EPR Properties Reports First Quarter 2018 Results

Company Reports Record Quarterly Revenue and Increases 2018 Earnings Guidance

EPR Properties EPR today announced operating results for the first quarter ended March 31, 2018.

Three Months Ended March 31, 2018

• Total revenue was $155.0 million for the first quarter of 2018, representing a 20% increase from $129.1 million for the same quarter in 2017.
• Net income available to common shareholders was $23.5 million, or $0.32 per diluted common share, for the first quarter of 2018 compared to $48.0 million, or $0.75 per diluted common share, for the same quarter in 2017.
• Funds From Operations (FFO) (a non-GAAP financial measure) for the first quarter of 2018 was $61.0 million, or $0.82 per diluted common share, compared to $73.9 million, or $1.15 per diluted common share, for the same period in 2017.
• FFO as adjusted (a non-GAAP financial measure) for the first quarter of 2018 was $94.0 million, or $1.26 per diluted common share, compared to $76.5 million, or $1.19 per diluted common share, for the same quarter in 2017, representing a 6% increase in per share results.

"In the first quarter, we delivered record revenues and have increased our earnings guidance for the year," stated Company President and CEO Greg Silvers. "We are also effectively executing on our strategy of recycling capital to fund our investments. To that end, subsequent to the end of the quarter, we realized a very attractive yield from the Boyne mortgage repayment due to the upside consideration we included as part of the deal structure. We remain focused on disciplined capital allocation by recycling capital within our portfolio to pursue accretive investments."

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 March 31, 2018:

• The Entertainment segment included investments in 149 megaplex theatre properties, seven entertainment retail centers (which include seven additional megaplex theatre properties) and 11 family entertainment centers. The Company's portfolio of owned entertainment properties consisted of 13.2 million square feet and was 99% leased, including megaplex theatres that were 100% leased.
• The Recreation segment included investments in 25 ski areas, 20 attractions, 31 golf entertainment complexes and ten other recreation facilities. The Company's portfolio of owned recreation properties was 100% leased.
• The Education segment included investments in 65 public charter schools, 67 early education centers and 14 private schools. The Company's portfolio of owned education properties consisted of 4.7 million square feet and was 98% leased.
• The Other segment consisted primarily of the land under ground lease, property under development and land held for development related to the Resorts World Catskills casino and resort project in Sullivan County, New York.

The combined owned portfolio consisted of 21.0 million square feet and was 99% leased. As of March 31, 2018, the Company also had a total of $249.9 million invested in property under development.

Investment Update

The Company's investment spending for the three months ended March 31, 2018 totaled $108.6 million, and included investments in each of its primary operating segments:

• Entertainment investment spending during the three months ended March 31, 2018 totaled $25.5 million, including spending on build-to-suit development and redevelopment of megaplex theatres, entertainment retail centers and family entertainment centers, as well as a $7.5 million megaplex theatre acquisition.
• Recreation investment spending during the three months ended March 31, 2018 totaled $62.0 million, including investment spending on build-to-suit development of golf entertainment complexes and attractions, redevelopment of ski areas, a $7.8 million acquisition of a recreation facility and an investment of $10.3 million in a mortgage note secured by one other recreation facility.
• Education investment spending during the three months ended March 31, 2018 totaled $21.1 million, including spending on build-to-suit development and redevelopment of public charter schools, early education centers and private schools, as well as $8.4 million on two early education center acquisitions.

On February 16, 2018, a borrower exercised its put option to convert its mortgage note agreement, totaling $142.9 million and secured by 28 education facilities including both early education and private school properties, to a lease agreement. As a result, the Company recorded the rental property at the carrying value, which approximated fair value, of the mortgage note on the conversion date and allocated this cost on a relative fair value basis. The properties are leased pursuant to a triple-net master lease with a 23-year remaining term.

