entertainment complexes and attractions, redevelopment of ski
properties, $62.7 million in acquisitions of six other recreation facilities and an investment of $10.8 million in a mortgage
note secured by one other recreation facility.
On April 6, 2017, we completed a transaction with CNL Lifestyle and OZRE. We acquired the Northstar California
Resort, 15 attraction properties (waterparks and amusement parks), five small family entertainment centers and certain
related working capital for aggregate consideration valued at $479.8 million, including final purchase price adjustments.
Additionally, we provided $251.0 million of secured debt financing to OZRE for its purchase of 14 CNL Lifestyle ski
properties valued at $374.5 million. Subsequent to the transaction, we sold the five family entertainment centers for
approximately $6.8 million and one waterpark for approximately $2.5 million. No gain or loss was recognized on these
sales. See Note 3 to the consolidated financial statements included in this Annual Report on Form 10-K for further
detail.
Education investment spending during the year ended December 31, 2017 totaled $255.1 million, including spending
on build-to-suit development and redevelopment of public charter schools, early education centers and private schools,
as well as $38.5 million in acquisitions of seven early education centers and two public charter schools and an investment
of $97.6 million in mortgage notes receivable.
Other investment spending during the year ended December 31, 2017 totaled $1.1 million and was related to the Resorts
World Catskills casino and resort project in Sullivan County, New York.
52
The following details our investment spending during the years ended December 31, 2017 and 2016 (in thousands):
For the Year Ended December 31, 2017
Total
Investment
Spending
$
319,665
1,006,741
255,127
1,079
$ 1,582,612
New
Development
62,521
$
189,907
119,047
1,079
372,554
$
Re-
development
95,520
$
1,223
—
—
96,743
$
Asset
Acquisition
154,144
$
542,453
38,497
—
735,094
$
For the Year Ended December 31, 2016
Total
Investment
Spending
$
266,101
198,345
338,659
1,903
New
Development
37,265
$
134,195
208,288
1,903
Re-
development
56,820
$
7,598
—
—
Asset
Acquisition
148,398
$
—
16,456
—
Operating Segment
Entertainment
Recreation
Education
Other
Total Investment Spending
Operating Segment
Entertainment
Recreation
Education
Other
Total Investment Spending
$
805,008
$
381,651
$
64,418
$
164,854
$
Investment in
Mortgage Notes
and Notes
Receivable
$
$
7,480
273,158
97,583
—
378,221
Investment in
Mortgage Notes
and Notes
Receivable
$
23,618
56,552
113,915
—
194,085
The above amounts include $118 thousand and $192 thousand in capitalized payroll, $9.9 million and $10.7 million
in capitalized interest and $3.3 million and $5.1 million in capitalized other general and administrative direct project
costs for the years ended December 31, 2017 and 2016, respectively. Excluded from the table above is $4.7 million
and $5.0 million of maintenance capital expenditures for the years ended December 31, 2017 and 2016, respectively.
Property Dispositions
During the year ended December 31, 2017, we completed the sale of four entertainment properties for net proceeds
totaling $72.4 million. In connection with these sales, we recognized a gain on sale of $19.4 million.
During the year ended December 31, 2017, pursuant to tenant purchase options, we completed the sale of eight public
charter schools located in Colorado, Arizona, North Carolina and Utah for net proceeds totaling $97.3 million. In
connection with these sales, we recognized a gain on sale of $20.7 million. Additionally, we completed the sale of three
other education facilities for net proceeds of $10.5 million. In connection with these sales, we recognized a gain on
sale of $1.8 million.
Mortgage Notes Receivable
During the year ended December 31, 2017, we received a partial prepayment of $4.0 million on one mortgage note
receivable that is secured by the observation deck of the John Hancock building in Chicago, Illinois. 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. This amendment also reduced the interest rate to 9.25% which began on July 1, 2017.
In connection with the partial prepayment of this note, we received a prepayment fee of $0.8 million, which is being
recognized over the term of the remaining note using the effective interest method due to the related amendment to the
loan agreement. Additionally, we received a partial prepayment of $0.7 million on one mortgage note receivable that
53
is secured by 14 ski properties. In connection with the partial prepayment, we received a prepayment fee of $0.2 million.
This fee is included in mortgage and other financing income.
During the year ended December 31, 2017, we received a prepayment of $3.4 million on one mortgage note receivable
that was secured by a public charter school property located in Dallas, Texas. In connection with this prepayment, we
received a prepayment fee of $0.6 million which is included in mortgage and other financing income. In conjunction
with this payoff, we wrote off $58 thousand of prepaid mortgage fees to costs associated with loan refinancing or payoff.
On December 22, 2017, per the terms of a mortgage note agreement, a borrower exercised their option to convert its
$9.1 million mortgage note agreement to a 15-year triple-net lease agreement. As a result, we recorded the carrying
value of the 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.
Subsequent to December 31, 2017, a borrower exercised its put option to convert its $142.9 million mortgage note
agreement to a lease agreement. As a result, in 2018, we recorded the rental property at fair value, which approximated
the carrying value of its investment on the conversion date. There was no gain or loss recognized on this transaction.
The properties are leased pursuant to a triple-net master-lease with a 25-year term.
Investment in a Direct Financing Lease
As previously discussed, we are committed to increasing the tenant diversity of our public charter school portfolio and
reducing the concentration with Imagine Schools, Inc. ("Imagine"). As part of this effort, we have engaged various
brokers to help in this process and part of their feedback included the need for additional lease term on these assets.
During the year ended December 31, 2017, we entered into revised lease terms with Imagine which reduced rental
payments and the lease term on six properties. In exchange for lowering the existing annual cash payments by
approximately $0.5 million and reducing the remaining lease term to 10 years, Imagine agreed that upon the sale of
these properties, they would enter into new 20-year leases with the buyer(s). While we believe the restructure will aid
in the disposition of these assets, the changes resulted in the lease structure no longer being classified as a direct financing
lease. Accordingly, we recorded an impairment charge of $9.6 million during the year ended December 31, 2017,
which included an allowance for lease loss of $7.3 million and an impairment charge of $2.3 million related to the
estimated unguaranteed residual value.
Additionally, during the year ended December 31, 2017, we performed our annual review of the estimated unguaranteed
residual value on our other properties leased to Imagine and determined that the residual value on one of these properties
was impaired. As such, we recorded an impairment of the unguaranteed residual value of $0.6 million during the year
ended December 31, 2017.
Early Childhood Education Tenant Update
During 2017, cash flow of Children’s Learning Adventure USA, LLC (“CLA”) was negatively impacted by challenges
brought on by its rapid expansion and related ramp up to stabilization and by adverse weather events in Texas during
the third quarter of 2017. During 2017, we participated in negotiations among CLA and other landlords regarding a
potential restructuring. Although negotiations are on-going and progress has been made toward a restructuring,
investments necessary to accomplish the restructuring have not yet been secured. As a result of the slow progress with
negotiations, in October 2017, we terminated nine leases with various subsidiaries of CLA, seven of which relate to
completed construction and two of which relate to unimproved land. These subsidiaries of CLA continue to operate
these properties (other than the two unimproved properties) as holdover tenants. In December 2017, these CLA
subsidiaries (other than one of the CLA tenants for an unimproved land parcel) and other CLA subsidiaries that are
tenants of our remaining leases (“CLA Debtors”) filed petitions in bankruptcy under Chapter 11 seeking the protections
of the Bankruptcy Code. It is our understanding that the CLA Debtors filed these bankruptcy petitions to stay our
termination of the remaining CLA leases and delay the eviction process.
While we continue to support negotiation of a restructuring that would permit CLA to continue operations, we are not
willing to negotiate indefinitely. We intend to pursue our legal remedies to secure possession of our properties as
54
expeditiously as possible. We believe the time it will take to achieve this outcome gives CLA ample opportunity to
negotiate a restructuring which, if successful, would obviate the need to evict CLA from our properties. There can be
no assurances as to the ultimate outcome of such a restructuring or the Company's pursuit of its legal remedies with
respect to the CLA properties.
We fully reserved approximately $6.0 million in receivables from CLA at December 31, 2017. Additionally, during the
three months ended December 31, 2017, we wrote-off the full amount of non-cash straight-line rent receivables of
approximately $9.0 million related to CLA to straight-line rental revenue classified in rental revenue in the accompanying
consolidated statements of income. If we receive payments from CLA in the future, we will recognize them on a cash
basis until a successful restructuring is completed. At December 31, 2017, we had approximately $255.7 million related
to CLA classified in rental properties, net, in the accompanying consolidated balance sheets at December 31, 2017.
Additionally, we had approximately $11.2 million classified in Land held for development and $14.5 million classified
in Property under development in the accompanying consolidated balance sheets at December 31, 2017. We reviewed
these balances for impairment at December 31, 2017 and determined that the estimated undiscounted future cash flows
exceeded the carrying value of these properties.
Results of Operations
Year ended December 31, 2017 compared to year ended December 31, 2016
Rental revenue was $468.6 million for the year ended December 31, 2017 compared to $399.6 million for the year
ended December 31, 2016. This increase resulted primarily from $82.6 million of rental revenue related to property
acquisitions and developments completed in 2017 and 2016, including our transaction with CNL Lifestyle which closed
on April 6, 2017. This increase was partially offset by a decrease of $13.6 million in rental revenue on existing properties,
primarily due to lower straight-line rental revenue and the reversal of prior period straight-line receivables of $4.0
million and $7.4 million, respectively, as well as a reduction in rental revenue of $2.7 million all relating to one of our
early education tenants. In addition, property dispositions contributed to this decrease. Percentage rents of $7.8 million
and $4.7 million were recognized during the years ended December 31, 2017 and 2016, respectively. Straight-line rents,
net of $4.3 million and $17.0 million were recognized during the years ended December 31, 2017 and 2016, respectively.
The decrease of $12.7 million in straight-line rent is due primarily to lower straight-line rent and the reversal of prior
period straight-line rent receivables from one of our early education tenants, CLA.
During the year ended December 31, 2017, we renewed 27 lease agreements on approximately 2.2 million square feet
and funded or agreed to fund an average of $28.44 per square foot in tenant improvements. We experienced an increase
of approximately 15% in rental rates and paid no leasing commissions with respect to these lease renewals.
Other income was $3.1 million for the year ended December 31, 2017 compared to $9.0 million for the year ended
December 31, 2016. The $5.9 million decrease was primarily due to higher gains from insurance recovery and fee
income recognized during the year ended December 31, 2016.
Mortgage and other financing income for the year ended December 31, 2017 was $88.7 million compared to $69.0
million for the year ended year ended December 31, 2016. The $19.7 million increase was primarily due to additional
real estate lending activities during 2017 and 2016, including our investment in a mortgage note receivable with OZRE
secured by 14 ski properties which closed on April 6, 2017. This increase was offset by a decrease of $2.8 million in
prepayment fees received in connection with prepayments of mortgage notes receivable during the year ended December
31, 2017, as well as the sale of nine public charter school properties that were accounted for as direct financing leases
during 2016.
Our property operating expense totaled $31.7 million for the year ended December 31, 2017 compared to $22.6 million
for the year ended December 31, 2016. These property operating expenses arise from the operations of our retail centers
and other specialty properties. The $9.1 million increase resulted primarily from an increase in bad debt expense related
to one of our early education tenants, CLA, as well as higher property operating expenses at our multi-tenant properties.
55
Our general and administrative expense totaled $43.4 million for the year ended December 31, 2017 compared to $37.5
million for the year ended December 31, 2016. The increase of $5.9 million was primarily due to an increase in payroll
and benefits costs, including share based compensation, as well as increases in professional fees and franchise taxes.
Costs associated with loan refinancing or payoff for the year ended December 31, 2017 was $1.5 million and primarily
related to the amendment to our unsecured revolving credit facility and term loan and the prepayment of secured fixed
rate mortgage notes payable. Costs associated with loan refinancing or payoff totaled $0.9 million for the year ended
December 31, 2016 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.
Gain on early extinguishment of debt for the year ended December 31, 2017 was $1.0 million and related to a note
payoff in advance of maturity that was initially recorded at fair value upon acquisition. There was no gain on early
extinguishment of debt for the year ended December 31, 2016.
Our net interest expense increased by $36.0 million to $133.1 million for the year ended December 31, 2017 from $97.1
million for the year ended December 31, 2016. This increase resulted primarily from an increase in average borrowings
used to finance our real estate acquisitions and fund our mortgage notes receivable.
Transaction costs totaled $0.5 million for the year ended December 31, 2017 compared to $7.9 million for the year
ended December 31, 2016. The decrease of $7.4 million was due to a decrease in potential and terminated transactions
as well as our early adoption of ASU 2017-01.
Impairment charges for the year ended December 31, 2017 totaled $10.2 million and related to six charter school
properties previously included in our investment in a direct financing lease. There were no impairment charges for the
year ended December 31, 2016. See Note 6 to the consolidated financial statements included in this Annual Report
on Form 10-K for further information.
Depreciation and amortization expense totaled $132.9 million for the year ended December 31, 2017 compared to
$107.6 million for the year ended December 31, 2016. The $25.3 million increase resulted primarily from asset
acquisitions and developments completed in 2017 and 2016, including our transaction with CNL Lifestyle which closed
on April 6, 2017. This increase was partially offset by property dispositions.
Gain on sale of real estate was $41.9 million for the year ended December 31, 2017 and related to the sale of four
entertainment properties, the exercise of eight tenant purchase options on public charter school properties and the sale
of three other education properties. Gain on sale of real estate was $5.3 million for the year ended December 31, 2016
and related to the sale of three retail parcels and the exercise of two tenant purchase options on public charter schools
properties.
Income tax expense was $2.4 million for the year ended December 31, 2017 compared to $0.6 million for the year
ended December 31, 2016 and related primarily to Canadian income taxes on our Canadian trust and Federal income
taxes on our taxable REIT subsidiaries, as well as state income taxes and withholding tax for distributions related to
our unconsolidated joint venture projects located in China. The $1.8 million increase in expense related primarily to
the reversal of a valuation allowance associated with the taxable REIT subsidiaries, deferred tax assets recorded in the
year ended December 31, 2016, as well as higher deferred tax expense in 2017 related to our Canadian trust. See Note
2 to the consolidated financial statements included in this Annual Report on Form 10-K for further information on the
impact to our results of operations from the recent Tax Cuts and Jobs Act, which is expected to be minimal.
Preferred dividend requirements for the year ended December 31, 2017 were $24.3 million compared to $23.8 million
for the year ended December 31, 2016. The $0.5 million increase is due to an increase of $0.7 million due to the issuance
of 6.0 million 5.75% Series G cumulative redeemable preferred shares on November 30, 2017, offset by a decrease of
$0.2 million as a result of the redemption of 5.0 million 6.625% Series F cumulative redeemable preferred shares on
December 21, 2017.
56
Preferred share redemption costs of $4.5 million for the year ended December 31, 2017 were due to the redemption of
all of our 6.625% Series F cumulative redeemable preferred shares on December 21, 2017. These costs consist of the
original issuance costs and other redemption related expenses. There were no preferred share redemption costs for the
year ended December 31, 2016.
Year ended December 31, 2016 compared to year ended December 31, 2015
Rental revenue was $399.6 million for the 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
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 Resorts World Catskills 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
57
this Annual Report on 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 Resorts World Catskills 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 returned 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.
Liquidity and Capital Resources
Cash and cash equivalents were $41.9 million at December 31, 2017. Of cash and cash equivalents at December 31,
2017, $33.8 million related to funds held for a 1031 exchange. In addition, we had restricted cash of $17.1 million at
December 31, 2017. Of the restricted cash at December 31, 2017, $13.2 million related to cash held for our borrowers’
debt service reserves for mortgage notes receivable or tenants' off-season rent reserves and $3.9 million related to
escrow deposits held related to potential acquisitions and developments.
Mortgage Debt, Senior Notes and Unsecured Revolving Credit Facility, Term Loan Facility and Equity Issuances
As of December 31, 2017, we had total debt outstanding of $3.0 billion of which 99% was unsecured.
At December 31, 2017, we had outstanding $2.1 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%. The notes
contain various covenants, including: (i) a limitation on incurrence of any debt that would cause the ratio of our debt
to adjusted total assets to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause the ratio
of secured debt to adjusted total assets to exceed 40%; (iii) a limitation on incurrence of any debt which would cause
our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of our total unencumbered
58
assets such that they are not less than 150% of our outstanding unsecured debt. As discussed above, our unsecured
senior notes are no longer guaranteed by our subsidiaries.
