Executive Summary / Key Takeaways

• EPR Properties is a leading experiential net lease REIT strategically refining its portfolio by recycling capital from theater and education assets into diversified, high-quality experiential properties like attractions, fitness & wellness, and eat & play venues.
• The company demonstrated solid financial performance in Q1 2025, with top-line revenue up 4.7% and FFO as adjusted per share increasing 5.3% year-over-year, supported by investment spending and higher percentage rents.
• Management is guiding for continued earnings growth in 2025, projecting FFO as adjusted per share between $5.00 and $5.16, driven by investment deployment, disposition proceeds, and an expected recovery in the North American box office.
• EPR maintains a strong balance sheet and liquidity position, highlighted by a refinanced $1 billion revolving credit facility with favorable terms and manageable debt maturities, enabling disciplined investment without reliance on equity issuance at current valuations.
• Key risks include macroeconomic uncertainty, tenant concentration (Topgolf, AMC, Regal), potential impacts from tariffs on foreign films, and operational volatility in remaining non-core or joint venture properties, which the company is actively addressing through portfolio diversification and strategic exits.

Setting the Scene: Experiential Real Estate and EPR's Niche

EPR Properties has carved out a distinct niche within the real estate investment trust landscape, focusing on properties that cater to the enduring demand for out-of-home experiences. Since its formation in 1997, EPR has evolved into a diversified experiential net lease REIT, strategically investing in assets designed to provide leisure and recreational activities across the United States and Canada. The core of its business model lies in acquiring, developing, and financing properties under long-term, triple-net leases or structured mortgages, where tenants are typically responsible for property operating expenses. This structure aims to generate predictable and increasing cash flows, supporting the company's primary objective of enhancing shareholder value through growing Funds From Operations As Adjusted (FFOAA) and dividends per share.

The experiential real estate sector, while sensitive to economic cycles, has demonstrated resilience, particularly in value-oriented, drive-to destinations. EPR's portfolio spans a variety of property types within this sector, including theaters, eat & play venues, attractions, ski resorts, experiential lodging, fitness & wellness centers, gaming properties, and cultural sites. As of March 31, 2025, the Experiential segment comprised the vast majority of the company's total investments, accounting for 94% or $6.4 billion, spread across 276 properties with 51 operators. The smaller Education segment, representing 6% of investments, consists of early childhood education centers and private schools.

In the competitive landscape, EPR operates alongside larger, more diversified net lease REITs like Realty Income (O) and specialized players such as VICI Properties (VICI) and Gaming and Leisure Properties (GLPI), which focus heavily on gaming and hospitality. While Realty Income boasts scale and cost efficiency in retail net lease, and VICI and GLPI command strong margins in the gaming sector, EPR differentiates itself through its focused underwriting expertise in the broader experiential market and its diversified portfolio across multiple leisure categories. EPR's rigorous underwriting process, which centers on key industry and property cash flow criteria and tenant credit metrics, is a crucial competitive advantage. This methodology, implicitly supported by data analysis, allows EPR to identify and structure investments believed to offer sustained performance, contributing to higher occupancy rates (99% for the wholly-owned portfolio excluding properties for sale as of March 31, 2025) and stable cash flow generation compared to some peers.

Despite lacking proprietary, quantifiable technology differentiators, its business model benefits significantly from tenant-level operational innovations and its own data-driven approach to property selection and management. For instance, the transcripts highlight the impact of expanded food and beverage offerings in theaters, which drive increased consumer spending and higher-margin revenue for tenants, ultimately benefiting EPR through percentage rent structures. The resilience of ski properties is partly attributed to snow-making capabilities, a property-level technology that mitigates weather risk. Furthermore, investments in tech-driven eat & play concepts like Topgolf and Andretti Karting leverage technology to enhance the customer experience and drive attendance. EPR's competitive edge here lies in its ability to identify and invest in properties where tenants successfully deploy such innovations, supported by its experienced management team's knowledge and industry relationships.

