EPR Properties (EPR) Earnings Call Transcript & Summary

Welcome to Citi's 2026 Global Property CEO Conference. I'm Smedes Rose of Citi Research. We're pleased to have with us EPR and CEO, Greg Silvers. This session is for Citi clients only and disclosures have been made available at the corporate access desk. [Operator Instructions]. Greg, I'm going to turn it over to you and ask you to introduce your colleagues that you're with today, give a few opening remarks about the company and tell us a few reasons why investors should buy your stock, and then we'll go into some Q&A.

Thanks, Smedes. I appreciate, first of all, let me thank Citi and everything you guys do, putting on this event. We really appreciate the ability to participate. To my left is Mark Peterson, our Executive Vice President and CFO. To my right, I'd like to introduce everyone to our Executive Vice President and Chief Investment Officer, Ben Fox, who has just recently succeeded Greg Zimmerman, who announced and formally retired earlier this month. And to his right is Brian Moriarty, our Senior Vice President of Corporate Communications. . As far as things that I think make EPR attractive, a couple of ideas, one mainly is a, we believe, a strong value proposition. When you think about a 6% dividend, 5% growth and still an opportunity for multiple expansion. So again, when you look at it on the short term or any time during the last 5 years, we have consistently delivered outsized results and have been at the top of the group. Secondly, I think is, again, when we think about the spaces that we're in, if you look at the latest BAE data on consumer spending, experiential spending went up 7% from '24 to '25. So even in a period of time where there is a question about the consumer, we actually had increased spending in the experiential. And my third thing would probably be the team. We have a unique team that has really developed long-standing relationships that allows us to uniquely identify, underwrite and secure and acquire these assets. So I think all of those things are really what kind of drives our value proposition.

When you talk about the consumer experiential spending, do you know what the sort of major categories of that are? Are we talking theme parks?

I think it's a general. I'll let Brian work with that data.

It's government data. So it's personal consumption expenditures, and it cuts across everything that you'd kind of consider experiential, whether it's theaters, clubs, business and wellness, fitness and wellness, GMs, attractions, just really kind of the broad.

But not restaurants, I assume .

No, the restaurants per se. We thought that was a little bit too broad -- so we don't include that. .

Okay. So this is your data that you're cutting from the .

Yes, we look the BA data. We try to align it as closely as possible to the Smedes that we focus on. It's not perfect. But it's a pretty good assimilation.

Proxy. And that spending was up 7%.

Correct.

Okay. Interesting. Okay. All right. So just in terms of recapping the reasons that you noted, so valuation, you mentioned 5% AFFO growth, 6% dividend yield. Consumer experiential spending is up, and you have a tenured team.

And the relationships to kind of harness into that those verticals and categories of experiential.

Okay. So this will be -- we're going to go over some tried and the ground here, but of the questions that typically come up. The first, I think your largest tenant is Topgolf. Now I think 60% owned by private equity. Was that the outcome that you were kind of hoping for with that tenant? And kind of maybe talk about your relationship with them and with the new majority owner?

Sure. I think it's a very good outcome for us in this sense. And you should know, we spent time with Leonard Green before they announced the deal they wanted to talk to us. I think, one, Callaway was really born as a manufacturer. And I think they struggled with the consumer facing actual experience part of the business, where Leonard Green has a lot of experience with multiunit retail, and in the kind of experiential fitness and wellness space. They were the lead on the lifetime fitness. So they've been in these categories. I think the 60-40 ownership split is really attractive in the sense that, a, Callaway is very mindful of their credit rating and will not let their intent is to not lever up the entity. And so both in Leonard Green and Callaway informs that they intend to keep this below 2x levered. . Again, I think that speaks well. And if you talk to Leonard Green, they have indicated the same thing we talked to them about that they needed to slow the growth down and focus on fewer quality locations, not multiples of locations. So they're headed back to doing 3 to 5 locations a year that meet a very defined criteria. The other thing they do is they recently announced the hiring of their new CEO, who is the former CEO who just kind of turned around Checky Cheese and they've recurred them cause 1 of the issues they talked to us about, and we thought they could improve their F&B operations, and that's one of his strengths. So everything they're doing so far is very much closely aligned with kind of our thoughts on where things are going. And candidly, if you go look in the second half of the year, their performance was quite strong. So it looks like they're on the right track.

