EPR Properties

Hello, and welcome to the EPR Properties Q4 and year-end 2025 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications.

Okay, thank you, Jenny. Thanks for joining us today. for our fourth quarter and year-end 2025 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO, Greg Zimmerman, Executive Vice President and CIO, Mark Peterson, Executive Vice President and CFO, and Ben Fox, the Executive Vice President. I'll start the call by informing you that this call may include four looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be intended to continue to believe, may expect, hope, anticipate, or other comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forces and statements. Discussion of those factors that could cause results to differ materially from these four looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this call contains references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly applicable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8K. If you wish to follow along, today's earnings release supplemental information and earnings call presentation are all available on the Investor Center page of the company's website, www.eprcc.com. Now I'll turn the call over to Greg Silvers.

Thank you, Brian. Good morning, everyone, and welcome to our fourth quarter and year-end 2025 earnings call and webcast. The fourth quarter kept a year of solid execution and clear progress toward accelerated growth. Our resilient portfolio benefited from growth an AFFO per share increase of 6.2%. During the fourth quarter, we announced transactions which significantly expanded our portfolio of championship golf courses, along with premier regional water park acquisition, further diversifying our attraction sector. As we move into 2026, we we are actively pursuing opportunities across multiple target property types with a flexible approach that encompasses both potential portfolio-scale acquisitions and smaller strategic transactions, positioning us to capitalize on attractive opportunities as they arise. Turning to industry and tenant performance, our portfolio released titles. Performance across our other property sectors remains steady, demonstrating the strength and resilience of our diversified portfolio. As we expand the diversity of our experiential portfolio, we're seeing a balancing effect, strength in certain sectors helping to offset periodic softness in others, reinforcing overall portfolio resilience. Our strategic capital recycling program continues We will continue to use disciplined opportunistic recycling as a proven lever for driving value creation. Our balance sheet remains one of our most important competitive strengths. During the fourth quarter, we successfully closed a $550 million public debt offering and established a $400 million aftermarket equity program, two significant capital market initiatives that bolster our financial flexibility and fund our growing investment pipelines. Reflecting the confidence we have in our earnings trajectory and conservative payout ratio, we are also pleased to announce a 5.1% increase for our monthly dividend to common shareholders. In summary, we've built a robust pipeline of high-quality experiential investments. Our strong balance sheet and expanded operator relationships now give us access to larger opportunities, and our disciplined approach to capital allocation positions greater details. Thanks, Greg. At the end of the quarter, our total investments were approximately $7 billion with 333 properties that are 99% leased or operated. During the quarter, our investment spending Our experiential portfolio comprises 278 properties with 54 operators and accounts for 94% of our total investments, or approximately $6.6 billion, and at the end of the quarter was 99% leased or operated. Our education portfolio comprises 55 properties with 5 operators, and at the end of the quarter was 100% leased. December trailing 12-month period, overall portfolio coverage remained strong at two times. Turning to the operating status of our tenants. 2025 box office was $8.7 billion, a 1% increase over 2024. Q4 box office was $2.2 billion compared to $2.4 billion in Q4 2024. Q4 performance was led by strong results from Zootopia 2, which rose $337 million in Q4 and has exceeded $420 million to date. Wicked for Good rose $335 million. Avatar Fire and Ash rose $250 million in Q4 and picked up an additional $147 million after the first of the year. Five Nights at Freddy's 2 also outperformed. The slate for 2026 looks solid, with the Super Mario Galaxy movie, The Mandalorian and Grogu, Toy Story 5, Minions 3, Moana, The Odyssey, Spider-Man, Brand New Day, Avengers, Doomsday, and Doom Messiah. Analysts expect box office to increase in 2026. Going forward, we will be moving away from providing annual estimates for box office performance. As theaters were reopening, box office was recovering, and we were navigating the writer's and actor's strengths. With all the dislocation, we thought it was helpful to share our perspective. The business is stabilizing, so this is no longer necessary. Additionally, it's important to highlight that the bulk of our theater rent is not tied to fluctuations in box office. The only significant percentage rent component of our theater rent comes from Regal, which is based on a lease year rather than a calendar year, and our estimate of Regal percentage rent is embedded in our percentage rent guidance. A couple of points related to box office. First, higher margin F&B spending increasingly constitutes a higher percentage of exhibitors' overall revenue. As such, it is not necessary to reach 2019 box office levels for us to have comparable coverage. Second, as we have consistently noted, the number of major releases directly correlates to box office. An increased number of major releases typically drives increased box office growths. Over time, major releases