EPR Q3 2026 Earnings Call - EPR PROPERTIES

Explicit Guidance:

• 2026 Investment Spending: Raised to a range of $675 million to $725 million (midpoint increase of 8% over 2025).
• 2026 FFO Adjusted Per Share: Increased to a range of $5.49 to $5.57 (representing an 8% midpoint increase over 2025).
• 2026 Disposition Proceeds: Revised to approximately $86 million for the full year; no additional dispositions anticipated prior to year-end.
• 2026 Percentage Rent & Participating Interest: Increased to a range of $21.5 million to $24.5 million.
• 2026 G&A Expenses: Revised to a range of $57 million to $59 million, driven by expected higher non-cash share-based compensation.
• 2026 Other Income: Updated to a range of $44 million to $50 million, reflecting gains from operating theaters and Canadian FX hedges.
• 2026 Other Expense: Updated to a range of $43 million to $49 million.

Business-Segment Outlook:

• Portfolio Composition & Strategy: Expect theater exposure to trend toward a long-term goal of approximately 20% of the portfolio (currently ~33%), with continued acceleration in live performance, fitness, wellness, eat & play, and experiential lodging.
• Live Performance Venues: First investment executed with Live Nation; anticipating a "void" in the market for mid-size venues (~4,000 seats) with unmet demand; potential for future capital deployment into this sector.
• Box Office & Theaters: Year-to-date box office up ~20% through September 2026; 2026 performance driven by strong box office; 2027 box office and percentage rents expected to increase versus 2026 levels.
• Attractions: 2026 considered a "transitory year" for recently acquired theme parks; performance expected to ramp up in the coming year following capital commitments.
• Fitness & Wellness: Continued solid performance with stabilizing trends at renovated properties; focus on adding depth and quality to the portfolio.
• Education Portfolio: Anticipated to continue facing industry-wide headwinds including higher labor costs, grant funding challenges, and regulatory pressure, though expected to remain resilient.
• Capital Recycling: Active monitoring of theater sales opportunities; open to selling assets if cap rates reach 8% or below to redeploy capital into higher-return opportunities.

Market and Competitive Outlook:

• Consumer Trends: Enduring structural shift favoring "experiences over things"; consumer spending on experiential offerings remains robust despite macro headwinds.
• Competitive Landscape: Key competition is viewed as debt capital, not net lease; debt capital repricing faster allows clients to be more receptive to pricing conversations.
• Yield Spreads: Expect average entry yields to remain attractive; potential for ~25 basis point yield movement on new deals to preserve targeted spreads.
• Development vs. Acquisition: Development opportunities face a "higher bar" due to construction costs and capital rates; targeting a 50–75 basis point premium on development vs. in-place assets.
• Lease Dynamics: Ability to drive more attractive lease escalators; lease conversations are dynamic based on operator growth needs.

Macro / Industry Outlook:

• Economic Environment: Management describes the "experienced economy" as demonstrating strength and resilience; consumer preference for experiences is viewed as a structural force reshaping global markets.
• Interest Rates & Cost of Capital: Rate protection is built into transactions prior to closing to buffer market volatility; average blended coupon is approx. 4.4%; pro forma net debt/EBITDA currently at 4.9x, expected to settle near 5.0x by year-end, within the targeted 5.0–5.6x range.
• Debt Maturities: $450 million of debt due in December 2026; no debt maturities scheduled until June 2027.
• Regulatory/Safety: Acknowledges regulatory pressure in education; emphasizes operator safety inspections in the attractions sector, noting the industry's strong safety track record.

Strategic Initiatives:

• New Categories: Executed entry into live performance venues via a build-to-suit development in Portland, OR, with Live Nation; completed first acquisition of a fitness facility (Lifetime Fitness) in Irvine, CA.
• Pipeline Breadth: Described pipeline as "unparalleled in recent memory" with activity across fitness, eat & play, attractions, and live entertainment.
• Capital Deployment Tools: Utilizing ATM forward sales (approx. $134.6M in unsettled proceeds), revolving credit facilities ($1B, currently unused), and new term loans ($600M, due 2032) to fund growth.
• Asset Management: Commitment to capital recycling via dispositions (e.g., sale of British School of Chicago) to fund accretive investments.
• Financial Reporting Changes: Revised AFFO definition to exclude maintenance capital expenditures for peer consistency; switched tenant contribution analysis from Total Revenue to ABR in supplemental reports.

Risks and Headwinds to Outlook:

• Low-Income Consumer Strain: Data indicates pockets of strain among lowest-income consumers, though overall experiential demand remains supported.
• Development Hurdles: Higher cost of capital and construction costs raise the bar for development projects, potentially limiting volume.
• Education Sector Risks: Ongoing industry headwinds (labor, funding, regulation) pose risks to the education portfolio segment.
• Timing of Revenue: Percentage rent guidance includes timing variances (e.g., recognition of a tenant's rent in Q3 2026 vs. Q4 2025).
• Acquisition Performance: Potential transitory underperformance in newly acquired attractions due to operator changes; safety events in the industry could impact future appetites.

Management Tone on the Future:

• Confidence Level: Highly confident and "excited" about the investment pipeline and the structural shift in consumer behavior.
• Discipline: Commitment to disciplined capital deployment; explicitly stated they will "not sacrifice spread for volume."
• Strategic Positioning: Emphasizes EPR as the only diversified REIT focused solely on the experiential economy, uniquely positioned to capitalize on the trend.
• Guidance Changes: Frequent upward revisions to investment and earnings guidance reflect confidence in current market conditions and pipeline execution.

Miscellaneous:

• Share Count: 134.6 million in forward sale agreements representing just under 2.3 million common shares (unsettled).
• Dividend Coverage: AFFO payout ratio for Q3 2026 was 60%; dividend remains "very well covered."
• Operating Properties: Four operating theaters and the Cartwright Hotel/Indoor Water Park contribute to "Other Income" and "Other Expense," with performance tied to box office strength.