Topgolf's performance.

Above projections, if you look at Callaway in their presentations. .

Okay. And I mean do you think that they'll kind of regroup a little bit and potentially shut some locations.

Yes, I don't think there's anything -- I mean, again, I think the question is we have a pretty high standard on what success looks like, a really high coverage. I think all of their locations that we're aware of are making money, it's just they may not be making as much money as they make on our locations, which have been demonstrably high coverage. .

Okay. And I know you have 2x coverage portfolio-wide, but is it higher for just the Topgolf.

They are higher than that.

And it's been sort of consistently higher.

Yes.

Okay. All right. So anything else we should talk about for Topgolf anybody? Any concerns I don't want to go down the list of it. Let's talk about movie theater exposure. I think it's still about 35% of your EBITDA comes from AMC and Regal, like I said to name to and Cinemark. Maybe just kind of talk about where you are there. There's some media stories about AMC sort of doing debt restructuring, how would that or maybe not impact you? And kind of what are your thoughts there?

Again, we'll talk to. I think one of the things we've talked with people about is, first of all, I think people sometimes forget that -- of that group, we talk about a movie, but Cinemark is BB credit and Regal is a single B credit. So again, those are on par with kind of the gaming companies out there. Having people forget that. They're doing that well. And then for AMC, the thing that's interesting for us about basically they're extending their maturities, they're taking their maturities out to 2031 and lowering their debt rate. So they're in the market to do that. . What's interesting for us and as we look forward, it doesn't really have any effect on us other than, I would say, some degree of positivity is S&P's is rating that as B, with a on recovery, which means an expectation of 90% to 100% full recovery of any amounts related to that. We think we actually sit in front of that, meaning we have the same obligor and we are secured with hard assets. They are secured with our leases. So again, when I think we believe it looks -- it's a very positive that they're getting new money into the company that it's at a rate lower than the rate that they're replacing. So it doesn't have any direct impact on us, but again, extending their maturities and getting new investors in at more favorable rates, generally a positive for us.

Yes. Okay. And you've decided to no longer kind of do the North American box office forecasting. What was kind of the reasoning behind that? .

Again, primarily, it created a lot of confusion, and I say this. Most everybody we're really trying to track Regal. And Regal because they're the major percentage rent contributor there is a lease year, not a calendar year. So people were confusing, a, at what period of time there was, there is a lot of third-party resources out there that do the full year. And so we were giving a full year forecast. That's duplicative of what other experts are doing, and it was confusing the idea that people were trying to see, how is that impacting into Regal. What we said this year is that Regal's number should be up over last year. That would imply implicitly that we think for the Regal year that box office will be higher than it was. It's just -- there's -- we don't want to create a confusion and how people kind of react to things that really have no impact. .

Okay. I guess over time, what would you like to see theater exposure be reduced to?

We've said that we like at 20% or below. That's generally kind of what it represents in the experiential world.

And what do you think the time frame is to get there?

I think it's probably kind of somewhere in the next 3 to 5 years as we work through things and grow others.

Okay. And that's primarily by adding versus selling.

Yes. I mean we've sold 33 theaters over the last year -- over the last 1.5 years. So we've done -- we're doing both, and we'll continue to look and do both. So again, it's not -- if there's an opportunity to sell and accelerate that, we'll take a look at that. So it's really about pulling both levers.

Okay. But just in terms of identified assets to sell, you've kind of worked through theaters, right?

No, we [indiscernible] people all the time. If anybody here today would like to buy some theaters, we're open to for a discussion. We've said we want to reduce those. So I mean, again, in the first -- I think we talked about it on our call, we sold 2 theaters here recently. So again, we're continuing to actively look at that. Those were 2 operating theaters.