On September 27, 2017, we amended and restated our unsecured revolving credit and term loan facilities. We also
amended our private placement notes. See "Recent Developments" for further discussion.
At December 31, 2017, we had $210.0 million outstanding under our $1.0 billion unsecured revolving credit facility
with interest at a floating rate of LIBOR plus 100 basis points, which was 2.49% at December 31, 2017. 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 our eligible unencumbered assets, less outstanding letters of credit and
less other liabilities.
At December 31, 2017, our unsecured term loan facility had a balance of $400.0 million with interest at a floating rate
of LIBOR plus 110 basis points, which was 2.49% at December 31, 2017. As of December 31, 2017, $300.0 million
of this LIBOR-based debt was fixed with interest rate swap agreements at 2.64% from July 6, 2017 to April 5, 2019.
In addition, as of December 31, 2017, we have entered into interest rate swap agreements to fix the interest rate at
3.15% on an additional $50.0 million of this LIBOR-based debt from November 6, 2017 to April 5, 2019 and on $350.0
million of this LIBOR-based debt from April 6, 2019 to February 7, 2022.
At December 31, 2017, we had outstanding $340.0 million of senior unsecured notes that were issued 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 at 4.56% and due August 22, 2026.
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 these
financial covenants under our debt instruments at December 31, 2017.
Our principal investing activities are acquiring, developing and financing entertainment, recreation and education
properties. These investing activities have generally been financed with mortgage debt and senior unsecured notes, 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 or incur new mortgage debt on existing properties. 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, 2017.
During the year ended December 31, 2017, we issued an aggregate of 1,382,730 common shares under the direct share
purchase component of our DSPP for total net proceeds of $98.2 million.
During the year ended December 31, 2017, we issued 8,851,264 common shares in connection with the transactions
with CNL Lifestyle and OZRE. See Note 3 to the consolidated financial statements included in this Annual Report on
Form 10-K for further information.
59
Subsequent to December 31, 2017, we redeemed all of the outstanding 7.75% Senior Notes due July 15, 2020. The
notes were redeemed at a price equal to the principal amount of $250.0 million plus a premium of $28.6 million pursuant
to the terms of the indenture, together with accrued and unpaid interest up to, but not including the redemption date.
Additionally, we prepaid in full a mortgage note payable totaling $11.7 million that was secured by a theatre property.
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 $391.1 million, $306.2 million and $278.5 million for the years
ended December 31, 2017, 2016 and 2015, respectively. Net cash used by investing activities was $702.2 million,
$662.1 million and $568.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. Net cash
provided by financing activities was $333.5 million, $371.1 million and $292.0 million for the years ended December
31, 2017, 2016 and 2015, 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, 2017 consisted primarily of maturities of debt. Contractual obligations as of
December 31, 2017 are as follows (in thousands):
Contractual Obligations
Long Term Debt
Obligations
Interest on Long Term
Debt Obligations
Operating Lease
Obligations
Year ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
$
11,684
$
— $ 250,000
$
— $560,000
$ 2,239,995
$ 3,061,679
140,745
138,191
128,059
117,564
106,960
268,179
899,698
856
856
856
884
967
3,625
8,044
Total
$ 153,285
$ 139,047
$ 378,915
$ 118,448
$667,927
$ 2,511,799
$ 3,969,421
Commitments
As of December 31, 2017, we had an aggregate of approximately $168.7 million of commitments to fund development
projects including 23 entertainment development projects for which we have commitments to fund approximately $61.5
million, seven education development projects for which we have commitments to fund approximately $41.5 million
of additional improvements and four recreation development projects for which we have commitments to fund
approximately $65.7 million. Of these amounts, approximately $130.3 million is expected to be funded in 2018.
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, 2017, we had a commitment to fund approximately $155.0 million, of which $40.0
million has been funded, to complete an indoor waterpark hotel and adventure park at our casino and resort project in
Sullivan County, New York. Of this amount, approximately $80.0 million is expected to be funded in 2018. 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 during the year ended December 31, 2016 and an additional reimbursement of $23.9 million during
the year ended December 31, 2017. We expect to receive an additional $21.0 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, 2017, we had six mortgage notes receivable with commitments totaling
60
approximately $22.7 million, of which $15.0 million is expected to be funded in 2018. If commitments are funded in
the future, interest will be charged at rates consistent with the existing investments.
We guarantee the payment of certain economic development revenue bonds that are related to two theatres in Louisiana.
During the year ended December 31, 2017, these bonds were re-issued and the maturity date of these bonds was extended
to December 22, 2047. At December 31, 2017, the guarantees of the payment of these bonds totaled $24.7 million. We
earn a fee at an annual rate of 4.00% over the 30-year terms of the related bonds. We have recorded $13.4 million as
a deferred asset included in other assets and $13.4 million included in other liabilities in the accompanying consolidated
balance sheet included in this Annual Report on Form 10-K as of December 31, 2017 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, 2017, the Company had six surety bonds
outstanding totaling $22.8 million.
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.
Subsequent to December 31, 2017, we prepaid in full a mortgage note payable totaling $11.7 million that was secured
by a theatre property and redeemed all of our 7.75% Senior Notes due July 15, 2020. The Senior Notes were redeemed
at a price equal to the principal amount of $250.0 million plus a premium calculated pursuant to the terms of the
indenture of $28.6 million. Following these payments, we have no debt payments due until 2022. Our sources of
liquidity as of December 31, 2017 to make these debt pay-offs and to pay the 2018 commitments described above
include the amount available under our unsecured revolving credit facility of approximately $790.0 million and
unrestricted cash on hand of $41.9 million, which includes $33.8 million related to funds held for a Section 1031
exchange under the Internal Revenue Code. Accordingly, while there can be no assurance, we expect that our sources
of cash will exceed our existing commitments over the remainder of 2018.
We also believe that we will be able to repay, extend, refinance or otherwise settle our debt obligations for 2019 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 5.39x as of December 31, 2017 (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
61
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.
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 44% as of December 31, 2017. Our net debt as a percentage
of our total market capitalization at December 31, 2017 was 37%. We calculate our total market capitalization of $8.2
billion by aggregating the following at December 31, 2017:
• Common shares outstanding of 74,125,080 multiplied by the last reported sales price of our common shares
on the NYSE of $65.46 per share, or $4.9 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 $86.2 million;
• Aggregate liquidation value of our Series G redeemable preferred shares of $150.0 million; and
• Net debt of $3.0 billion.
62
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 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, retirement severance expense, preferred share redemption costs,
termination fees associated with tenants' exercises of public charter school buy-out options, impairment of direct
financing lease (allowance for lease loss portion) 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/below market
leases, net; and subtracting maintenance capital expenditures (including second generation tenant improvements and
leasing commissions), straight-line 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, 2017, 2016 and 2015 and reconciles such measures to net income available to common
shareholders, the most directly comparable GAAP measure (unaudited, in thousands, except per share information):
63
FFO:
Net income available to common shareholders of EPR Properties
Gain on sale of real estate (excluding land sale)
Real estate depreciation and amortization
Allocated share of joint venture depreciation
Impairment of direct financing lease - residual value portion (1)
FFO available to common shareholders of EPR Properties
FFO available to common shareholders of EPR Properties
Add: Preferred dividends for Series C preferred shares
Add: Preferred dividends for Series E 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
Retirement severance expense
Preferred share redemption costs
Gain on early extinguishment of debt
Gain on sale of land
Deferred income tax expense (benefit)
Impairment of direct financing lease - allowance for lease loss portion (1)
FFOAA available to common shareholders of EPR Properties
FFOAA available to common shareholders of EPR Properties
Add: Preferred dividends for Series C preferred shares
Add: Preferred dividends for Series E 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 (2)
Straight-line rental revenue, net
Non-cash portion of mortgage and other financing income
Amortization of above/below market leases, net and tenant allowances
AFFO available to common shareholders of EPR Properties
FFO per common share attributable to EPR Properties:
Basic
Diluted
FFOAA per common share attributable to EPR Properties:
Basic
Diluted
Shares used for computation (in thousands):
Basic
Diluted
Weighted average shares outstanding-diluted EPS
Effect of dilutive Series C preferred shares
Effect of dilutive Series E preferred shares
Other financial information:
Dividends per common share
64
Year ended December 31,
2016
2015
2017
$ 234,218
(41,942)
132,040
218
2,897
$ 327,431
$ 327,431
7,763
7,761
$ 342,955
$ 327,431
1,549
(606)
20,049
523
—
4,457
(977)
—
812
7,298
$ 360,536
$ 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
$ 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
$ 360,536
7,763
7,761
$ 307,983
7,764
—
$ 260,347
7,763
—
$ 376,060
$ 315,747
$ 268,110
$ 360,536
906
6,167
14,142
(5,523)
(4,332)
(3,080)
(107)
$ 368,709
$ 307,983
1,524
4,787
11,164
(6,214)
(17,012)
(3,769)
183
$ 298,646
$ 260,347
1,653
4,588
8,508
(3,856)
(12,159)
(9,435)
192
$ 249,838
$
$
$
$
4.60
4.58
5.06
5.02
$
$
4.81
4.77
4.86
4.82
71,191
71,254
71,254
2,068
1,586
74,908
63,381
63,474
63,474
2,032
—
65,506
4.05
4.03
4.48
4.44
58,138
58,328
58,328
2,017
—
60,345
$
4.08
$
3.84
$
3.63
(1) Impairment charges recognized during the year ended December 31, 2017 total $10.2 million and related to our
investment in a direct financing lease, net, consisting of $2.9 million related to the residual value portion and $7.3
million related to the allowance for lease loss portion. See Note 6 to the consolidated financial statements in this
Annual Report on Form 10-K for further details.
(2) Includes maintenance capital expenditures and certain second generation tenant improvements and leasing
commissions.
The conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative
preferred shares would be dilutive to FFO and FFOAA per share for the year ended December 31, 2017. Therefore,
the additional 2.1 million and 1.6 million common shares that would result from the conversion and the corresponding
add-back of the preferred dividends declared on those shares are included in the calculation of diluted FFO and diluted
FFOAA per share for the year ended December 31, 2017.
The conversion of 5.75% Series C cumulative convertible preferred shares would be dilutive to FFO and FFOAA per
share for the years ended December 31, 2016 and 2015. Therefore, the additional 2.0 million common shares that would
result from the conversion and the corresponding add-back of the preferred dividends declared on those shares are
included in the calculation of diluted FFO and diluted FFOAA per share for the years ended December 31, 2016 and
2015. The effect of the conversion of our 9.0% Series E cumulative convertible preferred shares and the additional
1.6 million common shares that would result from the conversion do not result in more dilution to per share results and
are therefore not included in the calculation of diluted FFO and FFOAA per share data for the years ended December
31, 2016 and 2015.
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 early extinguishment of debt, gain
on insurance recovery, income tax expense (benefit), preferred dividend requirements, preferred share redemption costs,
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. For the three months ended December
31, 2017, Adjusted EBITDA was further adjusted to reflect zero Adjusted EBITDA related to one of our early education
tenants, CLA.
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.
65
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):
66
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 loss (income) from joint ventures
Gain on sale of real estate
Income tax expense (benefit)
Preferred dividend requirements
Preferred share redemption costs
Gain on insurance recovery (1)
Straight-line rental revenue write-off related to CLA (2)
Bad debt expense related to CLA (3)
Adjusted EBITDA (for the quarter)
Adjusted EBITDA (4)
Net Debt/Adjusted EBITDA Ratio
December 31,
2017
2016
3,028,827
32,852
(41,917)
3,019,762
$
$
2,485,625
29,320
(19,335)
2,495,610
Three Months Ended December 31,
2017
2016
$
$
$
54,668
58
35,271
135
37,027
14
(13,480)
383
6,438
4,457
—
9,010
6,003
139,984
559,936
5.39
52,190
—
26,834
2,988
28,351
(118)
(1,430)
(84)
5,951
—
(847)
—
—
113,835
455,340
5.48
$
$
$
$
$
(1) 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,
2017
2016
$
$
577
—
—
—
577
$
$
705
1,588
847
87
3,227
(2) Included in rental revenue in the accompanying consolidated statements of income. Rental revenue includes the
following:
Minimum rent
Percentage rent
Straight-line rental revenue
Straight-line rental revenue write-off related to CLA
Other rental revenue
Rental revenue
Three Months Ended December 31,
2017
2016
$
$
123,208
3,108
1,925
(9,010)
84
119,315
$
$
99,354
1,966
6,062
—
92
107,474
(3) Included in property operating expense in the accompanying consolidated statements of income. Property
operating expense includes the following:
Three Months Ended December 31,
2017
2016
Expenses related to the operations of our retail centers and other specialty
properties
Bad debt expense
Bad debt expense related to CLA
Property operating expense
$
$
6,649
239
6,003
12,891
$
$
5,778
137
—
5,915
(4) Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount.
67
Total Investments
Total investments is a non-GAAP financial measure defined as the sum of the carrying values of rental properties
(before accumulated depreciation), land held for development, property under development, mortgage notes receivable
(including related accrued interest receivable), investment in direct financing leases, net, investment in joint ventures,
intangible assets, gross (before accumulated amortization and included in other assets) and notes receivable and related
accrued interest receivable, net (included in other assets). Total investments is a useful measure for management and
investors as it illustrates across which asset categories the Company's funds have been invested. Our method of
calculating total investments may be different from methods used by other REITs and, accordingly, may not be
comparable to such other REITs. A reconciliation of total investments to total assets (computed in accordance with
GAAP) is included in the following table (unaudited, in thousands):
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 direct financing leases, 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, 2017
December 31, 2016
$
$
$
$
4,604,231
741,334
33,692
257,629
970,749
57,903
5,602
35,209
5,083
6,711,432
6,711,432
41,917
17,069
93,693
(741,334)
(6,340)
75,056
6,191,493
$
$
$
$
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
(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
December 31, 2017
35,209
$
(6,340)
5,083
75,056
109,008
$
December 31, 2016
28,787
$
(14,008)
4,765
79,410
98,954
$
68
Impact of Recently Issued Accounting Standards
See Note 2 to the consolidated financial statements included in this Annual Report on 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 may 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. During
deflationary periods, the escalations in base rents or interest that are dependent on increases in the Consumer Price
Index in our leases and mortgage notes receivable may be adversely affected.
Our leases are generally triple-net leases requiring the tenants to pay substantially all expenses associated with the
operation of the properties, thereby minimizing our exposure to increases in costs and operating expenses resulting
from inflation. A portion of our megaplex theatre, retail and restaurant leases are non-triple-net leases. These non-triple
net entertainment leases represent approximately 14% 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, 2017, we had a $1.0 billion unsecured revolving
credit facility with $210.0 million outstanding and $25.0 million in bonds, all of which bear interest at a floating rate.
We also had a $400.0 million unsecured term loan facility that bears interest at a floating rate based on LIBOR. As of
December 31, 2017, we had two interest rate swap agreements to fix the interest rate at 2.64% on $300.0 million of
this LIBOR-based debt from from July 6, 2017 to April 5, 2019. Additionally, as of December 31, 2017,we had three
interest rate swap agreements to fix the interest rate at 3.15% on $50.0 million of this LIBOR-based debt from November
6, 2017 to April 5, 2019 and on $350.0 million of this LIBOR-based debt from April 6, 2019 to February 7, 2022.
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.
69
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)
2018
2019
2020
2021
2022
Thereafter
Total
Estimated
Fair Value
$ 11.7
$ — $250.0
$ — $350.0
$2,165.0
$2,776.7
$2,881.9
6.2%
—%
7.8%
—%
5.8%
4.4%
4.8%
3.9%
$ — $ — $ — $ — $210.0
$
75.0
$ 285.0
$ 285.0
—%
—%
—%
—%
2.5%
2.2%
2.4%
2.4%
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%
5.1%
4.2%
25.0
$
75.0
$
75.0
—%
—%
—%
2.2%
—%
0.8%
1.7%
1.7%
December 31, 2017:
Fixed rate debt
Average interest rate
Variable rate debt
Average interest rate
(as of December 31,
2017)
December 31, 2016:
Fixed rate debt
Average interest rate
Variable rate debt
Average interest rate
(as of December 31,
2016)
The fair value of our debt as of December 31, 2017 and 2016 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
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. Additionally, on August 30, 2017, we entered into a
cross-currency swap that will be effective July 1, 2018 with a fixed original notional value of $100.0 million CAD and
$79.5 million U.S. The net effect of these swaps is to lock in an exchange rate of 1.26 CAD per U.S. dollar on
approximately $13.5 million of annual CAD denominated cash flows on the properties through June 2020.
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, 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.