Capital Recycling

On May 7, 2018, Boyne USA, Inc. (Boyne) purchased seven resort and attraction assets from Och-Ziff Real Estate (OZRE). These properties partially secure the Company's mortgage note receivable due from OZRE with a carrying value of $249.2 million at March 31, 2018. Following the acquisition by Boyne, OZRE made a partial prepayment to the Company of approximately $175.4 million on this mortgage note receivable, leaving a carrying value of approximately $73.8 million that is secured by the remaining six ski properties. In connection with the partial prepayment of this note, the Company will recognize a prepayment fee totaling approximately $45.0 million during the second quarter of 2018.

Balance Sheet Update

The Company had a net debt to adjusted EBITDA ratio (a non-GAAP financial measure) of 5.80x at March 31, 2018. This ratio was outside of the Company's targeted range of 4.6x to 5.6x for this measure, however, the Company has reduced its net debt subsequent to March 31, 2018 in conjunction with the OZRE partial prepayment described above and anticipates additional dispositions over the remainder of 2018. These dispositions are expected to have the impact of reducing this ratio.

The Company had $24.5 million of unrestricted cash on hand and $570.0 million outstanding under its $1.0 billion unsecured revolving credit facility at March 31, 2018.

On February 28, 2018, the Company redeemed all of its outstanding 7.75% Senior Notes due July 15, 2020. The notes were redeemed at a price equal to the principal amount of $250.0 million plus a premium calculated pursuant to the terms of the indenture of $28.6 million, together with accrued and unpaid interest of $2.3 million. In connection with the redemption, the Company recorded a non-cash write off of $3.3 million in deferred financing costs. Additionally, the Company prepaid in full a mortgage note payable totaling $11.7 million with an annual interest rate of 6.19%, which was secured by one theatre property. Subsequent to these transactions, the Company has no debt maturities until 2022.

Subsequent to March 31, 2018, the Company issued $400.0 million in senior unsecured notes due April 15, 2028. The notes bear interest at an annual rate of 4.95%. The Company used the net proceeds from the note offering to pay down its unsecured revolving credit facility.

Dividend Information

The Company declared regular monthly cash dividends during the first quarter of 2018 totaling $1.08 per common share. This dividend represents an annualized dividend of $4.32 per common share, an increase of almost 6% over the prior year, and would be the Company's eighth consecutive year with a significant annual dividend increase.

The Company also declared first 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 $0.359375 per share on its 5.75% Series G cumulative redeemable preferred shares.

2018 Guidance

The Company is increasing its 2018 guidance for FFO as adjusted per diluted share to a range of $5.75 to $5.90 from a range of $5.23 to $5.38. In addition, the Company is confirming its 2018 investment spending guidance of a range of $400.0 million to $700.0 million and its 2018 disposition proceeds guidance of a range of $350.0 million to $450.0 million.

FFO as adjusted guidance for 2018 is based on FFO per diluted share of $5.17 to $5.27 adjusted for estimated costs associated with loan refinancing or payoff, 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 $0.24 to $0.29 and the impact of Series C and Series E dilution of $0.08, plus estimated real estate depreciation of $2.05 per diluted share (in accordance with the NAREIT definition of FFO).

Quarterly Supplemental

The Company's supplemental information package for the first quarter ended March 31, 2018 is available on the Company's website at http://investors.eprkc.com/earnings-supplementals.

The conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares would be dilutive to FFOAA per share for the three months ended March 31, 2018. Therefore, the additional 2.1 million and 1.6 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 FFOAA per share for the three months ended March 31, 2018. The effect of the conversion of the 5.75% Series C convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares do not result in more dilution to per share results and are therefore not included in the calculation of diluted FFO per share data for the three months ended March 31, 2018.

The conversion of 5.75% Series C cumulative convertible preferred shares would be dilutive to FFO and FFOAA per share for the three months ended March 31, 2017. Therefore, the additional 2.1 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 months ended March 31, 2017. 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 FFO and FFOAA per share data for the three months ended March 31, 2017.

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 (both reported in accordance with GAAP) to Net Debt, EBITDAre, 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 $6.8 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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