I think 1 difference is we're down to 1 vacant theater where we were working through those. And so now we're only down to 1 vacant theater. So that's why the pace of those theaters are selling is slowing, I should say.

Okay. And then anything with consolidation of theater or moviemakers in Hollywood, does that have any impact you think or... .

Again, it's always interesting. What's really been -- I don't know if anybody saw the Bloomberg article that was published Monday from Ted Sarandos from Netflix, who said this was after they decided they were out. He said the one interesting thing that we didn't appreciate that we've come to change our opinion is we're going to look at the movie theater business differently, and maybe we should be in that. That is a change. And so again, that's an exciting development that maybe Netflix is going to begin to look. Remember, they've started dabbling in that this year, they're going to release a Narnia moving into the theaters. They did Cape Pop Demons, if I get that right. I'm not sure that. But my kids are no longer that aged where they did that in the theaters. So we're starting to see them dabble. So this may be a new revenue generation opportunity for them, which is pretty exciting.

Okay. Okay. I just wanted to switch back one second to Topgolf. Would you be willing to commit more capital into that sector right now?

We'll have to see. Again, if we can get some really, really strong coverage assets that we like, like I said, we did 2 years ago, we did King of Persia .We did suburban Los Angeles. If we could get kind of high coverage with really strong performing and to 20 acres of really quality, we'll take a look at it. I can't say we're not being presented anything right now, but I wouldn't say we're adverse as we grow to grow a small additions with them. .

Okay, okay. Maybe let's circle up on the other issue that comes up a lot, which is the Sullivan County. I don't know how much you can say on that. But maybe kind of recap where you were and where we are maybe what -- what a couple of the different again. .

As we talked about on our call, we don't really have any meaningful update. What occurred for those who don't know is we were approached by the tenant of our ground lease in Sullivan County. They were structuring a deal with the county to do municipal bonds to basically refinance their existing debt and take us out of the ground lease. That process then got a little bit more convoluted in the sense that they decided to add a guarantor on there, then they had to -- they had a parent kind of M&A deal that they were -- anyway, they get delayed twice. They now have been awarded -- again, team has been awarded the downstate license. We don't know if they're going to try to finance everything together and do that. We just haven't had meaningful discussions with them, Smedes. So it's not part of our plan. It would be positive for us if it did happen, but it's not needed for our capital plan nor do we have it built in there. So all the estimates that you're looking at and dealing with do not have its status quo.

Okay. So right, just you've received your rent -- what is that annually?

How much is it . $10 million, $12 million. Okay. And they were looking at the buyout was like $200 million is the hungry.

Okay. All right. So that potentially is on the come.

It could be. It could be very favorably.

Okay. Maybe we can just switch a little bit then to -- you've talked for a while now about an accelerating pipeline, acquisition opportunities. You've got a much better cost of capital, obviously, which allows you probably to be more aggressive in that arena. Maybe just talk about the pipeline first, kind of where are you seeing opportunities? Kind of what kind of pricing are you seeing? And how are they coming to you?

Sure. And I'll give a little bit and then I'll let Ben speak to this. I think overall, we've said all along, the 3 bigger categories were fitness and wellness attractions and even play I think all of those were still -- I mean one of the things that's always interesting when we have somebody new is I think Ben has really kind of energize the team, new faces, getting things in everybody moving. And really through the 6 months, he's here has been really accelerating building that pipeline and position us through the third and fourth quarter to kind of take advantage of that. But Ben, if you want to give a little more color on that? .

Thank you. It's really right. It's just taking a lot of the momentum and deals but get deals, right? And so the team has been very active, having conversations. And as you saw in the fourth quarter, we announced an acquisition in the fitness and wellness arena of golf courses. And putting that into the market just really unleashed a lot of inbound inquiries and also provided access to our team to invitation-only events, where the investment professional leading that transaction was able to participate with operators in the sector and a very exclusive invitation-only environment. And those kind of conversations have been happening. And as that dovetails with our improving cost of capital is really unlocking incrementally more opportunities and the pipeline just continues to build both in depth and depth across the verticals that Greg mentioned and really across the spectrum.