70
Item 8. Financial Statements and Supplementary Data
EPR Properties
Contents
Report of Independent Registered Public Accounting Firm...............................................................................
72
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 ......................................................................................................
74
75
76
77
79
81
Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts..............................................................................................
Schedule III - Real Estate and Accumulated Depreciation.................................................................................
126
127
71
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
EPR Properties:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of EPR Properties and subsidiaries (the “Company”)
as of December 31, 2017 and 2016, 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, 2017, and the related notes
and financial statement schedules II and III (collectively, the “consolidated financial statements”). We also have audited
the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, 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 consolidated financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting 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 audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
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
72
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.
We have served as the Company’s auditor since 2002.
Kansas City, Missouri
February 28, 2018
73
EPR PROPERTIES
Consolidated Balance Sheets
(Dollars in thousands except share data)
Assets
Rental properties, net of accumulated depreciation of $741,334 and $635,535 at
December 31, 2017 and 2016, respectively
Land held for development
Property under development
Mortgage notes and related accrued interest receivable, net
Investment in direct financing leases, 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:
$
$
$
December 31,
2017
2016
$
$
$
4,604,231
33,692
257,629
970,749
57,903
5,602
41,917
17,069
93,693
109,008
6,191,493
136,929
25,203
4,982
68,227
3,028,827
3,264,168
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
Common Shares, $.01 par value; 100,000,000 shares authorized; and
76,858,632 and 66,263,487 shares issued at December 31, 2017 and 2016,
respectively
Preferred Shares, $.01 par value; 25,000,000 shares authorized:
5,399,050 Series C convertible shares issued at December 31, 2017 and
2016; liquidation preference of $134,976,250
3,449,115 and 3,450,000 Series E convertible shares issued at
December 31, 2017 and 2016, respectively; liquidation preference of
$86,227,875
0 and 5,000,000 Series F shares issued at December 31, 2017 and 2016,
respectively; liquidation preference of $125,000,000
6,000,000 and 0 Series G shares issued at December 31, 2017 and 2016,
respectively; liquidation preference of $150,000,000
Additional paid-in-capital
Treasury shares at cost: 2,733,552 and 2,616,406 common shares at
December 31, 2017 and 2016, respectively
Accumulated other comprehensive income
Distributions in excess of net income
Total equity
Total liabilities and equity
769
663
54
34
—
54
35
50
60
3,478,986
(121,591)
12,483
(443,470)
2,927,325
6,191,493
$
$
$
$
—
2,677,046
(113,172)
7,734
(386,509)
2,185,901
4,865,022
See accompanying notes to consolidated financial statements.
74
EPR PROPERTIES
Consolidated Statements of Income
(Dollars in thousands except per share data)
Year Ended December 31,
$
$
2017
468,648
15,555
3,095
88,693
575,991
31,653
242
43,383
—
1,549
(977)
133,124
523
10,195
132,946
223,353
72
41,942
265,367
(2,399)
262,968
—
262,968
(24,293)
(4,457)
$
$
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)
—
$
234,218
$
201,176
$
170,726
$
$
$
$
3.29
—
3.29
3.29
—
3.29
$
$
$
$
3.17
—
3.17
3.17
—
3.17
$
$
$
$
2.93
0.01
2.94
2.92
0.01
2.93
71,191
71,254
63,381
63,474
58,138
58,328
$
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
Gain on early extinguishment of debt
Interest expense, net
Transaction costs
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
Income before income taxes
Income tax expense
Income from continuing operations
$
Discontinued operations:
Income from discontinued operations
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 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.
75
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,
2017
262,968
12,569
(7,820)
267,717
$
$
$
$
2016
224,982
$
2015
194,532
5,142
(3,030)
227,094
(33,710)
26,766
$
187,588
76
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7
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 early extinguishment of debt
Impairment charges
Gain on sale of real estate
Gain on insurance recovery
Deferred income tax expense (benefit)
Non-cash fee income
Income from discontinued operations
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 allowances, net
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
Decrease (increase) in accounts receivable, net
Increase in direct financing lease receivable
(Increase) decrease in other assets
(Decrease) increase in accounts payable and accrued liabilities
Increase (decrease) 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
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 direct financing leases, 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
Net proceeds from issuance of preferred shares
Redemption of preferred 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 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.
$
79
Year Ended December 31,
2016
2015
2017
$
262,968
$
224,982
$
194,532
(977)
10,195
(41,942)
(606)
812
—
—
1,549
(72)
442
132,946
6,167
(107)
14,142
—
(858)
467
8,866
(1,208)
(1,691)
(4,920)
4,927
391,100
—
391,100
(397,697)
191,569
(133,697)
21,784
(1,928)
1,599
—
606
—
(384,449)
(702,213)
1,371,000
(823,288)
(14,318)
(7)
99,069
144,490
(125,025)
(5)
(6,729)
(311,721)
333,466
229
22,582
19,335
41,917
$
—
—
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(4,684)
(1,065)
(1,588)
—
905
(619)
816
107,573
4,787
183
11,164
—
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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
—
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(1,488)
(4,211)
(265,662)
371,134
(137)
15,052
4,283
19,335
$
—
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—
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—
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270
(969)
540
89,617
4,588
192
8,508
6,377
2,017
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(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
—
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(3,394)
(8,222)
(233,073)
292,022
(996)
947
3,336
4,283
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
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
Conversion of rental property to mortgage note receivable
Issuance of common shares for acquisition
Assumption of liabilities net of accounts receivable for acquisition
Transfer of investment in direct financing lease to rental properties
Adjustment of noncontrolling interest to additional paid in capital
Sale of investment in direct financing leases, 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,
2016
2015
2017
408,593
$
— $
454,922
$
— $
24,062
9,237
11,897
657,473
12,083
35,807
$
$
$
$
$
$
— $
19,626
$
— $
— $
— $
— $
— $
— $
392,786
167,600
14,285
120,051
—
—
—
—
377
— $
70,304
$
—
136,345
1,499
9,879
333
$
$
$
$
96,410
1,684
10,697
6,035
$
$
$
$
90,850
1,956
18,546
417
$
$
$
$
$
$
$
$
$
$
$
$
$
$
80
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, Recreation and Education. 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, three to 25 years for furniture,
fixtures and equipment and 10 to 20 years for site improvements. Tenant improvements, including allowances, are
depreciated over the shorter of the base term of the lease or the estimated useful life and leasehold interests are depreciated
over the useful life of the underlying ground lease. 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 it is
probable the assets will be sold 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.
Real Estate Acquisitions
Upon acquisition of real estate properties, the Company determines if the acquisition is a business combination or an
asset acquisition. In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business
with the objective of adding guidance to assist entities with evaluating whether acquisitions should be accounted for
as business combinations or asset acquisitions. The standard is effective for annual reporting periods beginning after
81
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted.
The Company has elected to early adopt ASU No. 2017-01 as of January 1, 2017. As a result, the Company expects
that fewer of its real estate acquisitions will be accounted for as business combinations.
Prior to the adoption of ASU 2017-01, the Company typically accounted for (1) acquired vacant properties, (2) acquired
single tenant properties when a new lease or leases was signed at the time of acquisition, and (3) acquired single tenant
properties that had an existing long-term triple-net lease or leases (greater than seven 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) were treated as business
combinations.
If the acquisition is determined to be an asset acquisition, the Company records the purchase price and other related
costs incurred to the acquired tangible assets (consisting of land, building, site improvements, tenant improvements,
leasehold interests 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) on a relative fair value basis. Typically, relative fair values are based on recent independent
appraisals or methods similar to those used by independent appraisers and management judgment. In addition, costs
incurred for asset acquisitions including transaction costs, are capitalized.
If the acquisition is determined to be a business combination, the Company records the fair value of acquired tangible
assets (consisting of land, building, site improvements, tenant improvements, leasehold interests 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. Typically, fair values are based on recent independent appraisals. 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 $0.5 million, $7.9 million and $7.5 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
For rental property acquisitions (asset acquisitions or business combinations), 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. For land acquired with a rental property acquisition,
available market data from recent comparable land sales is used as an input to estimate the fair value of the land.
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.
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.
In determining the fair value of acquired above and below market 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
82
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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.
In determining the fair value of tradenames, the Company uses the relief from royalty method, which estimates the fair
value of hypothetical royalty income that could be generated if the intangible asset was licensed from an independent
third-party.
The Company also considers 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
required to be amortized over the remaining initial lease terms plus any renewal periods.
The excess of the cost of an acquired business (in a business combination) over the net of the amounts assigned to
assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill has
an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events
or changes in circumstances indicate that the asset might be impaired.
Management of the Company reviews the carrying value of intangible assets for impairment on an annual basis.
Intangible assets and liabilities (included in Other assets and Accounts payable and accrued liabilities in the
accompanying consolidated balance sheets) consist of the following at December 31 (in thousands):
Assets:
In-place leases, net of accumulated amortization of $5.5 million and $13.4
million, respectively
Above market lease, net of accumulated amortization of $0.8 million and $0.6
million, respectively
Tradenames, net of accumulated amortization of $23 thousand
Goodwill
Total intangible assets, net
Liabilities:
Below market lease, net of accumulated amortization of $0.3 million and $12
thousand, respectively
2017
2016
$
$
$
21,512
$
13,716
351
6,313
693
479
—
693
28,869
$
14,888
(8,792) $
(109)
In-place leases, net at December 31, 2017 and 2016 of approximately $21.5 million and $13.7 million, respectively,
relates to 35 and 24 properties, respectively. Amortization expense related to in-place leases is computed using the
straight-line method and was $2.0 million, $1.4 million and $1.4 million for the years ended December 31, 2017, 2016
and 2015, respectively. The weighted average life for these in-place leases at December 31, 2017 is 12.5 years.
Above market lease, net at December 31, 2017 and 2016 relates to two properties. Amortization expense related to the
above market lease is computed using the straight-line method and was $194 thousand, $192 thousand, and $192
thousand for the years ended December 31, 2017, 2016 and 2015, respectively. The weighted average life for these
above market leases at December 31, 2017 is 3.2 years.
Tradenames, net at December 31, 2017 relates to 12 properties. At December 31, 2017, $5.4 million in tradenames had
indefinite lives and were not amortized. Amortization expense related to the finite-lived tradenames is computed using
the straight-line method and was $23 thousand for the year ended December 31, 2017. The weighted average life for
these finite-lived tradenames at December 31, 2017 is 33.2 years.
83
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Goodwill at December 31, 2017 and 2016 relates solely to the acquisition of New Roc that was acquired on October 27,
2003.
Below market lease, net at December 31, 2017 relates to seven properties. Amortization expense related to below market
lease is computed using the straight-line method and was $307 thousand and $12 thousand for the years ended
December 31, 2017 and 2016, respectively. The weighted average life for these below market leases at December 31,
2017 is 30.8 years.
Future amortization of in-place leases, net, above market lease, net, and below market lease, net at December 31, 2017
is as follows (in thousands):
Year:
2018
2019
2020
2021
2022
Thereafter
Total
In place leases
Above market
lease
Below market
lease
Tradenames (1)
$
$
2,420
2,181
1,907
1,796
1,695
11,513
21,512
$
$
197
102
6
6
6
34
351
$
$
(458) $
(458)
(446)
(426)
(410)
(6,594)
(8,792) $
30
30
30
30
30
806
956
(1) Excludes $5.4 million in tradenames with indefinite lives.
Deferred Financing Costs
Deferred financing costs are amortized over the terms of the related debt obligations or mortgage note receivable as
applicable. Deferred financing costs of $32.9 million and $29.3 million as of December 31, 2017 and 2016, respectively
are shown as a reduction of debt. The deferred financing costs related to the unsecured revolving credit facility are
included in other assets.
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
The Company has four reportable operating segments: Entertainment, Recreation, Education 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 non-cancellable terms of the
leases. Straight-line rental revenue is subject to an evaluation for collectability, and the Company records a provision
for losses against rental revenues if collectability of these future rents is not reasonably assured. For the years ended
December 31, 2017, 2016, and 2015, the Company recognized $4.3 million, $17.0 million and $12.2 million,
respectively, of straight-line rental revenue, net of write-offs. 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 $7.8 million, $4.7 million and $3.0 million for the years ended
December 31, 2017, 2016 and 2015, respectively. Mortgage and other financing income included participating interest
income of $0.7 million, $0.8 million and $1.5 million for the years ended December 31, 2017, 2016 and 2015,
respectively. For the years ended December 31, 2017 and 2016, mortgage and other financing income also included
$0.8 million and $3.6 million, respectively, in prepayment fees related to mortgage notes that were paid fully in advance
84
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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.
Property Sales
Sales of real estate properties are recognized upon the closing of the transaction with the purchaser. Gains on sales of
properties are recognized on the full accrual method if the Company has received adequate initial and continuing
investment and has transferred to the buyer the usual risks and rewards of ownership and does not have substantial
continuing involvement with the property. If the full accrual sales criteria is not met, the Company will defer gain
recognition and apply the installment or cost recovery methods as appropriate until the full accrual sales criteria are
met.
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.
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
amounts deemed uncollectible. These estimates have a direct impact on the Company's net income. The allowance for
doubtful accounts was $7.5 million and $0.9 million at December 31, 2017 and 2016, 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. Interest income is recognized
using the effective interest method based on the stated interest rate over estimate life of the note. Premiums and discounts
are amortized or accreted into income over the estimated life of the note using the effective interest method. 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
85
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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. There were no impaired loans at
December 31, 2017, 2016 and 2015. During the year ended December 31, 2015, the Company wrote off $3.8 million
of a 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, 2017, the
net deferred tax assets related to the Company's Canadian operations totaled $11.7 million and the temporary differences
between income for financial reporting purposes and taxable income 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, 2017, the amount of this future liability was approximately
$125 thousand and represented withholding taxes on 2017 and 2016 earnings. Additionally, the Company paid $44
thousand in withholding taxes during the year ended December 31, 2017 that related to earnings repatriated during
2017.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the Tax Reform
Act). The legislation significantly changes the U.S. tax law by, among other things, lowering corporate income tax
rates and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act
permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January
1, 2018. The SEC staff issued Staff Accounting Bulletin No 118 to address the application of U.S. GAAP in situations
when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to
complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the
provisional tax impacts related to deemed repatriated earnings and included these amounts in its consolidated financial
statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts due
to, among other things, additional analysis, changes in interpretations and assumptions the Company has made,
additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform
Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018. The
impact of the mandatory repatriation and the revaluation of the deferred tax assets and liabilities is not significant to
the Company's financial position or results of operations.
At December 31, 2017, the net deferred tax assets related to the Company's taxable REIT subsidiaries totaled $410
thousand and the temporary differences between income for financial reporting purposes and taxable income relate
primarily to net operating loss carryovers.
As of December 31, 2017 and 2016, respectively, the Canadian operations and the Company's taxable REIT subsidiaries
had deferred tax assets totaling approximately $16.0 million and $17.0 million and deferred tax liabilities totaling
approximately $3.9 million and $4.7 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
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:
86
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
2017
2016
Fixed assets
Net operating losses
Other
Total deferred tax assets
Capital improvements
Straight-line receivable
Other
Total deferred tax liabilities
Net deferred tax asset
$
$
$
$
$
15,445
357
213
16,015
$
$
(2,006)
(1,891) $
—
(3,897) $
16,022
578
381
16,981
(1,716)
(2,177)
(830)
(4,723)
12,118
$
12,258
Additionally, during the years ended December 31, 2017, 2016 and 2015, the Company recognized current income and
withholding tax expense of $1.6 million, $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, 2017, 2016 and 2015 (in thousands):
2017
2016
2015
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
$
$
(163) $
(360)
(36)
(1,071)
137
43
(949)
(2,399) $
(36) $
(414)
(77)
(1,130)
273
39
792
(553) $
—
(899)
431
(1,107)
—
(43)
1,136
(482)
The Company's effective tax rate for the years ended December 31, 2017, 2016 and 2015 was 0.9%, 0.2% and 0.2%,
respectively. 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, 2017, 2016 and 2015. 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 for years prior to January 1, 2018)
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 2014 through 2017 remain generally open to examination
for U.S. federal income tax and state tax purposes and from 2013 through 2017 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 2017 or 2016. In 2015, approximately $65 thousand in interest and penalties
related to a state audit were recognized. The Company did not have any accrued interest and penalties at December 31,
2017 or December 31, 2016. Additionally, the Company did not have any unrecorded tax benefits as of December 31,
2017 and December 31, 2016.