tend to generate an average performance in the range of 70 million. Turning now to an update on our other major customer groups. Our East Coast ski and Midwest ski operators got off to a great start with above-average Our Northern California asset opened late because of lack of snow, but conditions have improved significantly with recent snowfall. We will see if snowfall continues to hold throughout the season. Alyeska has had strong demand throughout the season, augmented by its membership program and inclusion in the ICON network. Our Eat and Play coverage remains strong, even with some continuing macro pressures on consumers and expense increases. Andretti Carding's Kansas City location opened well in mid-November. Schaumburg, Illinois is expected to open the second quarter of 2026. Our second pen stack, located in Northern Virginia, is also expected to open in Q2. Of note, in early January, Topgolf Callaway announced the completion of its sale of a 60% interest in Topgolf to Leonard Green Partners, the transaction valuing Topgolf at around $1.1 billion. We view this positively because Hopgolf now has a focused private equity majority owner. Many of our attractions are closed for the season. The Car Chase Outdoor Winter Park and Hotel de Glace opened in December and are benefiting from sustained domestic travel within Canada. We are quite pleased with the performance metrics at Enchanted Forest Water Safari in our operator's first and Family Entertainment Center fully open at Bavarian Inn, we saw significant year-over-year increases in revenue and EBITDA. We are bullish on the fitness and wellness space. Since 2024, we have invested approximately $150 million in this vertical, including golf, fitness, and hot springs. All three of our hot springs assets delivered strong year-over-year performance. Our education portfolio continues to perform well. Our customers' trailing 12-month revenue for Q3 was essentially flat, with EBITDA down due to expense increases. Coverage remains strong. Our investment spending continues to be entirely within our broadening range of experiential asset types. In Q4, we invested $147.7 million, bringing our total for 2021 This includes funding for projects that we have closed on but are not yet open. In addition, we have committed approximately $85 million to experiential development and redevelopment projects, which we expect to fund in 2026. Q4 investment spending was anchored by our acquisition of a five-property portfolio of championship golf courses in the Dallas Metroplex for approximately $90.7 million. The properties will be leased and operated by Advanced Golf Partners, a leading golf course operator. This investment follows our extensive research into the golf space and adds to the additional golf investment we made earlier in 2025. Given our deep relationships, the increased focus on fitness and wellness among multiple generations and demographics, and the wide range of investment opportunities, including golf, climbing gyms, traditional gyms, hot springs, and spas, We are excited about the potential for continued growth in this space. We also acquired the Ocean Breeze Water Park in Virginia Beach, Virginia, in a sale-leaseback transaction for approximately $23.2 million. Ocean Breeze will be leased and operated by an affiliate of Premier Parks, a longtime strategic partner. We kicked off investment spending for 2026 with the first quarter acquisition of the Vital Climbing Lower East Side in Essex Crossing for approximately $34 million. As I noted before, we are particularly bullish on the fitness and wellness space and excited to grow our relationship with this outstanding operator by adding a high-quality Manhattan location along with our existing Vital Climbing location in Williamsburg, Brooklyn. As demonstrated by our investments in Q4 and already in Q1, we are increasing our investment spending cadence. We are seeing high quality opportunities for both acquisition and build-to-suit development in our targeted experiential categories. Our disciplined deployment strategy has enabled us to expand the depth and breadth of our portfolio of experiential properties over the past several years. Our investment spending throughout 2025 and heading into 2026 reflects our deep relationships and high-quality opportunities. We are announcing investment spending guidance for funds to be deployed in 2026 in the range of $400 million to $500 million. During the quarter, we sold two leased theater properties for alternative uses and two land parcels for net proceeds of $16.1 million. and recognized a gain of $5.3 million. Additionally, as announced on our Q3 call, we received $18.4 million in proceeds from a partial pay down on a mortgage note relating to the Gravity House in Steamboat Springs. In the past five years, we have sold We are announcing 2025-2026 disposition guidance in the range of $25 million to $75 million. I now hand over to Mark for a discussion of the financials. Thank you, Greg. Today I'll discuss our financial performance for the fourth quarter and the year, provide an update on our balance sheet, and close with introducing 2026 guidance. FFOs adjusted for the quarter was $1.30 per share versus $1.23 in the prior year, an increase of 5.7%. And AFFO for the quarter was also $1.30 per share compared to $1.22 in the prior year, an increase of 6.6%. Before I walk through the key variances, I want to point out that we had disposition proceeds totaling $34.5 million for the quarter and recognized a gain on sale of $5.3 million. For the year, we had disposition proceeds totaling $168.3 million. I recognize the gain on sale of $39.5 million. As we continue to make progress reducing our investments in theater and education properties and recycling those proceeds into other experiential assets. Note that these gains are excluded from Epiphos Adjusted and AFFO. Now moving to the key variances. Total revenue