Where roughly do you think your weighted average cost of capital is? And kind of what's kind of the spread to where you're investing ballpark?

Yes. Again, I'll let Mark. I think we're somewhere in the neighborhood of about 100 basis points on issuing new capital. But Mark...

Yes, high 50s, low 60s. You do the math, $6. 40 with the cost of debt, probably puts us in the low 7s. And then if we do, call it, 8.25, you had 100 basis points of spread in initial spread and of course, IRR would be even higher. So we're kind of in the -- right at the cost here in the green light area in terms of cost of capital that works for incremental. .

You put in an ATM program rate and I think you've used it yet. How are you thinking or how you.

I can't tell you if we had .

What we did say is, here's the thing. We start the year with $90 million of cash, nothing drawn on our line of credit. 4.9x levered. So we started in a great place. When we look at our plan, as we said on the call, we could do it entirely without raising equity and still be below the midpoint of our debt range, which is 5% to 5.6%, so below 5.3% at the end of the year. And kind of looking at sources and uses, we've got free cash flow of roughly $150 million. We do have one bond deal in our plan to refinance the debt that's due. We have about $630 million of debt due in August and December. . And then we have a modest amount of dispositions that will help fund that. So if you do all the math, we finished the year about $300 million drawn on the line of credit, assuming no equity and at a leverage point that's below the midpoint. Now that said, opportunistically, we could raise equity as we just said, the cost of capital works either for delevering or to support incremental volume. We look at both of those opportunities should they present themselves. And we think with our range of earnings, we think we can handle that, particularly if some of it on a forward basis.

Okay. And what was the acquisitions guidance for this year?

$400 million to $500 million. So in my math, I was using $450 million just midpoint. .

Okay. And so what -- how does the first quarter look on kind of how -- what have you identified so far at that $400 million to $500 million?

Again, what we said in our call was that, that number was more front-loaded. So again, to the front half of this, we've announced that we did roughly $35 million. We also have -- we came into the year with roughly $85 million of build-to-suit either projects that have started or will start. So again, when you start to think about that, we're probably sitting at $119 million, $120 million and so we're -- I think we're under a good place.

Okay. Okay. And maybe just talk a little bit more within kind of the fitness and wellness space with some other companies pursuing similar kinds of assets, I guess, maybe talk about what does fitness and wellness mean for you guys? What do you look for because you're not really doing like lifetime fitness [indiscernible]

We looked at that deal . I mean, that deal was presented to us again. So it's not.

What made you pass on it.

Because we probably weren't ready to do 10 in Okay. And again, there was -- I'll be candid, we bid on a number less than somebody said, I'll take them all. And that was, I think, kind of the easiest thing for them to do. I'm probably speaking out of turn. But again, lifetime is an operator that we would be interested in the lifetime in the space. It's not what we would think as commodity space, but as a much more community and sense of place. We did announce, as I said, a new vital acquisition on the Lowry side. Again, we continue to look in the, what I would say, the wellness space as we think about the 2 major demographic groups that are driving that, the millennials, which hopefully, a lot of people here I'm in the other one, which are the boomers, which again, wellness means something different in that side of the space. It's a lot more of the think of, like I said, the Hot Springs, the spa, the golf, things of that nature. And we're leaning into both sides of those. And I think our team has developed kind of the relationships that allow us to access both. We talked about kind of in the golf space. We've been quite successful early on in that and getting kind of the -- how we define what we want to do in there. We've also -- if you look in that kind of spa fitness area, we've been very, very good at kind of these kind of concepts, whether it's vital, Mirabeau. If you think about last year, I want to speak this top 4 hot springs resorts in the country we had 3 of the 4. So again, so I think we've been very good at both identifying and securing those and we continue to look at developing that.