87
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Concentrations of Risk
On December 21, 2016, American Multi-Cinema, Inc. (AMC) announced that it closed its acquisition of Carmike
Cinemas Inc. (Carmike). AMC was the lessee of a substantial portion (34%) of the megaplex theatre rental properties
held by the Company at December 31, 2017. For the year ended December 31, 2017, approximately $114.4 million
or 19.9% of the Company's total revenues were derived from rental payments by AMC. 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 year ended December 31, 2015, approximately $86.1 million or 20% 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. At December 31, 2017, cash equivalents also includes funds held for a
Section 1031 exchange under the Code, which can be withdrawn at the Company's discretion.
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 replaced
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 $14.1 million, $11.2 million and $8.5 million for the years ended December 31, 2017,
2016 and 2015, 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 $0.7 million, $0.9 million and $1.1 million for
the years ended December 31, 2017, 2016 and 2015, 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.
88
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 $12.2 million, $9.2 million and $6.3 million for the years ended December 31, 2017, 2016 and 2015,
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 $1.3 million, $1.1 million and $1.0 million for the years ended December 31, 2017, 2016 and
2015, 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
In August 2017, the FASB issued ASU No. 2017-012, Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities. The update amended existing guidance in order to better align a company's
financial reporting for hedging activities with the economic objectives of those activities. It requires the Company to
disclose the effect of its hedging activities on its consolidated statements of income and eliminated the periodic
measurement and recognition of hedging ineffectiveness. The standard is effective for annual reporting periods
beginning after December 15, 2018, including interim periods within those fiscal years, with early application of the
guidance permitted. The Company elected to early adopt ASU No. 2017-012 as of October 1, 2017. Early adoption
had no impact on the Company's financial position or results of operations.
The Company has entered into 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
89
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 when it satisfies performance obligations. The ASU will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective.
In February 2017, the FASB issued ASU No. 2017-05, Other Income: Gains and Losses from the Derecognition of
Nonfinancial Assets, which amends ASC Topic 610-20. ASU No. 2017-05 provides guidance on how entities recognize
sales, including partial sales, of nonfinancial assets (and in-substance nonfinancial assets) to non-customers. ASU No.
2017-05 requires the seller to recognize a full gain or loss in a partial sale of nonfinancial assets, to the extent control
is not retained. Any noncontrolling interest retained by the seller would, accordingly, be measured at fair value. Both
ASU No. 2014-09 and 2017-05 will become effective for the Company beginning with the first quarter of 2018. The
standards permit the use of either the full retrospective method or the modified retrospective method. The Company
has concluded it will use the modified retrospective method for transition under both standards, in which case the
cumulative effect of applying the standards, if any, would be recognized at the date of initial application.
The Company has reviewed its revenue streams and determined the significant majority of its revenue is derived from
lease revenue (which will be impacted upon adoption of the lease standard in 2019 discussed below) and mortgage and
other financing income (which is not in scope of the revenue standard). In addition, the Company also has sales of real
estate which have historically been primarily all-cash transactions with no contingencies and no future involvement in
the operations. For its all-cash sale transactions, the Company does not anticipate a significant change to the timing
of revenue recognition upon adoption of this new revenue standard. The Company had two property sale transactions
that occurred in 2017 in which the Company received $12.1 million in mortgage notes receivable as consideration for
the sale. The Company has evaluated these transactions under ASU 2014-09 and ASU 2017-05 and determined that
these transactions do not qualify for sale treatment under the new revenue recognition guidance. Accordingly, the
Company expects to record an adjustment in 2018 to reclassify these assets from mortgage notes receivable to rental
properties on its consolidated balance sheet.
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 No. 2016-02 will impact the
Company’s consolidated financial statements and disclosures as the Company has certain operating land leases and
other arrangements for which it is the lessee and will be required to recognize these arrangements on the financial
statements. 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. The Company
has assembled an implementation team that is assessing the effect that ASU No. 2016-02 will have on its consolidated
financial statements and related disclosures. Additionally, the Company is continuing to develop an implementation
plan based on the results of the assessment and is in process of reviewing its land lease contracts.
The Company currently believes substantially all of its leases in which it is the lessor will continue to be classified as
operating leases under the new standard. ASU No. 2016-02 specifies that payments for certain lease-related services,
which are often included in lease arrangements, represent “non-lease” components that will become subject to the
guidance in ASU No. 2014-09, Revenue from Contracts with Customers, when ASU No. 2016-02 becomes effective.
The FASB recently clarified that only new or modified leases subsequent to adoption of ASU No. 2016-02 will require
different accounting for “non-lease” components under the guidance in ASU No. 2014-09. On January 5, 2018, the
FASB issued a proposed update which includes a practical expedient which would allow lessors not to separate “non-
lease” components from the related lease components if both the timing and pattern of the revenue recognition are the
90
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
same for the “non-lease” components and including the “non-lease” components into a combined single lease component
would not change the lease classification. The proposed update also includes a practical expedient which allows the
lessors to use the effective date of ASU No. 2016-02 as the date of initial application, without restating comparative
periods, and to recognize a cumulative effect adjustment as of the effective date, if necessary. A set of practical expedients
for implementation, which must be elected as a package and for all leases, may also be elected. These practical expedients
include relief from re-assessing lease classification at the adoption date for expired or existing leases. The Company
has tentatively concluded that it will apply the practical expedients.
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 ASU changes the methodology for measuring
credit losses on financial instruments and timing of when such losses are recorded. ASU No. 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 ASU 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 ASU clarifies the treatment of several cash flow issues
with the objective of reducing diversity in practice. ASU No. 2016-15 is effective for fiscal years beginning after
December 15, 2017. The Company has determined that the adoption of ASU 2016-15 will not impact its financial
position or results of operations and there are no known changes in presentation as a result of adopting this standard.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows, which amends ASC Topic 230,
Statement of Cash Flows. The ASU 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 No. 2016-18 is effective for fiscal years beginning after December 15, 2017. The Company has
determined that the adoption of this ASU will result in the Company including restricted cash and cash and cash
equivalents on its Consolidated Statement of Cash Flows.
3. Rental Properties
The following table summarizes the carrying amounts of rental properties as of December 31, 2017 and 2016 (in
thousands):
Buildings and improvements
Furniture, fixtures & equipment
Land
Leasehold interests
Accumulated depreciation
Total
2017
4,123,356
87,630
1,108,805
25,774
5,345,565
(741,334)
4,604,231
$
$
2016
3,272,865
40,684
917,748
—
4,231,297
(635,535)
3,595,762
$
$
Depreciation expense on rental properties was $129.1 million, $103.9 million and $85.9 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Acquisitions
On April 6, 2017, the Company completed a transaction with CNL Lifestyle Properties Inc. (CNL Lifestyle) and funds
affiliated with Och-Ziff Real Estate (OZRE). The Company acquired the Northstar California Resort, 15 attraction
properties (waterparks and amusement parks), five small family entertainment centers and certain related working
capital for aggregate consideration valued at $479.8 million, including final purchase price adjustments. Additionally,
the Company provided $251.0 million of secured debt financing to OZRE for its purchase of 14 CNL Lifestyle ski
properties valued at $374.5 million. Subsequent to the transaction, the Company sold the five family entertainment
centers for approximately $6.8 million and one waterpark for approximately $2.5 million. No gain or loss was recognized
on these sales.
91
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The secured debt financing with OZRE has an initial term of five years with three 2.5-year options to extend. The note
bears interest fixed at 8.5%. The Company received a $3.0 million origination fee upon closing that will be recognized
using the effective interest method.
The Company assumed long-term, triple-net leases on the Northstar California Resort and three of the attractions
properties and entered into new long-term, triple-net lease agreements on the remaining attractions properties at closing.
Additionally, the Company assumed ground lease agreements on nine of the properties.
The Company’s aggregate investment in this transaction was $730.8 million and was funded with $657.5 million of
the Company’s common shares, consisting of 8,851,264 newly issued registered common shares valued at $74.28 per
share, $61.2 million of cash and assumed working capital liabilities (net of assumed accounts receivable) of $12.1
million. CNL Lifestyle subsequently distributed the common shares to its stockholders on April 20, 2017. The
Company's portion of the cash purchase price was funded with borrowings under its unsecured revolving credit facility.
This transaction was previously announced as a business combination and, accordingly, related expenses were
recognized as transaction costs through December 31, 2016. In connection with the adoption of ASU No. 2017-01 on
January 1, 2017, this transaction was determined to be an asset acquisition. As such, transaction costs related to this
asset acquisition incurred in 2017 have been capitalized.
The aggregate investment of $730.8 million in this transaction was recorded as follows (in thousands):
Rental properties, net
Mortgage notes and related accrued interest receivable
Tradenames (included in other assets)
Below market leases (included in accounts payable and
accrued liabilities)
Total investment
$
$
April 6, 2017
481,006
251,038
6,355
(7,611)
730,788
In addition, during the year ended December 31, 2017, the Company completed the acquisition of six megaplex theatres
for approximately $154.1 million, six other recreation facilities for approximately $62.7 million and seven early
education centers and two public charter schools for approximately $38.5 million.
During the year ended December 31, 2016, the Company completed the acquisition of eight megaplex theatres and a
family entertainment center for approximately $148.4 million, four early education centers and one private school for
approximately $16.5 million.
Dispositions
During the year ended December 31, 2017, the Company completed the sale of four entertainment properties for net
proceeds totaling $72.4 million. In connection with these sales, the Company recognized a gain on sale of $19.4 million.
During the year ended December 31, 2017, pursuant to tenant purchase options, the Company completed the sale of
eight public charter schools located in Colorado, Arizona and Utah for net proceeds totaling $97.3 million. In connection
with these sales, the Company recognized a gain on sale of $20.7 million. Additionally, the Company completed the
sale of three other education facilities for net proceeds of $10.5 million. In connection with these sales, the Company
recognized a gain on sale of $1.8 million.
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 Resorts World Catskills for net proceeds of $1.5 million and
92
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
no gain or loss was recognized. The results of operations of these properties have not been classified within discontinued
operations.
4. Accounts Receivable, Net
The following table summarizes the carrying amounts of accounts receivable, net as of December 31, 2017 and 2016
(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
2017
2016
19,923
3,932
—
14,718
62,605
(7,485)
93,693
$
$
7,564
497
1,967
22,164
67,618
(871)
98,939
$
$
In October 2017, the Company terminated nine leases with various subsidiaries of Children’s Learning Adventure USA,
LLC (CLA), seven of which relate to completed construction and two of which relate to unimproved land. These
subsidiaries of CLA continue to operate these properties (other than the two unimproved properties) as holdover tenants.
In December 2017, these CLA subsidiaries (other than one of the CLA tenants for an unimproved land parcel) and
other CLA subsidiaries that are tenants of the Company's remaining leases filed petitions in bankruptcy under Chapter
11 seeking the protections of the Bankruptcy Code.
The above total includes receivable from tenants of approximately $6.0 million from CLA, which were fully reserved
in the allowance for doubtful accounts at December 31, 2017. Additionally, during the three months ended December
31, 2017, the Company wrote-off the full amount of straight-line rent receivables of approximately $9.0 million related
to CLA to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of
income.
At December 31, 2017, the Company had approximately $255.7 million related to CLA classified in rental properties,
net, in the accompanying consolidated balance sheets at December 31, 2017. Additionally, the Company had
approximately $11.2 million classified in land held for development and $14.5 million classified in property under
development in the accompanying consolidated balance sheets at December 31, 2017. The Company reviewed these
balances for impairment at December 31, 2017 and determined that the estimated undiscounted future cash flows
exceeded the carrying value of these properties.
93
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
5. Investment in Mortgage Notes
Investment in mortgage notes, including related accrued interest receivable, at December 31, 2017 and 2016 consists
of the following (in thousands):
2017
2016
(1) Mortgage note and related accrued interest receivable,
borrower exercised option to convert to lease on
December 22, 2017
(2) Mortgage note and related accrued interest receivable,
10.25%, prepaid in full December 28, 2017
(3) Mortgage note and related accrued interest receivable,
9.00%, due March 11, 2018
(4) Mortgage note and related accrued interest receivable,
7.00%, due July 31, 2018
(5) Mortgage note and related accrued interest receivable,
7.50%, due January 6, 2019
(6) Mortgage notes and related accrued interest receivable,
7.00% and 10.00%, due May 1, 2019
(7) Mortgage note, 7.00%, due December 20, 2021
(8) Mortgage notes, 8.50%, due April 6, 2022
(9) Mortgage note and related accrued interest receivable,
7.85%, due December 28, 2026
(10) Mortgage note and related accrued interest receivable,
7.85%, due January 3, 2027
(11) Mortgage note and related accrued interest receivable,
9.25%, due June 28, 2032
(12) Mortgage note and related accrued interest receivable,
9.00%, due December 31, 2032
(13) Mortgage notes and related accrued interest receivable,
9.50%, due April 30, 2033
(14) Mortgage note, 11.31%, due July 1, 2033
(15) Mortgage note and related accrued interest receivable,
8.50% to 9.15%, due June 30, 2034
(16) Mortgage note and related accrued interest receivable,
9.50%, due August 31, 2034
(17) Mortgage note, 11.26%, due December 1, 2034
(18) Mortgage notes, 10.43%, due December 1, 2034
(19) Mortgage note, 10.88%, due December 1, 2034
(20) Mortgage note, 8.14%, due January 5, 2036
(21) Mortgage note, 10.25%, due May 31, 2036
(22) Mortgage note and related accrued interest receivable,
9.95%, due July 31, 2036
(23) Mortgage note, 9.75%, due August 1, 2036
(24) Mortgage note and related accrued interest receivable,
9.75%, due December 31, 2036
(25) Mortgage note and related accrued interest receivable,
8.50%, due April 30, 2037
(26) Mortgage note and related accrued interest receivable,
8.75%, due June 30, 2037
(27) Mortgage note and related accrued interest receivable,
8.50%, due July 31, 2037
(28) Mortgage note, 8.75%, due August 31, 2037
(29) Mortgage note and related accrued interest receivable,
10.14%, due September 30, 2037
(30) Mortgage note and related accrued interest receivable,
8.80%, due September 30, 2037
(31) Mortgage note and related accrued interest receivable,
8.50%, due November 30, 2037
(32) Mortgage note and related accrued interest receivable,
7.50%, due October 27, 2038
(33) Mortgage notes, 7.25%, due November 30, 2041
Total mortgage notes and related accrued interest
receivable
94
—
—
1,454
1,474
9,056
174,265
57,890
249,213
5,803
10,880
31,105
5,173
33,269
12,249
8,711
12,564
51,050
37,562
4,550
21,000
17,505
6,304
18,068
9,838
4,717
4,111
4,235
11,330
2,500
11,684
9,631
1,637
3,508
1,454
1,375
—
164,743
70,304
—
5,635
—
36,032
5,327
30,849
12,530
7,230
12,473
51,250
37,562
4,550
21,000
17,505
6,083
18,219
4,712
—
—
—
—
—
—
—
658
142,900
—
100,000
$
970,749
$
613,978
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(1) The Company's first mortgage loan agreement with Miramesa Star LLC was secured by a theatre development
project in Cypress, Texas. On December 22, 2017, per the terms of the mortgage note agreement, the borrower exercised
its option to convert the mortgage note agreement to a 15-year triple-net lease agreement. As a result, the Company
recorded the carrying value of the 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.
(2) The Company's first mortgage loan agreement with UME Preparatory Academy that was secured by 28 acres of
land and a public charter school property located in Dallas, Texas was prepaid on December 28, 2017. In connection
with the full payoff of this note, the Company received a prepayment fee of $0.6 million, included in mortgage and
other financing income, and wrote off $58 thousand of prepaid mortgage fees to costs associated with loan refinancing
or payoff.
(3) The Company's first mortgage loan agreement with LBE Investments, Ltd. is secured by approximately 12 acres
of land located in Queen Creek, Arizona. At December 31, 2017, the face amount of the mortgage note was $1.4
million. The note bears interest at a fixed rate of 9.00%. The note requires accrued interest and principal to be paid at
maturity.
(4) The Company's first mortgage loan agreement with HighMark Land, LLC (HighMark) is secured by approximately
20 acres of land located in Lincoln, California. At December 31, 2017, the face amount of the mortgage note was $1.5
million. The note bears interest at a fixed rate of 7.00% and requires accrued interest and principal to be paid at maturity.
(5) The Company's first mortgage loan agreement with I-90 Bellevue Investments II, LLC, is secured by real estate in
Bellevue, Washington. At December 31, 2017, the face amount of the mortgage note was $9.0 million. The note bears
interest at a fixed rate of 7.50% and requires monthly interest payments.
(6) 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.
