EPR Properties Reports Third Quarter 2017 Results

Company Reports Record Revenue

Increases Earnings Guidance for 2017 and Introduces Guidance for 2018

EPR Properties EPR today announced operating results for the third quarter and nine months ended September 30, 2017.

Three Months Ended September 30, 2017

• Total revenue was $151.4 million for the third quarter of 2017, representing a 21% increase from $125.6 million for the same quarter in 2016.
• Net income available to common shareholders was $57.0 million, or $0.77 per diluted common share, for the third quarter of 2017 compared to $51.6 million, or $0.81 per diluted common share, for the same quarter in 2016.
• Funds From Operations (FFO) (a non-GAAP financial measure) for the third quarter of 2017 was $90.5 million compared to $78.2 million for the same quarter in 2016, or $1.22 per diluted common share for both quarters.
• FFO as adjusted (a non-GAAP financial measure) for the third quarter of 2017 was $93.3 million, or $1.26 per diluted common share, compared to $78.8 million, or $1.23 per diluted common share, for the same quarter in 2016, representing a 2% increase in per share results.

Nine Months Ended September 30, 2017

• Total revenue was $428.3 million for the nine months ended September 30, 2017, representing a 18% increase from $362.4 million for the same period in 2016.
• Net income available to common shareholders was $179.6 million, or $2.55 per diluted common share, for the nine months ended September 30, 2017 compared to $149.0 million, or $2.35 per diluted common share, for the same period in 2016.
• FFO (a non-GAAP financial measure) for the nine months ended September 30, 2017 was $249.4 million compared to $224.2 million for the same period in 2016, or $3.52 per diluted common share for both periods.
• FFO as adjusted (a non-GAAP financial measure) for the nine months ended September 30, 2017 was $264.7 million, or $3.73 per diluted common share, compared to $227.2 million, or $3.56 per diluted common share, for the same period in 2016, representing a 5% increase in per share results.

"We continue to identify quality investment opportunities in each of our primary investment segments," commented Company President and CEO Greg Silvers. "Including the nearly $300 million we deployed during the third quarter, we have made $1.5 billion in investments this year and are pleased to be increasing both our 2017 investment spending and earnings guidance. Supported by the broad stability of our investment segments, along with our unmatched category expertise and relationship-based pipeline, we are optimistic about our outlook for 2018 in terms of both earnings growth and investment opportunities."

A reconciliation of FFO to FFO as adjusted follows (unaudited, dollars in thousands, except per share amounts):

Portfolio Update

The Company's investment portfolio (excluding property under development) consisted of the following at September 30, 2017:

• The Entertainment segment included investments in 147 megaplex theatre properties, seven entertainment retail centers (which include seven additional megaplex theatre properties) and nine family entertainment centers. The Company's portfolio of owned entertainment properties consisted of 12.8 million square feet and was 99% leased, including megaplex theatres that were 100% leased.
• The Education segment included investments in 69 public charter schools, 63 early education centers and 15 private schools. The Company's portfolio of owned education properties consisted of 4.3 million square feet and was 98% leased.
• The Recreation segment included investments in 26 ski areas, 20 attractions, 28 golf entertainment complexes and seven other recreation facilities. The Company's portfolio of owned recreation properties was 100% leased.
• The Other segment consisted primarily of the land under ground lease, property under development and land held for development related to the Adelaar casino and resort project in Sullivan County, New York.

The combined owned portfolio consisted of 20.0 million square feet and was 99% leased. As of September 30, 2017, the Company also had a total of $284.2 million invested in property under development.

Investment Update

The Company's investment spending for the three months ended September 30, 2017 totaled $292.8 million (bringing the year-to-date investment spending to $1.5 billion), and included investments in each of its primary operating segments:

• Entertainment investment spending during the three months ended September 30, 2017 totaled $150.7 million, including spending on build-to-suit development and redevelopment of megaplex theatres, entertainment retail centers and family entertainment centers, as well as $106.2 million in acquisitions of three megaplex theatres.
• Education investment spending during the three months ended September 30, 2017 totaled $56.5 million, including spending on build-to-suit development and redevelopment of public charter schools, early education centers and private schools, as well as $11.1 million for the acquisition of one public charter school and an investment of $20.0 million in mortgage notes receivable.
• Recreation investment spending during the three months ended September 30, 2017 totaled $85.4 million, including investment spending on build-to-suit development of golf entertainment complexes and attractions, and redevelopment of ski areas, as well as $17.7 million in acquisitions of other recreation facilities.
• Other investment spending during the three months ended September 30, 2017 totaled $0.2 million, and was related to the Adelaar casino and resort project in Sullivan County, New York.