I wanted to circle back just for -- on the golf for a moment. I think that's something you did in the fourth quarter, some Texas courses. Golf has had kind of a boom and bust kind of history, big picture. I'm sure yours will be great. But just how do you think about valuation of the golf course, like what you're willing to pay? And I guess, underneath, how do you think about just so real estate? And maybe this is a broader question because concepts, themes, brands all come and go over time. So you might get -- if you're just stuck with the real estate, how do you think about that underlying.

I think the golf space has really changed and really changed over the last probably 10 years. If you think about supply demand, there's probably 2,000 courses that have been eliminated. And the only thing that's really growing in golf right now, I would say, is destination golf. And by destination golf, it's the Bandon Dunes, it's that kind -- that's not the space that we're in, candidly. That's very expensive. What really happened is you can't build a golf course reasonably priced now. We can. We can buy golf courses, generally speaking, 50% of original cost. It's about running and operating and partnering with people who can do that. I don't think -- what we're seeing is the idea of changing and getting the operating metrics to a, call it, a 24% to 28% kind of margin business and getting our rent to kind of a 10% to 12%, 14% business. So we have that kind of 2x cover. That's with an appropriate maintenance CapEx reserve as part of that. . So that you really are -- like I said, the dynamics have changed, and you're correct, Smedes, that these are $30 million courses that we're buying for $15 million. Now again, when somebody originally may have done those as part of a home development, they looked at it and said, I'm willing to spend $30 million to sell homes. Those are not getting built anymore. There's not. There's no -- very few non-destination courses being built in the U.S. right now. But there is opportunity to recap some of those, purchase them right and be part of that. If you look at -- I'll give you an example of hours, the one before in Georgia that we bought before this group. It's a 2,000 home development. If you own a home, you have to be a member of the club. Every time you sell the home, a new membership is sold. And if you don't pay your dues, it becomes a lean on your house. Okay. You know what, we like that structure. That's a pretty good credit structure. We're happy with that. And we think those are -- there are opportunities. Now that, of course, it's a beautiful course. He spent a ton of money doing it, but he did it to sell houses. And now he's sold all the houses and he's willing to sell it at -- and we're able to get the right operator in there and make those numbers work. So we think there are ways in the space to be smart, to be thoughtful. If you look at demand, demand is very, very strong right now. And I think the supply dynamics are really good.

Did demand to play golf is strong? Or you mean to for the houses that sales force .

Stronger than it's been in the last 20 years. again, across multiple demographic groups. If you look and if you; a, if you can look at the numbers, if you look at the number of people who are on waiting list to join private clubs, it's never been higher in the existence of track. .

Okay. So you mentioned you're sort of underwriting to 2x coverage on a golf course. And that's assuming they can get the margin up to like the 28%? Or are you going in at 2x and then hoping that gets better?

That's from the go and hoping that things could get so if you get that better. .

Okay. Okay. And what sort of cap rates are you going .

What we said is kind of low to mid 8s.

Low to mid-8s. And is there anyone else discovering this renaissance at golf.

Clearly, right now, there is a large almost -- there's probably 8 private equity-backed golf owners out there, large out there. They range from Apollo at the biggest in to Arcus, to all of these things. I think from a public, the only guy who's really [indiscernible] the Gulf, I think VICI does it, but with destination golf. They're doing the Cabot and things like that, but I don't think they're just doing normal play golf. .

Yes. I mean they got a few courses kind of as part of their legacy...

I know they did the Cabot thing, but I think that it's more destination.

That would be in your destination comments .

Mentioned land value, which I want to go back to, which was another area of our portfolio, which is our attraction space, which most people don't realize or maybe they do, but when you think about amusement parks in this country, most of them are in and around major metropolitan areas and their 200 to 300-acre tracks of land, generally located on major thoroughfares interstates. It represents probably one of the more interesting land bank plays. Now we can't access it until the lease is done. But from a land bank play, it's incredible relative to what you have in the overall investment. .