for the quarter was $183 million. Within total revenue, rental revenue increased $7.9 million versus the prior year, mostly due to the impact of investment spending, rent and interest bumps, and higher percentage rents and participating interest. Percentage rents and participating interest for the quarter were $7.8 million versus $4.9 million in the prior year, and the increase was due primarily to higher percentage rent recognized from our attraction and cultural properties, as well as from one of our early childhood education tenants. We also had higher participating interest related to our northeast ski property. Both other income and other expense relate primarily to our consolidated operating properties, including the Cartwright Hotel and Indoor Water Park and our four operating theaters. The decrease in other income and other expense versus prior years due primarily to the sale of three operating theater properties in the first half of 2025. On the expense side, G&A expense for the quarter increased to $14.6 million versus $12.2 million in the prior year, due primarily to higher payroll and benefit expense, particularly incentive compensation. Equity and loss from joint ventures for the quarter was $2.4 million compared to $3.4 million in the prior year. This better performance is due to our decision to exit our joint venture in as well as improved results for our two remaining RV park joint ventures. Shifting to full-year results, FFOs adjusted was $512 per share at the high end of guidance, versus $487 in the prior year, an increase of 5.1%, and AFFO was $514 per share compared to $484 in the prior year, an increase of 6.2%. Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong, with fixed charge coverage at 3.4 times and both interest and debt service coverage ratios at 4 times. Our net debt to annualized adjusted EBITDA RE was 4.9 times at year end, which is below the lower end of our targeted range. Additionally, our net debt to gross assets was 39% on a booked basis at year end, And our common dividend continues to be very well covered with an ethical payout ratio of 68% for the fourth quarter and the full year. Now let's move on to our capital market activities and balance sheet, which is in great shape to support our expected growth. At year end, we had consolidated debt of $2.9 billion, of which all is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.4%. In November, we closed on $550 million of new five-year senior unsecured notes at a coupon of 4.75%. And at year-end, we had $90.6 million of cash on hand and no balance drawn on our $1 million revolver. Additionally, in December, we finalized our new ATM program. While no equity issuance is required to fund our plan for 2026, given that we project to be below the midpoint of our targeted leverage range at year-end without any such issuance, equity opportunistically, including forward sales. We are introducing our 2026 FFOs adjusted per share guidance of 528 to 548, representing an increase versus the prior year of 5.1% at the midpoint. We expect a similar percentage increase in FFO per share. Note that due primarily to the timing of the expected percentage rents, which are heavily weighted the last three quarters of the year, as well as the fact that the first quarter is off-season for our operating properties, we expect results for the first quarter of 26 to be lower than the full year divided by four by about 11 cents per share. We are also providing our 2026 guidance for investment spending of $400 million to $500 million and disposition proceeds of $25 million to $75 million. We expect a percentage rent and participating interest of $18.5 million to $22.5 million. As you can see on the slide, I have provided a reconciliation of the prior year amount to the midpoint of this guidance. The changes include out-of-period percentage rents and participating interest of $3.5 million recognized in 2025 that does not repeat, lower projected percentage rents in 2026 of $1.1 million related to our Northern California speed property due to delayed snowfall for the season, And lower projected percentage rents of $0.4 million related to certain properties having base rent increases in 26, causing the breakpoint for percentage rents to increase. These decreases were offset by a projected net increase of $1 million in percentage rent for other tenants, including Regal. We expect G&A expense of $56 million to $59 million. In addition, guidance for our consolidated operating properties is provided by giving a range for other income and other expense. Guidance details can be found on page 23 of our supplemental. Finally, based on our expected 2026 performance, we are pleased to announce a 5.1% increase in our monthly dividend, beginning with the dividend payable April 15th to shareholders of record as of March 31st. We expect our 2026 dividend to be well covered with an FFO per share payout continuing to be about 70% based on the midpoint of guidance. Now with that, I'll turn it back over to Greg for his closing remarks. Thank you, Mark. 2025 was a very solid year as we delivered strong per share earnings and our portfolio delivered the resilience that we anticipated. In 2026, we expect to increase our which should result in another year of strong per share earnings growth. As we begin the year, we are excited about our investment pipeline, our balance sheet, and the team to create value out of this combination. I would also like to take a minute to express my sincere appreciation to Greg Zimmerman, who has participated in his last earnings call as he is retiring from UPR. Greg provided leadership and established side. He is my business partner, colleague, and friend, and he will be missed. Ben Fox will now officially take over the role of Chief Investment Officer, and we are excited about his leadership and vision for our future. With that, why don't I open it up for questions. Jenny?