Financial Performance: Resilience Amidst Transition

EPR's financial performance in the first quarter of 2025 demonstrated continued positive momentum. Total revenue increased by 4.7% year-over-year to $175.0 million, contributing to a 5.3% rise in FFO as adjusted per share to $1.19. AFFO per share also saw a healthy increase, reaching $1.21 compared to $1.12 in the prior year quarter. This growth was primarily driven by the Experiential segment, which saw total revenue increase by approximately 4.3% and Net Operating Income (NOI) before unallocated items grow by roughly 5.2% in Q1 2025 compared to Q1 2024. The Education segment also contributed positively, with revenue up approximately 10.8% and NOI up about 12.2% over the same period, albeit from a smaller base.

Key revenue drivers included a $2.6 million increase in minimum rent, primarily from property acquisitions and developments completed in 2024 and early 2025, along with growth on existing properties, partially offset by dispositions. Percentage rent saw a notable increase of $1.4 million, largely due to income from one early childhood education center tenant and participating interest income from a ski property, including $2.9 million related to prior periods where calculation differences were resolved favorably in Q1 2025. Mortgage and other financing income also rose by $4.1 million, reflecting additional investments in mortgage notes.

Profitability metrics for EPR, based on the latest TTM data, show a strong Gross Profit Margin of 90.85% and an EBITDA Margin of 68.17%, indicative of the efficient net lease structure. The Operating Profit Margin stands at 49.13%, and the Net Profit Margin is 22.98%. While these margins are solid, they are generally lower than those of gaming-focused REITs like VICI (99% Gross Margin, 70% Net Margin) and GLPI (97% Gross Margin, 51% Net Margin), reflecting the different operational profiles and tenant economics within the broader experiential sector. However, EPR's margins are competitive within its diversified leisure focus.

Cash flow generation remains robust, with TTM Operating Cash Flow and Free Cash Flow both reported at $393.14 million. This strong cash flow provides ample coverage for the company's dividend. The common dividend payout ratio based on AFFO was a conservative 71% in Q1 2025, consistent with management's target range and supporting the recent 3.5% increase in the monthly common dividend.

EPR maintains a strong balance sheet with conservative leverage. As of March 31, 2025, total debt outstanding was approximately $2.8 billion, with 99% being unsecured. The net debt to adjusted EBITDAre ratio was 5.3 times for the quarter, and the net debt to gross assets ratio was 39% on a book basis. These metrics are within management's targeted range and compare favorably to some peers, providing financial flexibility.

The company's liquidity position is solid, with $20.6 million in cash and cash equivalents and $6.4 million in restricted cash at quarter-end. Subsequent to quarter-end, EPR successfully repaid $300 million in senior unsecured notes using borrowings under its $1 billion unsecured revolving credit facility, which was recently amended and restated to extend its maturity to October 2028 with more favorable terms, including a reduced interest rate spread and lessened financial covenants.

Strategic Execution: Capital Recycling and Portfolio Enhancement

A central pillar of EPR's strategy is the ongoing capital re-sizing initiative, focused on strategically divesting non-core assets, primarily theaters and education properties, to fund investments in higher-quality, diversified experiential assets. This strategy aims to refine the portfolio, reduce concentration risk, and enhance long-term growth prospects. Significant progress has been made on this front. In Q1 2025 alone, the company completed dispositions totaling $70.8 million in net proceeds, including the sale of one vacant theater, two operating theaters, one vacant early childhood education center, and 10 leased early childhood education centers. This follows full-year 2024 disposition proceeds of $74.4 million. Since early 2021, EPR has sold 27 theaters, including successfully selling 10 of the 11 former Regal theaters taken back in bankruptcy within 14 months of the bankruptcy conclusion. As of the Q1 2025 call, only three vacant theaters remained, with two already under contract for sale. Management is also looking more aggressively at the education portfolio as another source of capital, noting a deep pool of potential buyers for these assets.

The proceeds from these dispositions, combined with cash flow from operations and borrowing capacity, are being redeployed into targeted experiential investments. In Q1 2025, investment spending totaled $37.7 million, entirely within the experiential portfolio. This included the acquisition of Diggerland USA, a construction theme attraction, and investments in experiential build-to-suit and redevelopment projects. Subsequent to quarter-end, EPR continued to expand its asset diversity by making its first investment in the traditional golf space and acquiring a second Penn Stack eat & play venue. These new investments, alongside ongoing projects like Andretti Karting locations and Hot Springs resorts, exemplify the company's focus on acquiring and developing properties in categories believed to offer strong growth and resilience. As of March 31, 2025, EPR had approximately $148 million committed for experiential development and redevelopment projects not yet funded, with a significant portion ($87 million) expected to be deployed in the remainder of 2025.