Capital Recycling

During the third quarter, the Company sold one public charter school property, pursuant to a tenant purchase option, for total net proceeds of approximately $5.7 million and recognized a net gain on sale of real estate of $1.0 million. Dispositions and mortgage note pay-off (excluding principal amortization) totaled $140.3 million for the nine months ended September 30, 2017.

The Company expects to receive an additional $45.0 million to $60.0 million of proceeds from property dispositions in the fourth quarter, primarily from sales of public charter school properties pursuant to tenant purchase options, and expects to recognize an additional $11.7 million to $12.7 million in lease termination fees in FFO as adjusted for the fourth quarter.

Balance Sheet Update

The Company had a net debt to adjusted EBITDA ratio (a non-GAAP financial measure) of 5.66x at September 30, 2017. The Company had $11.4 million of unrestricted cash on hand and $170.0 million outstanding under its $1.0 billion unsecured revolving credit facility at September 30, 2017.

On September 27, 2017, the Company amended its unsecured consolidated credit agreement which governs its unsecured revolving credit facility and its unsecured term loan facility. These amendments increased the borrowing capacity, extended the maturity, released the Company's subsidiaries as co-borrowers and lowered the interest rate and related pricing terms of the Company's facilities. In connection with the amendment, $1.5 million of deferred financing fees (net of accumulated amortization) were written off during the three months ended September 30, 2017, and are included in costs associated with loan refinancing.

The amendments to the unsecured revolving portion of the credit facility, among other things, (i) increased the initial maximum available amount from $650.0 million to $1.0 billion, (ii) extended the maturity date from April 2019, to February 2022 (with the Company having the right to extend the loan for an additional seven months) and (iii) lowered the interest rate and facility fee pricing based on a grid related to the Company's senior unsecured credit ratings which at closing was LIBOR plus 1.00% and 0.20%, versus LIBOR plus 1.25% and 0.25%, respectively, under the previous terms.

The amendments to the unsecured term loan portion of the credit facility, among other things, (i) increased the initial amount from $350.0 million to $400.0 million, (ii) extended the maturity date from April 2020, to February 2023 and (iii) lowered the interest rate based on a grid related to the Company's senior unsecured credit ratings which at closing was LIBOR plus 1.10% versus LIBOR plus 1.40% under the previous terms. At closing, the Company borrowed the remaining $50.0 million available on the $400.0 million term loan portion of the facility, which was used to pay down a portion of the Company's unsecured revolving credit facility.

In addition, there is a $1.0 billion accordion feature on the combined unsecured revolving credit and term loan facility that increases the maximum amount available under the combined facility, subject to lender approval, from $1.4 billion to $2.4 billion. If the Company exercises all or any portion of the accordion feature, the resulting increase in the facility may have a shorter or longer maturity date and different pricing terms.

On October 31, 2017, the Company entered into three interest rate swap agreements to fix the interest rate at 3.15% on an additional $50.0 million of the unsecured term loan facility from November 2017 to April 2019 and on $350.0 million of the unsecured term loan facility from April 2019 to February 2022.

During the third quarter, the Company also prepaid in full three mortgage notes payable totaling $24.9 million, which were secured by three theatre properties.

Dividend Information

The Company declared regular monthly cash dividends during the third quarter of 2017 totaling $1.02 per common share. This dividend represents an annualized dividend of $4.08 per common share, an increase of 6.25% over the prior year, and would be the Company's seventh consecutive year with an annual dividend increase.

The Company also declared third quarter cash dividends of $0.359375 per share on its 5.75% Series C cumulative convertible preferred shares, $0.5625 per share on its 9.00% Series E cumulative convertible preferred shares and $0.4140625 per share on its 6.625% Series F cumulative redeemable preferred shares.

2017 Guidance

The Company is increasing its 2017 guidance for FFO as adjusted per diluted share to a range of $5.15 to $5.20 from a range of $5.05 to $5.20. The Company is increasing its 2017 investment spending guidance to a range of $1.55 billion to $1.60 billion from $1.45 billion to $1.50 billion. Disposition proceeds are expected to total $185.0 million to $200.0 million for 2017.