At December 31, 2017, the face amount of the mortgage notes were $173.6 million. The mortgage notes have cross-
default and cross-collateral provisions. On March 1, 2017, the Company funded an additional amount under its loan
to SVVI. SVVI used these proceeds to pay off their seasonal line of credit secured by the Texas parks. As a result of
the payoff, the Company became the first mortgage holder on these two properties. 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, 2017, 2016
and 2015, the Company recognized $0.7 million, $0.8 million and $1.5 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. At December 31, 2017, the weighted average interest rate was 7.33%.
(7) The Company's first mortgage loan agreement with Imagine Schools Non-Profit, Inc. and affiliates (Imagine) is
secured by 8 charter school properties located in Indiana, Ohio, South Carolina, and Pennsylvania. At December 31,
2017, the face amount of the mortgage note was $57.9 million. The note bears interest at a fixed rate of 7.00%. The
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.
(8) The Company's mortgage loan agreement with Och-Ziff Real Estate (OZRE) is secured by 14 ski properties located
in New Hampshire, Washington, Utah, Tennessee, Maine, Colorado, Vermont, Massachusetts, California and British
Columbia, Canada. The Company received a $3.0 million origination fee upon closing. At December 31, 2017, the face
amount of the mortgage notes were $250.3 million. The note bears interest at a fixed rate of 8.50% and requires monthly
interest payments. Interest income on the notes and the origination fee are being recognized using the effective interest
method. The note has an effective interest rate of approximately 8.60%. During the year ended December 31, 2017,
95
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
the Company received a partial prepayment of $0.7 million and a prepayment premium of $0.2 million that is included
in mortgage and other financing income.
(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. At December 31, 2017, the face amount of the mortgage note
was $5.8 million. The note bears interest at 7.85% in years one to six and LIBOR plus 6.85% in years seven to ten.
The note requires monthly interest payments.
(10) The Company's first mortgage loan agreement with Genesis Health Clubs Cass Street LLC is secured by a health
club facility located in Omaha, Nebraska. At December 31, 2017, the face amount of the mortgage note was $10.8
million. The note bears interest at 7.85% in years one to six and LIBOR plus 6.85% in years seven to ten. The note
requires monthly interest payments.
(11) 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. At December 31, 2017, the face amount of the mortgage note was $32.0
million. 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. This amendment
also reduced the interest rate to 9.25% which began on July 1, 2017. The Company received a partial prepayment during
the year ended December 31, 2017 of $4.0 million and a prepayment premium of $0.8 million. This premium is being
recognized through the effective interest method over the remaining life of the note due to the related amendment to
the loan agreement.
(12) The Company's first mortgage loan agreement with LBE Investments, Ltd. is secured by a charter school property
located in Queen Creek, Arizona. At December 31, 2017, the face amount of the mortgage note was $5.1 million. The
note bears interest at a fixed rate of 9.00%. The note is fully amortizing and requires monthly principal and interest
payments of $52 thousand.
(13) 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. At December 31, 2017, the face amount of the mortgage notes
were $32.1 million. The notes bear interest beginning at 9.50% with increases of 0.50% every five years. The notes
are fully amortizing and require monthly payments of principal and interest. The notes have a weighted average effective
interest rate of approximately 9.79%.
(14) The Company's first mortgage loan agreement with Topgolf USA Austin is secured by a golf entertainment complex
located in Austin, Texas. At December 31, 2017, the face amount of the mortgage note was $12.2 million. The note
bears interest at a fixed rate of 11.31%. 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. At December 31, 2017, the face amount of the mortgage note was $8.6 million. The note bears
interest beginning at 8.50% which increases annually based on a formula of the rate multiplied by 1.025%. Construction
on this note was completed in three phases. At December 31, 2017, the phases bear interest at 9.15%, 8.71% and 8.50%.
The note requires monthly interest payments. The note has a weighted average effective interest rate of approximately
10.33%.
(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. At December 31, 2017, the face amount of the mortgage
note was $12.2 million. 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
servicer fee to HighMark.
(17) The Company's first mortgage loan agreement with Peak Resorts, Inc. (Peak) is secured by one ski property located
in Vermont. Mount Snow is approximately 588 acres and is located in both West Dover and Wilmington, Vermont. At
96
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
December 31, 2017, the face amount of the mortgage note was $51.1 million. 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. At December 31, 2017, the interest rate
was 11.26%.
(18) The Company's first mortgage loan agreements with Peak are secured by four ski properties located in Ohio and
Pennsylvania with a total of approximately 510 acres. At December 31, 2017, the face amount of the mortgage notes
were $37.6 million. 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. At December 31, 2017, the interest rate was 10.43%.
(19) The Company's first mortgage loan agreement with Peak is secured by a ski property located in Chesterland, Ohio
with approximately 135 acres. At December 31, 2017, the face amount of the mortgage note was $4.6 million. 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. At December 31,
2017, the interest rate was 10.88%.
(20) The Company's first mortgage loan agreement with Peak is secured by a ski property located in Hunter, New York
with approximately 240 acres. At December 31, 2017, the face amount of the mortgage note was $21.0 million. 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. At
December 31, 2017, the interest rate was 8.14%.
(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. At December 31, 2017, the face amount of the mortgage note was $17.5 million. The note bears
interest at a fixed rate of 10.25% and requires monthly interest payments.
(22) 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. At December 31, 2017, the face amount of the mortgage
note was $6.2 million. The note bears interest beginning at 9.75% with annual increases by a factor of approximately
2% and requires monthly interest payments. At December 31, 2017, the interest rate was 9.95%. The note has an
effective interest rate of approximately 10.40%, which is net of a servicer fee to HighMark.
(23) 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. At December 31, 2017, the face amount of the mortgage note
was $18.1 million. The note bears interest at a fixed rate of 9.75% and 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. At December 31, 2017, the face amount of the mortgage
note was $9.8 million. The note bears interest beginning at 9.75% with annual increases by a factor of approximately
2% and requires monthly interest payments. Interest income will be recognized using the effective interest method
upon completion of construction.
(25) The Company's first mortgage loan agreement with The SAE School, Inc. is secured by a private school property
located in Mableton, Georgia. At December 31, 2017, the face amount of the mortgage note was $4.7 million. The note
97
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
bears interest beginning at 8.50% with annual increases by a factor of approximately 2% and requires monthly interest
payments. The note has an effective interest rate of approximately 9.80%.
(26) The Company's first mortgage loan agreement with International Charter School of Atlanta, Inc. is secured by a
public charter school property located in Roswell, Georgia. At December 31, 2017, the face amount of the mortgage
note was $4.1 million. The note bears interest beginning at 8.75% with annual increases by a factor of approximately
2% and requires monthly interest payments. Interest income will be recognized using the effective interest method
upon completion of construction.
(27) The Company's first mortgage loan agreement with Genesis Innovation Academy, Inc. is secured by a public
charter school property located in Atlanta, Georgia. At December 31, 2017, the face amount of the mortgage note was
$4.2 million. The note bears interest beginning at 8.50% with annual increases by a factor of approximately 2% and
requires monthly interest payments. Interest income will be recognized using the effective interest method upon
completion of construction.
(28) The Company's first mortgage loan agreement with CG Educational Holding Corp., is secured by a public charter
school property located in Bronx, New York. At December 31, 2017, the face amount of the mortgage note was $11.3
million. The note bears interest beginning at 8.75% with annual increases by a factor of approximately 2% and requires
monthly interest payments. Interest income will be recognized using the effective interest method upon completion of
construction.
(29) The Company's first mortgage loan agreement with Friends of Bridgeton Public Charter School, is secured by a
public charter school property located in Bridgeton, New Jersey. At December 31, 2017, the face amount of the mortgage
note was $2.6 million. The note bears interest beginning at 10.14% with annual increases by a factor of approximately
2% and requires monthly interest payments. The note has an effective interest rate of approximately 10.70%, which is
net of a servicer fee to HighMark.
(30) The Company's first mortgage loan agreement with Colorado Military Academy Building Corporation is secured
by a public charter school property located in Colorado Springs, Colorado. At December 31, 2017, the face amount of
the mortgage note was $11.6 million. The note bears interest beginning at 8.80% with annual increases by a factor of
approximately 2% and requires monthly interest payments. Interest income will be recognized using the effective
interest method upon completion of construction.
(31) The Company's first mortgage loan agreement with SAIL: School for Arts-Infused Learning, Inc. is secured by a
public charter school property located in Evans, Georgia. At December 31, 2017, the face amount of the mortgage note
was $9.8 million. The note bears interest beginning at 8.50% with annual increases by a factor of approximately 2%
and requires monthly interest payments. The note has an effective interest rate of approximately 9.70%.
(32) The Company's first mortgage loan agreement with Ladybird Fish Hawk LLC is secured by an early childhood
education property located in Lithia, Florida. At December 31, 2017, the face amount of the mortgage note was $0.7
million. The note bears interest beginning at 7.50% during construction and increases to 8.25% at commencement with
annual increases by a factor of approximately 2%. The note requires monthly interest payments upon completion of
construction. Interest income will be recognized using the effective interest method upon completion of construction.
(33) The Company's first mortgage loan agreements with Endeavor Schools are secured by 28 education facilities
including both early education and private school properties located in California, Florida, Georgia, Minnesota, Nevada,
North Carolina, Ohio and Texas. At December 31, 2017, the face amount of the mortgage notes were $142.9 million.
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, 2017, the borrower
exercised its put option to convert the mortgage note agreement to a lease agreement. As a result, in 2018, the Company
98
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
recorded the rental property at fair value, which approximated the carrying value of its investment on the conversion
date. There was no gain or loss recognized on this transaction. The properties are leased pursuant to a triple-net master-
lease with a 25-year term.
6. Investment in Direct Financing Leases
The Company’s investment in direct financing leases relates to the Company’s lease of six public charter school
properties as of December 31, 2017 and 12 public charter school properties as of December 31, 2016, with affiliates
of Imagine Schools, Inc. (Imagine). Investment in direct financing leases, 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 direct financing leases, net as of December 31, 2017 and 2016 (in thousands):
Total minimum lease payments receivable
Estimated unguaranteed residual value of leased assets
Less deferred income (1)
Investment in direct financing leases, net
2017
2016
112,411
$
215,753
47,000
(101,508)
57,903
$
85,247
(198,302)
102,698
$
$
(1) Deferred income is net of $0.8 million and $1.3 million of initial direct costs at December 31, 2017 and 2016,
respectively.
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 eight public charter schools
as of December 31, 2017. See Note 5 for more detail on this mortgage note receivable. There were no gains or losses
recognized on these sales. The Company determined that no allowance for losses on the investment in direct financing
leases was necessary at December 31, 2016.
During 2017, the Company entered into revised lease terms with Imagine which reduced the rental payments and term
on six properties. As a result of the revised lease terms, these six properties were classified as operating leases. Due
to lease negotiations during the three months ended June 30, 2017, management evaluated whether it could recover its
investment in these leases taking into account the revised lease terms and independent appraisals prepared as of June
30, 2017, and determined the carrying value of the investment in the direct financing leases exceeded the expected
lease payments to be received and residual values for these six leases. Accordingly, the Company recorded an impairment
charge of $9.6 million during the year ended December 31, 2017, which included an allowance for lease loss of $7.3
million and a charge of $2.3 million related to estimated unguaranteed residual value.
Additionally, during 2017, the Company performed its annual review of the estimated unguaranteed residual value on
its other properties leased to Imagine and determined that the residual value on one of these properties was impaired.
As such, the Company recorded an impairment charge of the unguaranteed residual value of $0.6 million during the
year ended December 31, 2017.
99
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The Company’s direct financing leases have expiration dates ranging from approximately 14 to 16 years. Future
minimum rentals receivable on this direct financing lease at December 31, 2017 are as follows (in thousands):
Year:
2018
2019
2020
2021
2022
Thereafter
Total
Amount
6,301
6,490
6,685
6,885
7,092
78,958
112,411
$
$
7. Debt
Debt at December 31, 2017 and 2016 consists of the following (in thousands):
(1) Mortgage note payable, 6.07%, paid in full on January 6, 2017
(2) Mortgage note payable, 6.06%, paid in full on February 1, 2017
(3) Mortgage notes payable, 5.73%-5.95%, paid in full on April 3, 2017
(4) Mortgage notes payable, 4.00%, paid in full on April 6, 2017
(5) Mortgage notes payable, 5.86%, paid in full on July 3, 2017
(6) Mortgage note payable, 5.29%, paid in full on July 7, 2017
(7) Mortgage note payable, 6.19%, due February 1, 2018
(8)
(9)
Senior unsecured notes payable, 7.75%, due July 15, 2020
Unsecured revolving variable rate credit facility, LIBOR + 1.00%,
due February 27, 2022
(10) Senior unsecured notes payable, 5.75%, due August 15, 2022
(11) Unsecured term loan payable, LIBOR + 1.10%, $350,000 fixed at
2.71% through April 4, 2019 and 3.15% from April 5, 2019 to
February 7, 2022, due February 27, 2023
(12) Senior unsecured notes payable, 5.25%, due July 15, 2023
(13) Senior unsecured notes payable, 4.35%, due August 22, 2024
(14) Senior unsecured notes payable, 4.50%, due April 1, 2025
(15) Senior unsecured notes payable, 4.56%, due August 22, 2026
(16) Senior unsecured notes payable, 4.75%, due December 15, 2026
(17) Senior unsecured notes payable, 4.50%, due June 1, 2027
(18) Bonds payable, variable rate, due August 1, 2047
Less: deferred financing costs, net
Total
2017
2016
—
—
—
—
—
—
11,684
250,000
210,000
350,000
400,000
275,000
148,000
300,000
192,000
450,000
450,000
9,331
8,615
30,486
88,629
22,139
3,298
12,452
250,000
—
350,000
350,000
275,000
148,000
300,000
192,000
450,000
—
24,995
(32,852)
$ 3,028,827
24,995
(29,320)
$ 2,485,625
(1) The Company's mortgage note payable was paid in full on January 6, 2017 prior to its maturity date of April 6,
2017. The note was secured by one theatre property.
(2) The Company's mortgage note payable was paid in full on February 1, 2017 prior to its maturity date of March 1,
2017. The note was secured by one theatre property.
100
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(3) The Company’s mortgage notes payable were paid in full on April 3, 2017 prior to their maturity date of May 1,
2017. The notes were secured by four theatre properties.
(4) The Company's mortgage note payable was paid in full on April 6, 2017 prior to its maturity date of July 6, 2017.
The note was secured by 11 theatre properties. In connection with this note payoff, the Company recorded a gain on
early extinguishment of debt of $1.0 million. The gain represents the difference between the carrying value of the note
and the amount due at payoff as the note was recorded at fair value upon acquisition and was not anticipated to be paid
off in advance of maturity.
(5) The Company's mortgage note payable was paid in full on July 3, 2017 prior to its maturity date of August 1, 2017.
The note was secured by two theatre properties.
(6) The Company's mortgage note payable was paid in full on July 7, 2017. The note was secured by one theatre property.
(7) The Company’s mortgage note payable due February 1, 2018 is secured by one theatre property which had a net
book value of approximately $18.5 million at December 31, 2017. On January 2, 2018, this loan was prepaid in full.
(8) 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. 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. On February
28, 2018, the Company redeemed all of the outstanding 7.75% senior notes. The notes were redeemed at a price equal
to the principal amount of $250.0 million plus a premium of $28.6 million calculated pursuant to the terms of the
indenture, together with accrued and unpaid interest up to, but not including the redemption date.
(9) The Company's unsecured revolving credit facility (the facility) bears interest at LIBOR plus 1.00%, which was
2.49% on December 31, 2017. Interest is payable monthly. On September 27, 2017, the Company amended its unsecured
revolving credit facility and its unsecured term loan facility. The amendments to the unsecured revolving portion of
the credit facility, among other things, (i) increase the initial maximum available amount from $650.0 million to $1.0
billion, (ii) extend the maturity date from April 24, 2019, to February 27, 2022 (with the Company having the right to
extend the loan for an additional seven months) and (iii) lower 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 1.00% and 0.20%, versus
LIBOR plus 1.25% and 0.25%, respectively, under the previous terms. In connection with the amendment, $19 thousand
of deferred financing costs (net of accumulated amortization) were written off during the year ended December 31,
2017 and are included in costs associated with loan refinancing. As of December 31, 2017, the Company had $210.0
million outstanding under the facility and total availability under the revolving credit facility was $790.0 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
$1.4 billion to $2.4 billion. If the Company exercises all or any portion of the accordion feature, the resulting increase
in the facility may have a shorter or longer maturity date and different pricing terms. 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.
