Experiential real estate player EPR Properties (EPR 0.86%) reported mixed third-quarter earnings on Wednesday, Oct. 30. Q3 revenue of $180.5 million topped expectations of $144 million but fell 4.7% year over year. Net income was the real disappointment in Q3, falling to $40.6 million compared to $50.2 million in the prior year. That led to an EPS of $0.53 that fell short of $0.70 expectations. Funds from operations as adjusted (FFOAA) of $1.30 per share fell 11.6% year over year.
Overall, the quarter illustrated the challenges and successes of EPR Properties' strategic shifts.
| Metric | Q3 2024 | Analyst Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Total revenue | $180.5 million | $144 million | $189.4 million | (4.7%) |
| Net income | $40.6 million | N/A | $50.2 million | (19%) |
| EPS (diluted) | $0.53 | $0.70 | $0.66 | (19.7%) |
| FFOAA per share | $1.30 | N/A | $1.47 | (11.6%) |
Source: EPR Properties. Note: Analyst consensus estimates for the quarter provided by FactSet. FFOAA = Funds from operations as adjusted. YOY = Year over year.
About EPR Properties
EPR Properties is a real estate investment trust (REIT) that specializes in experiential real estate, characterized by properties that promote entertainment and recreation such as ski resorts and cinema venues. Historically, a significant portion of its portfolio was tied to theatre properties. In recent years, the company has pivoted, emphasizing a diversification strategy that aligns with shifting consumer preferences towards experiential investments like waterparks, golf ranges, amusement parks, etc.
The firm focuses on reducing its dependency on theatre investments due to challenges in that sector. As of the current quarter, experiential investments account for 93% of their total funds, with education investments making up the remaining 7%. Key success factors include asset diversification, strategic investment within leisure spaces, and maintaining high leasing rates, with the experiential and education portfolios boasting 99% and 100% leased rates, respectively.
Quarterly Highlights
During Q3 2024, EPR Properties concentrated on reducing its reliance on the theatre segment, to better avoid volatility in consumer behavior caused by events like the COVID-19 pandemic. Its theatre investments continue to be a significant revenue stream, but consumer trends and competition from streaming services remain challenges. Top customers like AMC Theatres and Regal contributed 13.7% and 10.8% of total revenue, respectively.
The company invested $82 million in experiential development initiatives and continued advancing its capital structure by securing a $1 billion revolving credit facility. Despite a robust focus on growing the experiential segment, recent natural disasters in Florida led to $12.1 million in impairment charges impacting its experiential lodging ventures. This one-off event magnified an already challenging theatre segment.
EPR Properties adjusted its dividend, with payouts rising slightly to $0.855 per common share compared to $0.825 previously. However, constraints on new investments due to cost considerations like inflation and interest rates were emphasized.
Looking Ahead
For the remainder of 2024, EPR Properties has refined its guidance, narrowing FFOAA expectations to between $4.80 and $4.92 per share (but maintaining the midpoint estimate). It lowered net-income-per-share guidance to $2.40 to $2.52 (down from $2.58 to $2.78). Management remains focused on property diversification to counterbalance residual theatre risk. Investors should watch for continued impacts from economic conditions on rental incomes and capital expenditures.
Going forward, EPR aims to fortify its position in the experiential economy, supported by stable leasing rates and adjusted capital allocation strategies. Critical areas to monitor include liquidity management and investment expansion in non-theatre segments amid pressure from interest rate developments.