FFO as adjusted guidance for 2017 is based on FFO per diluted share of $4.76 to $4.80 adjusted for estimated costs associated with loan refinancing or payoff, gain on insurance recovery, transaction costs, gain on early extinguishment of debt, termination fees included in gain on sale, deferred income tax expense and impairment of direct financing lease (allowance for lease loss portion). FFO per diluted share is based on a net income per diluted share range of $3.50 to $3.55 less estimated gain on sale of real estate of a range of $0.57 to $0.58 and the impact of Series C and Series E dilution of $0.05, plus estimated real estate depreciation of $1.84 per diluted share and impairment of direct financing lease (residual value portion) of $0.04 per share (in accordance with the NAREIT definition of FFO).

2018 Guidance

The Company is also introducing its 2018 guidance for FFO as adjusted per diluted share of a range of $5.33 to $5.48. In addition, the Company is introducing its 2018 investment spending guidance of a range of $700.0 million to $800.0 million. Disposition proceeds are expected to total $125.0 million to $225.0 million for 2018.

FFO as adjusted guidance for 2018 is based on FFO per diluted share of $5.07 to $5.16 adjusted for estimated transaction costs, termination fees related to public charter schools and deferred income tax expense. FFO per diluted share is based on a net income per diluted share range of $3.44 to $3.59 less estimated gain on sale of real estate of a range of $0.25 to $0.31 and the impact of Series C and Series E dilution of $0.06, plus estimated real estate depreciation of $1.94 per diluted share (in accordance with the NAREIT definition of FFO).

Quarterly Supplemental

The Company's supplemental information package for the third quarter and nine months ended September 30, 2017 is available on the Company's website at http://eprkc.com/earnings-releases-supplemental.

The conversion of the 5.75% Series C cumulative convertible preferred shares would be dilutive to FFO and FFOAA per share for the three and nine months ended September 30, 2017 and 2016. Therefore, the additional 2.1 million and 2.0 million common shares that would result from the conversion and the corresponding add-back of the preferred dividends declared on those shares are included in the calculation of diluted FFO and diluted FFOAA per share for the three and nine months ended September 30, 2017 and 2016, respectively. The effect of the conversion of our 9.0% Series E cumulative convertible preferred shares and the additional 1.6 million common shares that would result from the conversion do not result in more dilution to per share results and are therefore not included in the calculation of diluted per share data for the three and nine months ended September 30, 2017 and 2016.

Net Debt to Adjusted EBITDA Ratio

Net Debt to Adjusted EBITDA Ratio is a supplemental measure derived from non-GAAP financial measures the Company uses to evaluate its capital structure and the magnitude of its debt against its operating performance. The Company believes that investors commonly use versions of this ratio in a similar manner. In addition, financial institutions use versions of this ratio in connection with debt agreements to set pricing and covenant limitations. The Company's method of calculating Net Debt to Adjusted EBITDA Ratio may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Reconciliations of debt and net income available to common shareholders (both reported in accordance with GAAP) to Net Debt, Adjusted EBITDA, and Net Debt to Adjusted EBITDA Ratio (each of which is a non-GAAP financial measure) are included in the following tables (unaudited, in thousands):

About EPR Properties

EPR Properties is a specialty real estate investment trust (REIT) that invests in properties in select market segments which require unique industry knowledge, while offering the potential for stable and attractive returns. Our total investments exceed $6.6 billion and our primary investment segments are Entertainment, Recreation and Education. We adhere to rigorous underwriting and investing criteria centered on key industry and property level cash flow standards. We believe our focused niche approach provides a competitive advantage, and the potential for higher growth and better yields.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

With the exception of historical information, certain statements contained or incorporated by reference herein may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such as those pertaining to our acquisition or disposition of properties, our capital resources, future expenditures for development projects, expected dividend payments, and our results of operations and financial condition. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of actual events. There is no assurance the events or circumstances reflected in the forward-looking statements will occur. You can identify forward-looking statements by use of words such as "will be," "intend," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "pipeline," "estimates," "offers," "plans," "would" or other similar expressions or other comparable terms or discussions of strategy, plans or intentions contained or incorporated by reference herein. While references to commitments for investment spending are based on present commitments and agreements of the Company, we cannot provide assurance that these transactions will be completed on satisfactory terms. In addition, references to our budgeted amounts and guidance are forward-looking statements. Forward-looking statements necessarily are dependent on assumptions, data or methods that may be incorrect or imprecise. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors see "Item 1A. Risk Factors" in our most recent Annual Report on Form 10-K and, to the extent applicable, our Quarterly Reports on Form 10-Q.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date hereof or the date of any document incorporated by reference herein. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by law, we do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date hereof.

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