EPR Q3 2026 Earnings Call - EPR PROPERTIES

Explicit Guidance:

• 2026 Investment Spending: Raised to a range of $675 million to $725 million (increased 8% at the midpoint from the prior guidance range of $600M–$700M).
• 2026 FFO per Share: Raised to a range of $5.49 to $5.57 (increased from $5.41–$5.51).
• 2026 AFFO per Share: Expects a slightly higher percentage increase than FFO, though no specific numerical range was provided in the transcript.
• 2026 Disposition Proceeds: Revised downward to approximately $86 million (revised from a range of $50 million–$100 million); no additional dispositions anticipated prior to year-end.
• 2026 Percentage Rent & Participating Interest: Raised to a range of $21.5 million to $24.5 million (increased from $18.5M–$22.5M); the midpoint implies Q4 2026 contribution of approximately $6 million.
• 2026 G&A Expense: Raised to a range of $57 million to $59 million (increased from $56M–$59M), driven by higher non-cash share-based compensation.
• 2026 Other Income: Revised to a range of $44 million to $50 million.
• 2026 Other Expense: Revised to a range of $43 million to $49 million.
• Q4 2026 Specifics: Percentage rent and participating interest expected at approximately $6 million (down from nearly $8 million in Q4 2025) due to timing of tenant recognition; additional gains expected from Canadian FX hedges booked to other income.

Business-Segment Outlook:

• Portfolio Composition & Strategy: Theaters currently represent ~33% of the portfolio; management expects this share to trend toward a long-term goal of ~20% as experiential investments accelerate.
• Live Performance: Entry into live venues via a build-to-suit development in Portland, Oregon, with Live Nation; a second asset with Live Nation is scheduled to open next summer (Q2 2027).
• Fitness & Wellness: Acquisition of a Lifetime Fitness property in Irvine, CA, and a One Life Fitness facility at Tyson's Galleria; focus on expanding depth and quality, with the Irvine asset noted as a potential top performer west of the Mississippi.
• Theaters: Box office is up ~20% year-to-date through September; management expects box office and percentage rents to be higher in 2027 than 2026.
• Attractions & Eat & Play: Topgolf momentum remains positive following recent sale; attractions performed well in Q3 with geographic diversification offsetting weather events.
• Education: Continues to face headwinds regarding labor costs, grant funding, and regulation, but portfolio remains resilient.
• Dispositions: Active review of theater portfolio for potential sales if values reach 8% cap rates or below; no immediate large-scale sales planned to break master leases with Regal and AMC.

Market and Competitive Outlook:

• Investment Pipeline: Described as "unparalleled in recent memory" with strong breadth across fitness, wellness, eat & play, attractions, and live entertainment.
• Live Venue Market: Identified a specific "sweet spot" in the mid-size venue market (4,000 seats) which is currently underserved by Live Nation and others.
• Pricing Power & Spreads: Expecting deal movements of ~25 basis points to preserve targeted spreads; management notes competitors (debt capital) are repricing faster, making sellers receptive to pricing.
• Consumer Trends: Structural shift toward experiential spending; consumers prioritizing experiences over goods, supported by data from McKinsey and credit card usage.
• Development Hurdles: Build-to-suit projects face higher hurdles due to construction costs and interest rates; targeting a 50–75 basis point premium over in-place yields for development.

Macro / Industry Outlook:

• Economic Environment: Economy described as demonstrating "strength and resilience" with continued consumer preference for experiences.
• Theater Window: Industry coalescing around a 45-day theatrical window; some releases (e.g., Netflix's The Chronicles of Narnia) may run longer (7 weeks).
• Demographics: Gen Z accounts for 40% of moviegoers; Gen Alpha prefers the big screen; premium formats (IMAX, recliners, F&B) drive outperformance.
• Interest Rates & Capital Costs: Management acknowledges higher cost of capital but notes rate protection is built into transactions prior to closing; 2.8 billion of 3.3 billion total debt is fixed-rate.

Strategic Initiatives:

• Capacity Expansion: Executed a new $1.6 billion credit agreement (including a fully drawn $600 million delayed draw term loan due in 2032) to fund the pipeline.
• Capital Recycling: Sale of British School of Chicago to a net lease peer (cap rate low 7% range); ongoing use of ATM program for forward equity sales ($66.6 million gross proceeds entered, $134.6 million estimated net proceeds remaining).
• Leverage Management: Target pro forma net debt/EBITDA range is 5.0x–5.6x; currently at 4.9x. Plan to potentially pay down revolver with debt maturities or forward equity proceeds in 2027.
• Liquidity Position: $52.4 million cash on hand plus $134.6 million in unsettled forward equity available; $450 million debt maturity in December expected to be covered by revolver or refinancing.
• Accounting Changes: Recasting AFFO definition to exclude maintenance capital expenditures to align with triple-net REIT peers; switching tenant contribution metrics from total revenue to Adjusted Base Rent (ABR).

Risks and Headwinds to Outlook:

• Education Sector: Continued headwinds from labor costs, grant funding challenges, and regulatory pressure.
• Consumer Strain: Data indicates "pockets of strain among lowest-income consumers," though overall experiential demand remains strong.
• Attractions Safety: While safety records are strong, management acknowledges that tragic events could impact future investment beliefs in the sector.
• Development Risk: Higher barriers for development due to construction cost volatility and interest rate sensitivity; potential for lower spreads on unproven assets.
• Guidance Drivers: FFO/AFFO guidance relies on continued strong box office performance and specific timing of percentage rent recognition; deviations in Q4 theater performance or FX hedge gains could impact actuals.

Management Tone on the Future:

• Confidence Level: High confidence in the "continued growth of experiential real estate" and the structural nature of the consumer shift to experiences.
• Strategic Discipline: Emphasized "prudent deployment" of capital; stated explicitly that they will "not sacrifice spread for volume."
• Differentiation: Positioning as the "only diversified REIT that focuses solely on the experiential economy" with a proprietary pipeline and relationship-driven sourcing.
• Growth Outlook: Expecting to capitalize on "accelerating diversification" of the portfolio and an "unparalleled pipeline" despite rate environment challenges.

Miscellaneous:

• Transcript Note: The provided transcript contains significant audio artifacts, repeated introductions, and technical troubleshooting dialogue (e.g., "hold on," "mute the line," "video tile") which are excluded from this summary of forward-looking financial and business data.
• Q3 2026 Context: The call reflects results for the third quarter of 2026, with investment volume of $172.4 million in the quarter and $664.5 million YTD.