Just kind of on that, some of the major public theme park companies have been undergoing some challenges, there has been talks about maybe selling some of their smaller assets. I mean, do you think you -- are you participating in conversations around that. Could you be a beneficiary there?

We would always think we would participate in there in the sense that we're very -- we know and deal with those. We're Six Flags largest landlord, United parts, which is kind of the Busch Gardens, we've known that group. I mean there's -- the interesting thing where Park Renita, which just sold to the Herschend family, again, we're probably the only REIT that participates in all those conversations just because we've known those group for years. So if you look at Richard Zimmerman, who used to run Six Flags, I've known for years, the gentleman who just John Reilly, who just become the CEO used to be the CEO of Palace Entertainment, which was owned by Park Greneda. So again, if you noticed -- I mean, we know this is a world that we -- that's what I talked about on our value proposition. You know and work with everybody in these industries. So if Six Flags said I want to reposition some of my assets, some of the kind of less than $20 million EBITDA assets, we would probably be a call they would make, and we would probably -- we would be the one who would probably help put that deal together.

Okay. And you bought a traction, and I think you said Virginia during the fourth quarter.

Yes.

Okay. Okay. And then you have 1 in New Jersey, I think that's relatively new as well. So you're happy with the way that's performed. .

Above 20 covers and exceeding our underwriting. .

You see what .

Exceeding our underwriting. .

Okay. Okay. It sounds like everything is above 2x. So what's bringing down the if you think about .

We talked about this theaters when we last repeat. -- they're kind of probably kind of 1.7 to 1.8, and that was what they were in 2019, but that's if you think about 35%, 37%, that's the math.

Okay. All right. Do you suspect that coverage will get better for theaters.

Yes. I mean if you think about -- the interesting thing about the theater business is going back to that is what's kind of changed is the food and beverage spend is like is phenomenal. If you think in 2019, on average, the per rep customer per spin was about $4 in a quarter. Cinemark reported last week that it was $8.75. That is 80% -- probably a public but it's 80% margin business. So it has meaningfully changed on EBITDA contribution relative to the overall box office and therefore, literally on an EBITDA contribution the $11 billion box office needs to be low 9s to be the exact same EBITDA than we were before.

As a New York resident, I can tell you, it's astounding what they charge a B, we participate. So Well, we .

I'm sure they appreciate that. .

We have a few minutes left, and I did want to ask you kind of how you're thinking about AI internally and is it helping you underwrite, find deals where is the puck moving in real estate or other efficiencies that you might be finding internally?

Again, I think it's operational efficiency. I think we're using it in our asset management and our underwriting. I don't think it's helping us necessarily find deals, but it's helping us. I'll give you an example. We used to have people, I like to come into the office and say, what happened to any of our tenants over the last 24 hours. That used to be a lot of asset managers looking in check now it's one button push and AI synthesizes all that data and says, okay, look, any of your name tenants that came out or anything that happened in your industry, we can have that information for you. So in our asset management, it's every -- in our underwriting, it's able to support our underwriting, both in terms of model building, but also in terms of the research that we look at. I don't think we're looking at eliminating anything, but I do think operational efficiency is being -- it's helped candidly in our legal and how we're looking at things in that nature. So efficiency, and we're deploying it. I think everyone has AI at their desk or AI component at their desk. So we're trying to be thoughtful about it.

Yes, we've heard a few times that people are kind of reducing their legal bills.

We're trying. We're trying.

It seems like it's coming for all of us 1 way or the other. As you we can kind of close out here unless there's any questions from the audience, but we have 2 closing questions. One, as you think about the net lease space, just yourselves with traditional net lease space, what do you think same-store NOI can be in 2027?

'27, probably 1.5%, 2%.

1.5% to 2% go with 1.75%.

Yes.

And do you think there'll be more fewer or the same number of net lease companies -- public net lease companies a year from now?

My guess is the same.

The same Okay. Well, thanks for your time today. We appreciate you being here.

I appreciate it. Thanks.