In connection with the amendment to the unsecured consolidated credit agreement, the obligations of the Company’s
subsidiaries that were co-borrowers under the Company’s prior senior unsecured revolving credit and term loan facility
were released. As a result, simultaneously with the amendment, the guarantees by the Company’s subsidiaries that
were guarantors with respect to the Company’s outstanding 4.50% Senior Notes due 2027, 4.75% Senior Notes due
2026, 4.50% Senior Notes due 2025, 5.25% Senior Notes due 2023, 5.75% Senior Notes due 2022, and 7.75% Senior
Notes due 2020 were released in accordance with the terms of the applicable indentures governing such notes.
101
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(10) 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.
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.
(11) The Company's unsecured term loan payable bears interest at LIBOR plus 1.10%, which was 2.49% on
December 31, 2017. Interest is payable monthly. On September 27, 2017, the Company amended its unsecured revolving
credit facility and its unsecured term loan facility. The amendments to the unsecured term loan portion of the credit
facility, among other things, (i) increase the initial amount from $350.0 million to $400.0 million, (ii) extend the maturity
date from April 24, 2020 to February 27, 2023 and (iii) lower the interest rate on a grid related to the Company's senior
unsecured credit ratings which at closing was LIBOR plus 1.10% versus LIBOR plus 1.40% under previous terms. In
connection with the amendment, $1.5 million of deferred financing costs (net of accumulated depreciation) were written
off during the year ended December 31, 2017 and are included in costs associated with loan refinancing. At closing,
the Company borrowed the remaining $50.0 million available on the $400.0 million term loan portion of the facility,
which was used to pay down a portion of the Company's unsecured revolving credit facility. 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 $1.4 billion to $2.4 billion.
If the Company exercises all or any portion of the accordion feature, the resulting increase in the facility may have a
shorter or longer maturity date and different pricing terms. 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.
(12) 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. 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.
(13) 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. In connection with the
amendment to the unsecured consolidated credit agreement on September 27, 2017, the guarantees by the Company’s
subsidiaries that were guarantors of the Company’s outstanding 4.35% Series A Guaranteed Senior Notes due August 22,
2024 and 4.56% Series B Guaranteed Senior Notes due August 22, 2026 (referred to herein as the "private placement
notes") were also released. The foregoing release was effected by the Company entering into an amendment to the Note
Purchase Agreement, dated as of September 27, 2017. The amendment to the private placement notes releases the
Company’s subsidiary guarantors as described above and among other things: (i) amends certain financial and other
covenants and provisions in the Note Purchase Agreement to conform generally to the corresponding covenants and
provisions contained in the amended unsecured consolidated credit agreement; (ii) provides the investors thereunder
certain additional guaranty and lien rights, in the event that certain subsequent events occur; (iii) expands the scope of
the “most favored lender” covenant contained in the Note Purchase Agreement; and (iv) imposes restrictions on debt
that can be incurred by certain subsidiaries of the Company.
102
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(14) 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. 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.
(15) 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. In connection with the
amendment to the unsecured consolidated credit agreement on September 27, 2017, the guarantees by the Company’s
subsidiaries that were guarantors of the Company’s outstanding 4.35% Series A Guaranteed Senior Notes due August 22,
2024 and 4.56% Series B Guaranteed Senior Notes due August 22, 2026 (referred to herein as the "private placement
notes") were also released. The foregoing release was effected by the Company entering into an amendment to the Note
Purchase Agreement, dated as of September 27, 2017. The amendment to the private placement notes releases the
Company’s subsidiary guarantors as described above and among other things: (i) amends certain financial and other
covenants and provisions in the Note Purchase Agreement to conform generally to the corresponding covenants and
provisions contained in the amended unsecured consolidated credit agreement; (ii) provides the investors thereunder
certain additional guaranty and lien rights, in the event that certain subsequent events occur; (iii) expands the scope of
the “most favored lender” covenant contained in the Note Purchase Agreement; and (iv) imposes restrictions on debt
that can be incurred by certain subsidiaries of the Company.
(16) 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. 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.
(17) On May 23, 2017, the Company issued $450.0 million in aggregate principal amount of senior notes due on June
1, 2027 pursuant to an underwritten public offering. The notes bear interest at an annual rate of 4.50%. Interest is
payable on June 1 and December 1 of each year beginning on December 1, 2017 until the stated maturity date of June
1, 2027. The notes were issued at 99.393% of their face value. 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.
(18) On August 30, 2017, the Company refinanced its variable-rate bonds payable. The maturity date was extended
from October 1, 2037 to August 1, 2047 and the outstanding principal balance and interest rate were not changed. These
bonds are secured by three theatres, which had a net book value of approximately $21.2 million at December 31, 2017,
and bear interest at a variable rate which resets on a weekly basis and was 1.60% at December 31, 2017. 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, 2017.
103
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Principal payments due on long-term debt obligations subsequent to December 31, 2017 (without consideration of any
extensions) are as follows (in thousands):
Year:
2018
2019
2020
2021
2022
Thereafter
Less: deferred financing costs, net
Total
Amount
11,684
—
250,000
—
560,000
2,239,995
(32,852)
3,028,827
$
$
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, 2017, 2016 and 2015 (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
2017
2016
2015
$
$
135,023
6,167
2,005
(9,879)
(192)
133,124
$
$
101,181
4,787
1,873
(10,697)
—
97,144
$
$
92,140
4,588
1,759
(18,547)
(25)
79,915
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 VIE
As of December 31, 2017, the Company had invested approximately $20.6 million included in property under
development in the accompanying consolidated balance sheet for one real estate project which is a VIE. This entity
does not have any other significant assets or liabilities at December 31, 2017 and was established to facilitate the
development of a theatre project.
Unconsolidated VIE
At December 31, 2017, the Company’s recorded investment in two unconsolidated VIEs totaled $178.5 million. The
Company’s maximum exposure to loss associated with these VIEs is limited to the Company’s outstanding mortgage
notes and related accrued interest receivable of $178.5 million. These mortgage notes are secured by three recreation
properties and one public charter school. While these entities are VIEs, the Company has determined that the power
to direct the activities of these VIEs that most significantly impact the VIE’s economic performance is not held by the
Company.
9. Derivative Instruments
104
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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 $0.1 million and $2.5 million recorded in “Accounts payable
and accrued liabilities” and derivative assets of $25.7 million and $35.9 million recorded in “Other assets” in the
consolidated balance sheet at December 31, 2017 and 2016, respectively. The Company has not posted or received
collateral with its derivative counterparties as of December 31, 2017 and 2016. See Note 10 for disclosures relating
to the fair value of the derivative instruments as of December 31, 2017 and 2016.
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 manages this risk by following established risk management policies and procedures
including the use of derivatives. The Company’s objective in using derivatives is to add stability to reported earnings
and to manage its exposure to foreign exchange and interest rate movements or other identified risks. To accomplish
this objective, the Company primarily uses interest rate swaps, cross currency swaps and foreign currency forwards.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its
exposure to interest rate movements on its LIBOR based borrowings. To accomplish this objective, the Company
currently uses interest rate swaps as its interest rate risk management strategy. Interest rate swaps designated as cash
flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making
fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of December 31, 2017, the Company had two interest rate swap agreements to fix the interest rate at 2.64% on
$300.0 million of borrowings under the unsecured term loan facility from from July 6, 2017 to April 5, 2019. Additionally,
as of December 31, 2017, the Company had three additional interest rate swap agreements to fix the interest rate at
3.15% on an additional $50.0 million of borrowings under its unsecured term loan facility from November 6, 2017 to
April 5, 2019 and on $350.0 million of borrowings under the unsecured term loan facility from April 6, 2019 to February
7, 2022.
The change 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 within the same income statement line item as the earnings effect of the
hedged transaction. During the years ended December 31, 2017, 2016 and 2015, such derivatives were used to hedge
the variable cash flows associated with existing variable-rate debt.
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, 2017, the Company estimates that during the twelve months
ending December 31, 2018, $0.5 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 (USD), 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 USD 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, 2017, the Company’s cross-currency swaps had a fixed original notional value of $100.0 million
CAD and $98.1 million USD. The net effect of these swaps is to lock in an exchange rate of $1.05 CAD per USD on
approximately $13.5 million of annual CAD denominated cash flows on the properties through June 2018. Additionally,
on August 30, 2017, the Company entered into a cross-currency swap that will be effective July 1, 2018 with a fixed
original notional value of $100.0 million CAD and $79.5 million USD. The net effect of these swaps is to lock in an
105
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
exchange rate of 1.26 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows on the
properties through June 2020.
The change 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. As of December 31, 2017, the Company estimates that during the twelve months ending
December 31, 2018, $1.0 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 USD exchange rate for delivery of a specified amount of
foreign currency on a specified date. The currency forward agreements are typically cash settled in USD 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 USD
with a July 2018 settlement date. The exchange rate of this forward contract is approximately $1.06 CAD per USD.
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 USD with a July 2018 settlement date. The exchange rate of this forward contract is
approximately $1.13 CAD per USD. 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 change in the fair value of the derivatives
are reported in AOCI as part of the cumulative translation adjustment. 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, 2017, 2016 and 2015:
106
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Income for the
Years Ended December 31, 2017, 2016 and 2015
(Dollars in thousands)
Description
Interest Rate Swaps
Year Ended December 31,
2017
2016
2015
Amount of Gain (Loss) Recognized in AOCI on Derivative
$
Amount of Expense Reclassified from AOCI into Earnings (1)
$
2,479
(2,498)
(2,044) $
(5,235)
(2,581)
(2,004)
Cross Currency Swaps
Amount of (Loss) Gain Recognized in AOCI on Derivative
Amount of Income Reclassified from AOCI into Earnings (2)
Currency Forward Agreements
Amount of (Loss) Gain Recognized in AOCI on Derivative
Amount of Income Reclassified from AOCI into Earnings (2)
Total
(793)
2,457
(9,547)
—
(754)
2,663
(2,804)
—
5,380
2,396
24,359
—
Amount of (Loss) Gain Recognized in AOCI on Derivative
$
(7,861) $
(5,602) $
27,158
Amount of (Expense) Income Reclassified from AOCI into
Earnings
(41)
(2,572)
392
Interest expense, net in accompanying consolidated statements of
income
Other income in accompanying consolidated statements of income
133,124
3,095
97,144
9,039
79,915
3,629
(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
for two of the agreements and $50.0 million for three of the agreements and such default is not waived or cured within
a specified period of time, including default where repayment of the indebtedness has not been accelerated by the
lender, then the Company could also be declared in default on its interest rate derivative obligations.
As of December 31, 2017, the fair value of the Company’s derivatives in a liability position related to these agreements
was $0.1 million. If the Company breached any of the contractual provisions of the derivative contracts, it would be
required to settle its obligations under the agreements at their termination value. The balance of this obligation, after
considering the right of offset, at December 31, 2017 was zero.
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
107
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017, the Company has assessed the significance of the impact of the credit valuation adjustments on
the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant
to the overall valuation of its derivatives and therefore, has classified its derivatives as Level 2 within the fair value
reporting hierarchy.
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December
31, 2017 and 2016, 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, 2017 and 2016
(Dollars in thousands)
Description
2017:
Cross Currency Swaps*
Cross Currency Swaps**
Currency Forward Agreements*
Interest Rate Swap Agreements*
2016:
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,
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
1,041
$
(134) $
$
$
22,235
2,496
$
4,158
$
31,782
(2,482) $
— $
— $
— $
— $
— $
— $
— $
1,041
(134)
22,235
2,496
4,158
31,782
(2,482)
*Included in "Other assets" in the accompanying consolidated balance sheet.
**Included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheet.
108
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Non-recurring fair value measurements
The table below presents the Company's assets measured at fair value on a non-recurring basis during the year ended
December 31, 2017 aggregated by the level in the fair value hierarchy within which those measurements fall.
Assets Measured at Fair Value on a Non-Recurring Basis During the Year Ended December 31, 2017
(Dollars in thousands)
Description
Investment in a direct financing
lease, net
Quoted Prices in
Active Markets
for Identical
Assets (Level I)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Balance at
end of period
$
— $
— $
35,807
$
35,807
As discussed further in Note 6, during the year ended December 31, 2017, the Company recorded impairment charges
totaling $10.2 million related to its investment in a direct financing lease, net. Management estimated the fair values
of this investment taking into account various factors including independent appraisals, input from an outside broker
and current market conditions. The Company determined, based on the inputs, that its valuation of the investment was
classified within Level 3 of the fair value hierarchy as many of the assumptions are not observable. During 2017, the
Company entered into revised lease terms on these properties and as a result, these properties were classified as operating
leases and moved to rental properties.
There were no non-recurring measurements during the year ended December 31, 2016.
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, 2017 and 2016:
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, 2017, the Company had a
carrying value of $970.7 million in fixed rate mortgage notes receivable outstanding, including related accrued
interest, with a weighted average interest rate of approximately 8.42%. 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 11.50%, management estimates the fair value of the fixed rate mortgage notes receivable to be
$992.6 million with an estimated weighted average market rate of 8.79% at December 31, 2017.
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 approximately $648.5 million with an estimated weighted average
market rate of 8.48% at December 31, 2016.
Investment in direct financing leases, net:
At December 31, 2017, the Company had investments in direct financing leases with a carrying value of $57.9
million, and with a weighted average effective interest rate of 11.98%. At December 31, 2017, the investment in
direct financing leases bears interest at effective rates of 11.90% to 12.38%. The carrying value of the $57.9
million investment in direct financing leases approximated the fair market value at December 31, 2017.
109
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
At December 31, 2016, the Company had investments in direct financing leases with a carrying value of $102.7
million, and a weighted average effective interest rate of 12.00%. At December 31, 2016, the investment in direct
financing leases bears interest at effective interest rates of 11.79% to 12.38%. The carrying value of the investment
in direct financing leases approximated the fair market value at December 31, 2016.
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, 2017 and 2016 is estimated by discounting the future
cash flows of each instrument using current market rates. At December 31, 2017, the Company had a carrying
value of $635.0 million in variable rate debt outstanding with an average weighted interest rate of approximately
2.58%. The carrying value of the variable rate debt outstanding approximates the fair market value at December 31,
2017.
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.
As described in Note 9, at December 31, 2017, $350.0 million of variable rate debt outstanding under the
Company's unsecured term loan facility had been effectively converted to a fixed rate through February 7, 2022
by interest rate swap agreements. At December 31, 2016, $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, 2017, the Company had a carrying value of $2.43 billion in fixed rate debt outstanding with
an average weighted interest rate of approximately 5.15%. Discounting the future cash flows for fixed rate debt
using December 31, 2017 market rates of 2.49% to 4.56%, management estimates the fair value of the fixed rate
debt to be approximately $2.53 billion with an estimated weighted average market rate of 4.04% at December 31,
2017.
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.
11. Common and Preferred Shares
Common Shares
The Board of Trustees declared cash dividends totaling $4.08 and $3.84 per common share for the years ended December
31, 2017 and 2016, 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, 2017 and
2016 are as follows:
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions Per Share
2017
2016
$
$
3.5434
0.2762
0.2404
4.0600
$
$
3.1659
0.2489
0.4077
3.8225
110
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
(1) Of the long-term capital gain, $0.0972 and $0.1060 were unrecaptured section 1250 gains for the years ended
December 31, 2017 and 2016, respectively.
During the year ended December 31, 2016, the Company issued an aggregate of 258,263 common shares under the
direct share purchase component of its Dividend Reinvestment and Direct Share Purchase Plan (DSPP) for total net
proceeds of $16.9 million.
During the year ended December 31, 2017, the Company issued an aggregate of 1,382,730 common shares under its
DSPP for net proceeds of $98.2 million.
On January 21, 2016, the Company issued 2,250,000 common shares in a registered public offering for 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.
During the year ended December 31, 2017, the Company issued 8,851,264 common shares in connection with its
transaction with CNL Lifestyle and OZRE. See Note 3 for further information.
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, 2017, the Series C preferred shares are convertible, at the holder’s option, into the Company’s
common shares at a conversion rate of 0.3857 common shares per Series C preferred share, which is equivalent to a
conversion price of $64.82 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, 2017 and 2016, respectively. There were non-cash distributions associated with conversion adjustments
of $0.4918 and $0.4394 per Series C preferred share for the years ended December 31, 2017 and 2016, respectively.
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.
111
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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,
2017 and 2016 are as follows:
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions per Share
2017
2016
$
$
1.3462
—
0.0913
1.4375
$
$
1.2735
—
0.1640
1.4375
(1) Of the long-term capital gain, $0.0352 and $0.0426 were unrecaptured section 1250 gains for the years ended
December 31, 2017 and 2016, respectively.