A key strategic shift highlighted by management is the decision to no longer pursue investments in operating properties, such as certain experiential lodging and theaters that EPR directly managed or held in joint ventures. This decision stems from the volatility of performance and significant expense pressures, particularly rising insurance costs, experienced in these assets. Management explicitly stated that the "juice isn't worth the squeeze" compared to the stability and strength of their net lease portfolio. This led to the expected removal of the St. Pete Beach hotels from the portfolio following hurricane damage and the exit from an underperforming RV joint venture. This strategic pivot reinforces the company's commitment to its core net lease and structured finance model, where operational risks are primarily borne by the tenant.

Outlook and Risks: Managing Macro and Micro Dynamics

EPR's outlook for 2025 is positive, with management increasing earnings guidance. The company projects FFO as adjusted per share for the year to be in the range of $5.00 to $5.16, representing a 4.3% increase at the midpoint compared to the prior year. This guidance is supported by a planned investment spending range of $200 million to $300 million and expected disposition proceeds of $80 million to $120 million. Percentage rent and participating interest income is projected to be between $21.5 million and $25.5 million, reflecting the benefit from prior period resolutions and anticipated performance in the current year. General and administrative expenses are expected to be between $53 million and $56 million, with an increase primarily due to non-cash stock grant amortization.

A key assumption underlying the positive outlook is the expected continued recovery in the North American box office. Management estimates the calendar year 2025 box office will be between $9.3 billion and $9.7 billion, driven by a more normalized and deeper slate of film releases following the impact of past strikes. This recovery is anticipated to benefit EPR through percentage rent structures, particularly in the Regal Master Lease. However, the guidance also factors in seasonality, with Q1 results expected to be lower than the full-year average due to the timing of percentage rents and the off-season for certain operating properties.

Despite the positive outlook, EPR faces several pertinent risks. Macroeconomic uncertainty, including inflation and elevated interest rates, continues to pose challenges, potentially impacting consumer discretionary spending and increasing the company's cost of capital, which could limit investment opportunities. While the cost of capital has shown signs of improvement, it remains a factor influencing the pace of investment. Tenant concentration is another significant risk, with Topgolf, AMC (AMC), and Regal representing a substantial portion of lease revenues. Although AMC recently undertook refinancing to address near-term debt maturities, the overall financial health of these major tenants remains a key consideration.

Operational risks, while reduced by the shift away from operating properties, still exist in remaining assets and joint ventures, as evidenced by the impact of hurricanes on the St. Pete Beach hotels and expense pressures at Kartrite. The ability to secure adequate insurance at reasonable costs, particularly in areas prone to natural disasters, is also a concern. Furthermore, changes in U.S. trade policies, such as potential tariffs on foreign-made films, could impact the film industry and, consequently, theater tenant performance, although management believes the near-term impact may be limited by the current production pipeline. EPR's strategy of diversifying its experiential portfolio and focusing on resilient, well-underwritten assets is a direct response to these risks, aiming to mitigate the impact of challenges in any single sector or tenant.

Conclusion

EPR Properties is executing a clear and disciplined strategy to enhance shareholder value by focusing on its core competency in experiential real estate. The company's history as a specialized net lease REIT, combined with its rigorous underwriting process and strategic capital recycling, positions it to capitalize on the enduring consumer demand for experiences. Recent financial results demonstrate the positive impact of this strategy, with solid revenue and FFOAA growth driven by targeted investments and portfolio refinement.

While challenges such as macroeconomic uncertainty, tenant-specific risks, and operational volatility in non-core assets persist, management is actively addressing these through strategic dispositions, disciplined investment in diversified experiential categories, and a clear preference for the net lease structure. The outlook for 2025 is optimistic, supported by expected improvements in key sectors like the box office and a strong balance sheet that provides financial flexibility. Investors should monitor the pace of investment deployment, the continued execution of the disposition strategy, and the performance of key tenants and experiential categories as indicators of EPR's ability to deliver on its growth objectives and navigate the evolving market landscape.