Taxable ordinary income
Return of capital
Long-term capital gain (2)
Totals
Non-cash Distributions per Share
2017
2016
$
$
0.3527
0.1152
0.0239
0.4918
$
$
0.2850
0.1177
0.0367
0.4394
(2) Of the long-term capital gain, $0.0092 and $0.0095 were unrecaptured section 1250 gains for the year ended
December 31, 2017 and 2016, respectively.
Series E Convertible Preferred Shares
The Company has outstanding 3.4 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, 2017, the Series E preferred shares are convertible, at the holder’s option, into the Company’s common
shares at a conversion rate of 0.4616 common shares per Series E preferred share, which is equivalent to a conversion
price of $54.16 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, 2017 and 2016. There were non-cash distributions associated with conversion adjustments of $0.2619 and $0.2139
112
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
per Series E preferred share for the years ended December 31, 2017 and 2016, respectively. 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.
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,
2017 and 2016 are as follows:
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions per Share
2017
2016
$
$
2.1070
—
0.1430
2.2500
$
$
1.9933
—
0.2567
2.2500
(1) Of the long-term capital gain, $0.0551 and $0.0668 were unrecaptured section 1250 gains for the years ended
December 31, 2017 and 2016, respectively.
Taxable ordinary income
Return of capital
Long-term capital gain (2)
Totals
Non-cash Distributions per Share
2017
2016
$
$
0.1428
0.1094
0.0097
0.2619
$
$
0.0883
0.1142
0.0114
0.2139
(2) Of the long-term capital gain, $0.0037 and $0.0030 were unrecaptured section 1250 gains for the years ended
December 31, 2017 and 2016, respectively.
Series F Preferred Shares
On December 21, 2017, the Company completed the redemption of all 5.0 million of its outstanding 6.625% Series F
cumulative redeemable preferred shares (Series F preferred shares). The shares were redeemed at a redemption price
of $25.299045 per share. The price is the sum of the $25.00 per share liquidation preference and a dividend per share
of $0.299045 which equals the quarterly dividend prorated up to, but not including the redemption date for a total
aggregate redemption price of approximately $126.5 million. In conjunction with the redemption, the Company
recognized a charge representing the original issuance costs that were paid in 2012 and other redemption related
expenses. The Series F preferred share redemption costs, which reduced net income available to common shareholders
for the year ended December 31, 2017, were $4.5 million.
The Board of Trustees declared cash dividends totaling $1.54123 and $1.65625 per Series F preferred share for the
years ended December 31, 2017 and 2016, respectively. 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, 2017 and 2016 are as follows:
113
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Taxable ordinary income
Return of capital
Long-term capital gain (1)
Totals
Cash Distributions per Share
2017
2016
$
$
1.8310
—
0.1243
1.9553
$
$
1.4673
—
0.1889
1.6562
(1) Of the long-term capital gain, $0.04792 and $0.04914 were unrecaptured section 1250 gains for the years ended
December 31, 2017 and 2016, respectively.
Series G Preferred Shares
On November 30, 2017, the Company issued 6.0 million 5.75% Series G cumulative redeemable preferred shares
(Series G preferred shares) in a registered public offering for net proceeds of approximately $144.5 million, after
underwriting discounts and expenses. The Company will pay cumulative dividends on the Series G 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
$25.00 liquidation preference per share. Dividends on the Series G preferred shares are payable quarterly in arrears.
The Company may not redeem the Series G preferred shares before November 30, 2022, except in limited circumstances
to preserve the Company's REIT status. On or after November 30, 2022, the Company may, at its option, redeem the
Series G 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, but not including the date of redemption. The Series G preferred shares have no stated
maturity and will not be subject to any sinking fund or mandatory redemption. The Series G 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 G preferred shares generally have no voting rights except under certain dividend defaults.
The Board of Trustees declared cash dividends totaling $0.183681 per Series G preferred share for the year ended
December 31, 2017 that were paid on January 15, 2018.
114
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017, 2016 and 2015 (amounts in thousands except per share information):
Basic EPS:
Income from continuing operations
Less: preferred dividend requirements and redemption costs
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
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
Year Ended December 31, 2017
Income
(numerator)
Shares
(denominator)
Per Share
Amount
262,968
(28,750)
234,218
71,191
$
3.29
234,218
71,191
—
234,218
63
71,254
$
3.29
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
$
$
$
$
$
$
$
$
115
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
Year Ended December 31, 2015
Income
(numerator)
Shares
(denominator)
Per Share
Amount
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
$
$
$
$
$
$
$
$
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
The additional 2.1 million common shares for the year ended December 31, 2017 and 2.0 million common shares for
both years ended December 31, 2016 and 2015, that would result from the conversion of the Company’s 5.75% Series
C cumulative convertible preferred shares are not included in the calculation of diluted earnings per share for the years
ended December 31, 2017, 2016 and 2015, respectively, because the effect is anti-dilutive. 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, 2017, 2016 and 2015, 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, 2017, 2016 and 2015. However, options to purchase 7 thousand, 72 thousand
and 236 thousand shares of common shares at per share prices ranging from $61.79 to $76.63, $61.79, and $51.64 to
$65.50, were outstanding at the end of 2017, 2016 and 2015, 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
116
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
share units, subject to adjustment in the event of certain capital events, may be granted. At December 31, 2017, there
were 1,631,841 shares available for grant under the 2016 Equity Incentive Plan.
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, 2014
Exercised
Granted
Forfeited
Outstanding at December 31, 2015
Exercised
Outstanding at December 31, 2016
Exercised
Granted
Forfeited/Expired
Outstanding at December 31, 2017
Number of
shares
950,214
(476,400)
121,546
(79,055)
516,305
(230,319)
285,986
(29,253)
2,215
(1,342)
257,606
$
$
$
$
Option price
per share
18.18 — $
18.18 —
61.79 —
45.20 —
19.02 — $
19.41 —
19.02 — $
46.86 —
76.63 —
51.64 —
19.02 — $
65.50
61.53
61.79
65.50
65.50
65.50
61.79
61.79
76.63
61.79
76.63
$
$
$
$
Weighted avg.
exercise price
42.48
37.42
61.79
63.88
48.42
44.05
51.93
54.54
76.63
59.52
51.81
The weighted average fair value of options granted was $7.91 and $16.35 during 2017 and 2015, respectively. There
were no options granted during 2016. The intrinsic value of stock options exercised was $0.5 million, $5.2 million,
and $7.3 million during the years ended December 31, 2017, 2016 and 2015, respectively. Additionally, the Company
repurchased 22,076 shares into treasury shares in conjunction with the stock options exercised during the year ended
December 31, 2017 with a total value of $1.6 million.
The expense related to share options included in the determination of net income for the years ended December 31,
2017, 2016 and 2015 was $0.7 million, $0.9 million, and $2.5 million (including $1.4 million included in retirement
severance expense in the accompanying consolidated statement of income), respectively. The following assumptions
were used in applying the Black-Scholes option pricing model at the grant dates: risk-free interest rate of 2.1% and
1.9% in 2017 and 2015, respectively, dividend yield of 5.4% and 5.9% in 2017 and 2015, respectively, volatility factors
in the expected market price of the Company’s common shares of 22.0% and 48.0% in 2017 and 2015, respectively,
0.74% and 0.78% expected forfeiture rates for 2017 and 2015, and an expected life of approximately six years for 2017
and 2015. 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, 2017, stock-option expense to be recognized in future periods was as follows (in thousands):
Year:
2018
2019
2020
Total
Amount
$
$
291
4
4
299
117
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
The following table summarizes outstanding options at December 31, 2017:
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 - 69.99
70.00 - 76.63
Options
outstanding
Weighted avg.
life remaining
Weighted avg.
exercise price
Aggregate intrinsic
value (in thousands)
11,097
—
1,428
86,041
75,939
80,886
2,215
257,606
1.4
—
2.0
4.1
5.8
7.1
9.1
5.5
$
51.81
$
3,541
The following table summarizes exercisable options at December 31, 2017:
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
70.00 - 76.63
Options
outstanding
Weighted avg.
life remaining
Weighted avg.
exercise price
Aggregate intrinsic
value (in thousands)
11,097
—
1,428
86,041
51,276
38,225
—
188,067
1.4
—
2.0
4.1
5.7
7.1
—
5.0
$
49.28
$
3,044
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, 2016
534,317
$
Granted
Vested
Forfeited
Outstanding at December 31, 2017
296,914
(209,767)
(1,342)
620,122
$
59.22
76.49
57.47
66.88
68.07
0.96
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 $15.1 million, $9.2
million, and $17.1 million (including $6.7 million related to the vesting of shares for the Company's former Chief
Executive Officer) for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017,
unamortized share-based compensation expense related to nonvested shares was $21.2 million and will be recognized
in future periods as follows (in thousands):
Year:
2018
2019
2020
Total
$
$
118
Amount
10,391
7,337
3,445
21,173
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2016
15,805
$
Granted
Vested
19,030
(15,805)
Outstanding at December 31, 2017
19,030
$
70.93
70.91
70.93
70.91
0.33
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, 2017, unamortized share-based compensation expense related to restricted
share units was $450 thousand which will be recognized in 2018.
15. Operating Leases
Most of the Company’s rental properties are leased under operating leases with expiration dates ranging from 1 to 32
years. Future minimum rentals on non-cancelable tenant operating leases at December 31, 2017 are as follows (in
thousands):
Year:
2018
2019
2020
2021
2022
Thereafter
Total (1)
Amount
474,608
459,318
446,051
437,723
422,306
3,656,516
5,896,522
$
$
(1) Future minimum rentals excludes rental revenue from properties leased to CLA. Certain subsidiaries of CLA that
are the Company's tenants have filed Chapter 11 petitions in bankruptcy seeking protections of the Bankruptcy Code.
Due to the uncertain outcome of these petitions, the rental revenue related to these properties have been excluded from
the table above.
The Company leases its executive office from an unrelated landlord. Rental expense totaled approximately $1.0 million,
$681 thousand and $556 thousand for the years ended December 31, 2017, 2016 and 2015, 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, 2017 are as follows (in thousands):
Year:
2018
2019
2020
2021
2022
Thereafter
Total
Amount
856
856
856
884
967
3,625
8,044
$
$
119
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
16. Quarterly Financial Information (unaudited)
Summarized quarterly financial data for the years ended December 31, 2017 and 2016 are as follows (in thousands,
except per share data):
2017:
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
$
129,112
53,916
$
147,782
80,535
$
151,397
62,954
$
147,700
65,563
47,964
0.75
0.75
74,583
1.02
1.02
57,003
0.77
0.77
54,668
0.74
0.74
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
17. Discontinued Operations
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
Included in discontinued operations for the year ended December 31, 2015 were certain post-closing items related to
the Toronto Dundas Square property. There were no discontinued operations for the years ended December 31, 2017
and 2016.
The operating results relating to discontinued operations are as follows (in thousands):
Tenant reimbursements
Other income
Total revenue
Property operating expense
Income before income taxes
Income tax expense
Net income
Year ended
December 31,
2015
68
172
240
12
228
29
199
$
$
18. Other Commitments and Contingencies
As of December 31, 2017, the Company had an aggregate of approximately $168.7 million of commitments to fund
development projects including 23 entertainment development projects for which it has commitments to fund
approximately $61.5 million, seven education development projects for which it has commitments to fund approximately
$41.5 million, and four recreation development projects for which it has commitments to fund approximately $65.7
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
120
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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, 2017, the Company had a commitment to fund approximately $155.0 million over
the next three years, of which $40.0 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 during
the year ended December 31, 2016 and an additional $23.9 million during the year ended December 31, 2017. The
Company expects to receive an additional $21.0 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, 2017, the Company had six mortgage notes
receivable with commitments totaling approximately $22.7 million. If commitments are funded in the future, interest
will be charged at rates consistent with the existing investments.
The Company guarantees the payment of certain economic development revenue bonds that are related to two theatres
in Louisiana. During the year ended December 31, 2017, these bonds were re-issued and the maturity date of these
bonds was extended to December 22, 2047. At December 31, 2017, the Company's guarantees of the payment of these
bonds totaled $24.7 million. The Company earns a fee at an annual rate of 4.00% over the 30 year terms of the related
bonds. The Company has recorded $13.4 million as a deferred asset included in other assets and $13.4 million included
in other liabilities in the accompanying consolidated balance sheet as of December 31, 2017 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, 2017, the Company had six surety bonds
outstanding totaling $22.8 million.
Resort Project in Sullivan County, New York
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 Resorts World Catskills 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
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
121
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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.
Early Childhood Education Tenant
During 2017, Children’s Learning Adventure USA, LLC (CLA Parent) and its subsidiaries (CLA) stopped making rent
payments. As a result, the Company sent CLA notices of lease termination on October 12, 2017 for the following CLA
properties: (i) Broomfield, Colorado, (ii) Ashburn, Virginia, (iii) West Chester, Ohio, (iv) Chanhassen, Minnesota, (v)
Ellisville, Missouri, (vi) Farm Road-Las Vegas, Nevada, (vii) Fishers, Indiana, (viii) Tredyffrin, Pennsylvania, and (ix)
Westerville, Ohio.
On December 18, 2017, ten subsidiaries of CLA Parent filed separate voluntary petitions for bankruptcy under Chapter
11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the District of Arizona (Jointly Administered
under Case No. 2:17-bk-14851-BMW). The debtors in those cases include CLA Properties SPE, LLC, CLA Maple
Grove, LLC, CLA Carmel, LLC, CLA West Chester, LLC, CLA One Loudoun, LLC, LLC, CLA Fishers, LLC, CLA
Chanhassen, LLC, CLA Ellisville, LLC, CLA Farm, LLC, and CLA Westerville, LLC (collectively, the CLA Debtors).
CLA Parent has not filed a petition for bankruptcy. The CLA Debtors include each of the Company's tenants to 24 out
of our 25 CLA properties, including 21 operating properties, two partially completed properties and one unimproved
land parcel. The only CLA tenant unaffected by the bankruptcy is CLA King of Prussia, LLC, which is the CLA tenant
entity for an unimproved land parcel located in Tredyffrin, Pennsylvania.
CLA continues to negotiate a restructuring with third parties. The Company will continue to consider whether all or a
portion of the Company's properties should be leased to other operators based on results of the restructuring process.
Absent an acceptable restructuring, the Company's intention is to vigorously pursue the process of regaining possession
of the properties with the goal of securing leases with one or more new tenants. On January 8, 2018, the Company filed
with the Court motions seeking rent for the post-petition period beginning on December 18, 2017. The hearing for
these motions has been scheduled for March 14, 2018. On January 8, 2018, the Company also filed with the Court
motions seeking relief from the automatic stay seeking the right to terminate the remaining leases and evict the CLA
Debtors from the properties. There can be no assurance as to the outcome or timing of such proceedings.
122
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
19. Segment Information
The Company groups its investments into 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, 2017
Total Assets
$
2,380,129 $ 1,429,992 $ 2,102,041 $
199,052 $
80,279 $
6,191,493
As of December 31, 2016
Entertainment Education Recreation
$
2,168,669 $ 1,308,288 $ 1,120,498 $
Other
202,394 $
Corporate/
Unallocated Consolidated
4,865,022
65,173 $
For the Year Ended December 31, 2017
Entertainment Education Recreation Other
78,994 $
$
37
1
267,729 $
15,518
614
—
—
112,763 $ 9,162 $
—
—
Corporate/
Unallocated Consolidated
468,648
— $
15,555
—
3,095
2,480
4,407
288,268
35,546
114,578
48,740
161,503
23,175
—
23,175
6,314
—
6,314
117
—
117
—
9,162
1,407
—
1,407
—
2,480
640
242
882
88,693
575,991
31,653
242
31,895
265,093
108,264
161,386
7,755
1,598
544,096
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
Reconciliation to Consolidated Statements of Income:
General and administrative expense
Costs associated with loan refinancing or payoff
Gain on early extinguishment of debt
Interest expense, net
Transaction costs
Impairment charges
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
Preferred share redemption costs
Net income available to common shareholders of EPR Properties
$
(43,383)
(1,549)
977
(133,124)
(523)
(10,195)
(132,946)
72
41,942
(2,399)
262,968
(24,293)
(4,457)
234,218
123
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
For the Year Ended December 31, 2016
Entertainment Education Recreation Other
77,768 $
$
62,527 $ 8,635 $
250,659 $
15,588
249
7
1,648
6,187
272,683
32,539
111,962
21,303
—
21,303
—
—
—
Corporate/
Unallocated Consolidated
399,589
— $
15,595
—
9,039
2,660
—
2,660
69,019
493,242
629
—
629
22,602
5
22,607
—
4,482
30,190
97,199
8
—
8
—
—
103
8,738
662
5
667
251,380
111,962
97,191
8,071
2,031
470,635
Rental revenue
Tenant reimbursements
Other income
Mortgage and other
financing income
Total revenue
Property operating
expense
Other expense
Total investment
expenses
Net operating
income - before
unallocated items
Reconciliation to Consolidated Statements of Income:
General and administrative expense
Costs associated with loan refinancing or payoff
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
124
EPR PROPERTIES
Notes to Consolidated Financial Statements
December 31, 2017, 2016 and 2015
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
125
EPR Properties
Schedule II - Valuation and Qualifying Accounts
December 31, 2017
Description
Reserve for Doubtful Accounts
Allowance for Loan Losses
Balance at
December 31, 2016
871,000
$
—
Additions
During 2017
Deductions
During 2017
$
7,256,000
—
$
(642,000) $
—
Balance at
December 31, 2017
7,485,000
—
See accompanying report of independent registered public accounting firm.
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.
126
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EPR Properties
Schedule III - Real Estate and Accumulated Depreciation (continued)
Reconciliation
(Dollars in thousands)
December 31, 2017
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.
$
$
$
$
4,550,937
1,257,263
(171,314)
5,636,886
635,535
132,578
(26,779)
741,334
135
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective
to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is
(1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our disclosure controls were designed to provide reasonable assurance that the controls and procedures would meet
their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect
that our disclosure controls will prevent all errors and fraud. A control system, no matter how well designed and operated,
can provide only reasonable assurance of achieving the designed control objectives and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or
more people, or by management override of the control. Because of the inherent limitations in a cost-effective, maturing
control system, misstatements due to error or fraud may occur and not be detected.
Except for the enhancements to the Company's internal control over financial reporting in relation to our upcoming
adoption of the new revenue recognition standard discussed below, 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, 2017. 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,
which is included in Item 8.
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.
During 2017, we made enhancements to the Company’s internal control over financial reporting in relation to our
upcoming adoption of the new revenue recognition standard effective in the first quarter of 2018. We implemented or
modified internal controls to address the monitoring of the adoption process, the evaluation analysis used in determining
in-scope transactions and related disclosures required for the new standard.
136
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 June 1, 2018 (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.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(1) Financial Statements: See Part II, Item 8 hereof
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
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
(2)
(3)
137
The Company has incorporated by reference certain exhibits as specified below pursuant to Rule 12b-32 under the
Exchange Act.
Exhibit
No.
2.1
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
Description
Purchase and Sale Agreement, dated November 2, 2016, by and among the Company, CNL Lifestyle
Properties, Inc., CLP Partners LP, Ski Resort Holdings LLC and the other Sellers named therein, which
is attached as Exhibit 2.1 to the Company's Form 8-K (Commission File No. 001-13561) filed on
November 3, 2016, is hereby incorporated by reference as Exhibit 2.1
Composite of Amended and Restated Declaration of Trust of the Company, as amended (inclusive of all
amendments through May 12, 2016), which is attached as Exhibit 3.1 to the Company’s Form 10-Q
(Commission File No. 001-13561) filed on August 4, 2016, is hereby incorporated by reference as Exhibit
3.1
Articles Supplementary designating the powers, preferences and rights of the 5.750% Series C
Cumulative Convertible Preferred Shares, which is attached as Exhibit 3.2 to the Company's Form 8-K
(Commission File No. 001-13561) filed on December 21, 2006, is hereby incorporated by reference as
Exhibit 3.2
Articles Supplementary designating powers, preferences and rights of the 9.000% Series E Cumulative
Convertible Preferred Shares, which is attached as Exhibit 3.1 to the Company's Form 8-K (Commission
File No. 001-13561) filed on April 2, 2008, is hereby incorporated by reference as Exhibit 3.3
Articles Supplementary designating the powers, preferences and rights of the 5.750% Series G
Cumulative Redeemable Preferred Shares, which is attached as Exhibit 3.1 to the Company's Form 8-
K (Commission File No. 001-13561) filed on November 30, 2017, is hereby incorporated by reference
as Exhibit 3.4
Amended and Restated Bylaws of the Company (inclusive of all amendments through March 20, 2017),
which is attached as Exhibit 3.2 to the Company's Form 8-K (Commission File No. 001-13561) filed
on March 21, 2017, is hereby incorporated by reference as Exhibit 3.5
Form of share certificate for common shares of beneficial interest of the Company, which is attached as
Exhibit 4.3 to the Company's Registration Statement on Form S-3ASR (Registration No. 333-35281),
filed on June 3, 2013, is hereby incorporated by reference as Exhibit 4.1
Form of 5.750% Series C Cumulative Convertible Preferred Shares Certificate, which is attached as
Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561) filed on December 21, 2006,
is hereby incorporated by reference as Exhibit 4.2
Form of 9.000% Series E Cumulative Convertible Preferred Shares, which is attached as Exhibit 4.1 to
the Company's Form 8-K (Commission File No. 001-13561) filed on April 2, 2008, is hereby incorporated
by reference as Exhibit 4.3
Form of 5.750% Series G Cumulative Redeemable Preferred Shares Certificate, which is attached as
Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561) filed on November 30, 2017,
is hereby incorporated by reference as Exhibit 4.4
Indenture, dated June 30, 2010, by and among the Company, certain of its subsidiaries, and UMB Bank,
n.a., as trustee (including the form of 5.750% Senior Notes due 2022 included as Exhibit A thereto),
which is attached as Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561) filed
on July 1, 2010, is hereby incorporated by reference as Exhibit 4.5
Indenture, dated June 18, 2013, by and among the Company, certain of its subsidiaries, and U.S. Bank
National Association, as trustee (including the form of 5.250% Senior Notes due 2023 included as Exhibit
A thereto), which is attached as Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561)
filed on June 18, 2013, is hereby incorporated by reference as Exhibit 4.6
138
4.7
4.8
4.9
4.10
4.11
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Indenture, dated March 16, 2015, by and among the Company, certain of its subsidiaries, and UMB
Bank, n.a., as trustee (including the form of 4.500% Senior Notes due 2025 included as Exhibit A thereto),
which is attached as Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561) filed
on March 16, 2015, is hereby incorporated by reference as Exhibit 4.7
Indenture, dated December 14, 2016, by and among the Company, certain of its subsidiaries, and UMB
Bank, n.a., as trustee (including the form of 4.750% Senior Notes due 2026 included as Exhibit A thereto),
which is attached as Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561) filed
on December 14, 2016, is hereby incorporated by reference as Exhibit 4.8
Indenture, dated May 23, 2017, by and among the Company, certain of its subsidiaries, and UMB Bank,
n.a., as trustee (including the form of 4.500% Senior Notes due 2027 included as Exhibit A thereto),
which is attached as Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561) filed
on May 23, 2017, is hereby incorporated by reference as Exhibit 4.9
Note Purchase Agreement, dated August 1, 2016, by and among the Company and the purchasers named
therein, which is attached as Exhibit 4.1 to the Company's Form 8-K (Commission File No. 001-13561)
filed on August 3, 2016, is hereby incorporated by reference as Exhibit 4.10
First Amendment to Note Purchase Agreement, dated September 27, 2017, by and among the Company
and the purchasers named therein, which is attached as Exhibit 10.2 to the Company's Form 8-K
(Commission File No. 001-13561) filed on September 27, 2017, is hereby incorporated as Exhibit 4.11
Second Amended, Restated and Consolidated Credit Agreement, dated September 27, 2017, by and
among the Company, as borrower, KeyBank National Association, as administrative agent, and the other
agents and lenders party thereto, which is attached as Exhibit 10.1 to the Company's Form 8-K
(Commission File No. 001-13561) filed on September 27, 2017, is hereby incorporated by reference as
Exhibit 10.1
Form of Indemnification Agreement entered into between the Company and each of its trustees and
officers, which is attached as Exhibit 10.2 to the Company's Form 8-K (Commission File No. 001-13561)
filed on May 14, 2007, is hereby incorporated by reference as Exhibit 10.2
Deferred Compensation Plan for Non-Employee Trustees, which is attached as Exhibit 10.10 to
Amendment No. 2, filed on November 5, 1997, to the Company's Registration Statement on Form S-11
(Registration No. 333-35281), is hereby incorporated by reference as Exhibit 10.3
2007 Equity Incentive Plan, as amended, which is attached as Exhibit 10.1 to the Company's Form 8-K
(Commission File No. 001-13561) filed on May 15, 2013, is hereby incorporated by reference as Exhibit
10.4
Form of 2007 Equity Incentive Plan Nonqualified Share Option Agreement for Employee Trustees,
which is attached as Exhibit 10.2 to the Company's Registration Statement on Form S-8 (Registration
No. 333-142831) filed on May 11, 2007, is hereby incorporated by reference as Exhibit 10.5
Form of 2007 Equity Incentive Plan Nonqualified Share Option Agreement for Non-Employee Trustees,
which is attached as Exhibit 10.3 to the Company's Registration Statement on Form S-8 (Registration
No. 333-142831) filed on May 11, 2007, is hereby incorporated by reference as Exhibit 10.6
Form of 2007 Equity Incentive Plan Restricted Shares Agreement for Employees, which is attached as
Exhibit 10.4 to the Company's Registration Statement on Form S-8 (Registration No. 333-142831) filed
on May 11, 2007, is hereby incorporated by reference as Exhibit 10.7
Form of 2007 Equity Incentive Plan Restricted Shares Agreement for Non-Employee Trustees, which
is attached as Exhibit 10.3 to the Company's Form 8-K (Commission File No. 001-13561) filed on May
20, 2009, is hereby incorporated by reference as Exhibit 10.8
EPR Properties 2016 Equity Incentive Plan, which is attached as Exhibit 10.1 to the Company's Form
8-K (Commission File No. 001-13561) filed on May 12, 2016, is hereby incorporated by reference as
Exhibit 10.9
10.10*
Form of 2016 Equity Incentive Plan Incentive and Nonqualified Share Option Award Agreement for
Employees, which is attached as Exhibit 10.2 to the Company's Form 8-K (Commission File No.
001-13561) filed on May 12, 2016, is hereby incorporated by reference as Exhibit 10.10
139
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.19*
10.20
12.1
12.2
21
23
31.1
31.2
32.1
32.2
Form of 2016 Equity Incentive Plan Restricted Shares Award Agreement for Employees, which is
attached as Exhibit 10.3 to the Company's Form 8-K (Commission File No. 001-13561) filed on May
12, 2016, is hereby incorporated by reference as Exhibit 10.11
Form of 2016 Equity Incentive Plan Restricted Share Unit Award Agreement for Non-Employee Trustees,
which is attached as Exhibit 10.4 to the Company's Form 8-K (Commission File No. 001-13561) filed
on May 12, 2016, is hereby incorporated by reference as Exhibit 10.12
Annual Performance-Based Incentive Plan, which is attached as Exhibit 10.1 to the Company's 8-K
(Commission File No. 001-13561) filed on June 2, 2017, is hereby incorporated by reference as Exhibit
10.13
Employment Agreement, dated May 13, 2015, by and between the Company and Gregory K. Silvers,
which is attached as Exhibit 10.1 to the Company's Form 8-K (Commission File No. 001-13561) filed
on May 18, 2015, is hereby incorporated by reference as Exhibit 10.14
Employment Agreement, dated May 13, 2015, by and between the Company and Mark A. Peterson,
which is attached as Exhibit 10.2 to the Company's Form 8-K (Commission File No. 001-13561) filed
on May 18, 2015, is hereby incorporated by reference as Exhibit 10.15
Employment Agreement, dated May 13, 2015, by and between the Company and Morgan G. Earnest II,
which is attached as Exhibit 10.3 to the Company's Form 8-K (Commission File No. 001-13561) filed
on May 18, 2015, is hereby incorporated by reference as Exhibit 10.16
Employment Agreement, dated May 13, 2015, by and between the Company and Craig L. Evans, which
is attached as Exhibit 10.4 to the Company's Form 8-K (Commission File No. 001-13561) filed on May
18, 2015, is hereby incorporated by reference as Exhibit 10.17
Employment Agreement, dated May 13, 2015, by and between the Company and Michael L. Hirons,
which is attached as Exhibit 10.6 to the Company's Form 8-K (Commission File No. 001-13561) filed
on May 18, 2015, is hereby incorporated by reference as Exhibit 10.19
Joint Buyers Agreement, dated November 2, 2016, by and between the Company and Ski Resort Holdings
LLC, which is attached as Exhibit 10.1 to the Company's Form 8-K (Commission File No. 001-13561)
filed on November 3, 2016, is hereby incorporated by reference as Exhibit 10.20
Computation of Ratio of Earnings to Fixed Charges is attached hereto as Exhibit 12.1
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends is attached
hereto as Exhibit 12.2
The list of the Company's Subsidiaries is attached hereto as Exhibit 21
Consent of KPMG LLP is attached hereto as Exhibit 23
Certification of Gregory K. Silvers pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange
Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as
Exhibit 31.1
Certification of Mark A. Peterson pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange
Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as
Exhibit 31.2
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32.1
Certification by Chief Financial Officer pursuant to 18 USC 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32.2
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
140
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
* Management contracts or compensatory plans
PLEASE NOTE: Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or
incorporated by reference the agreements referenced above as exhibits to this Annual Report on Form 10-K. The
agreements have been filed to provide investors with information regarding their respective terms. The agreements are
not intended to provide any other factual information about the Company or its business or operations. In particular,
the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject
to qualifications with respect to knowledge and materiality different from those applicable to investors and may be
qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules
may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants
set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have
been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition,
information concerning the subject matter of the representations, warranties and covenants may have changed after the
date of the respective agreement, which subsequent information may or may not be fully reflected in the Company's
public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the
agreements as characterizations of the actual state of facts about the Company or its business or operations on the date
hereof.
Item 16. Form 10-K Summary
None.
141
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, 2018
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, 2018
February 28, 2018
February 28, 2018
/s/ Tonya L. Mater
February 28, 2018
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 C. Brown
Peter C. Brown, Trustee
/s/ Jack A. Newman, Jr.
Jack A. Newman, Jr., Trustee
/s/ Robin P. Sterneck
Robin P. Sterneck, Trustee
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
142
Subsidiary
Jurisdiction of Incorporation or Formation
Subsidiaries of the Company
EXHIBIT 21
30 West Pershing, LLC
Adelaar Developer II, LLC
Adelaar Developer, LLC
Atlantic - EPR I
Atlantic - EPR II
Burbank Village, Inc.
Burbank Village, L.P.
Cantera 30, Inc.
Cantera 30 Theatre, L.P.
Cinescape Equity, LLC
Cinescape Mezz, LLC
Cinescape Property, LLC
CLP Northstar Commercial, LLC
CLP Northstar, LLC
Early Childhood Education, LLC
ECE I, LLC
ECE II, LLC
ECE V, LLC
ECS Douglas I, LLC
Education Capital Solutions, LLC
EPR Apex, Inc.
EPR Camelback, LLC
EPR Canada, Inc.
EPR Concord II, L.P.
EPR Daly, LLC
EPR Escape, LLC
EPR Fitness, LLC
EPR Gaming Properties, LLC
EPR Go Zone Holdings, LLC
EPR Hialeah, Inc.
EPR iDenver Holdings, LLC
EPR iHurst Holdings, LLC
EPR iTampa, LLC
EPR Karting, LLC
EPR Macomb Holdings, 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
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Ontario
British Columbia
British Columbia
Ontario
Ontario
Kansas
Delaware
Delaware
Delaware
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
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 II, LLC
EPT Concord, 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.
Delaware
Missouri
Missouri
Missouri
Missouri
Missouri
Delaware
Missouri
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
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.
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, L.P.
Oakville Entertainment Holdings, Inc.
Rittenhouse Holding, LLC
Strategic Undertakings, LLC
Suffolk Retail, LLC
Tampa Veterans 24, Inc.
Tampa Veterans 24, L.P.
Theatre Sub, Inc.
WestCol Center, LLC
Whitby Entertainment Holdings, Inc.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Delaware
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
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 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 report dated February 28, 2018, with respect to
the consolidated balance sheets of EPR Properties as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedules II and III (collectively, the consolidated financial statements),
and the effectiveness of internal control over financial reporting as of December 31, 2017, which report appears in the December
31, 2017 annual report on Form 10-K of EPR Properties.
Kansas City, Missouri
February 28, 2018
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, 2018
/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, 2018
/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, 2017 (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, 2018
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, 2017 (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, 2018