Hello, and welcome to the EPR Properties Q4 2024 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.

Great. Thank you, Layla. Thanks for joining us today for our fourth quarter and year-end 2024 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO; Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive President -- Executive Vice President and CFO. I'll start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995 identified by such words as will be, intent, continue, 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 forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-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 will contain 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 comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are available on the Investor Center page of the company's website, www.eprkc.com. Now, I'll turn the call over to Greg Silvers.

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's fourth quarter and year-end 2024 earnings call and webcast. We are pleased to have delivered 3.4% earnings growth for the full year 2024 when removing the impact of out-of-period deferred rent and interest collections from both years' performance. Overall, while navigating a challenging macro-environment, our portfolio continued to demonstrate resilience as we continued to grow our experiential portfolio in a disciplined manner. The box office performance in the second half of 2024 demonstrated its strength when supported by ample titles, and we're pleased to report that it ended the year well above initial expectations. Additionally, this was the inaugural year to activate and begin to benefit from our percentage rent structure as defined in our Regal Master Lease. We anticipate continued upside of this structure in the coming years as we expect sustained growth in box office revenues as the number of wide releases grows. Additionally, we saw continued solid performance in our eat & play sector. The sector is anchored by Topgolf, which has remained resilient and it's also supported by other differentiated successful operators, including Andretti indoor karting and gaming with whom we continue to expand our relationship. Separately, during the first half of the ski season, our ski properties benefited from improved weather conditions versus the previous year and we look forward to a solid second half of the season. Notwithstanding our capital-constrained environment during the year, we continued to expand our experiential portfolio by effectively utilizing our operating cash flow and through limited use of our line of credit. Additionally, we made further progress on reducing our theater and education investments and recycling those proceeds into other experiential assets. As we look forward to 2025, we anticipate that we will deliver approximately 3.5% earnings growth at the midpoint of our guidance through an efficient sourcing of capital, which is not dependent upon any equity issuance. Lastly, our strong balance sheet and conservative financial management have all -- have allowed us to operate successfully in the current macro environment. Within this context of this disciplined approach, we are pleased to announce a 3.5% increase in our monthly cash dividend to common shareholders. Following this increase, our dividend will remain well covered and we will retain significant financial flexibility. Now, I'll turn the call over to Greg Zimmerman, who will cover the business in greater detail.

Thanks, Greg. At the end of the quarter, our total investments were approximately $6.9 billion, with 346 properties that are 99% leased or operated, excluding vacant properties we intend to sell. During the quarter, our investment spending was $49.3 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 278 properties with 51 operators and accounts for 93% of our total investments or approximately $6.4 billion and at the end of the quarter, excluding the vacant properties we intend to sell was 99% leased or operated. Our education portfolio comprises 68 properties with eight operators and at the end of the quarter, excluding the vacant property we intend to sell was 100% leased. Turning to coverage. The most recent data provided is based on a September trailing 12-month period. Overall portfolio coverage remains strong at two times, down slightly from last quarter. Trailing 12-month coverage for the non-theater portion of our portfolio was 2.5 times, again down slightly from last quarter. Trailing 12-month coverage for theaters remained at 1.5 times, evidencing stabilization from the impact on the release schedule from the writers and actor strikes. Turning to the operating status of our tenants, we continue to see a rebound in North American box office. Q4 box office totaled $2.3 billion, up 26% from Q4 2023. 2024 box office was $8.6 billion, down only 4% from 2023. After the severe impact on the strikes on the release schedule dissipated, box office recovered significantly in the second half of the year. We are confident the impact of the strikes is behind us. Box office gross ties directly to the number of titles released, particularly wide releases from the nine major Hollywood studios which typically generate around two-thirds of the North American box office gross. The current calendar reflects…

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 2025 guidance. FFOs adjusted for the quarter was $1.23 per share versus $1.18 in the prior year, and AFFO for the quarter was $1.22 per share compared to $1.16 in the prior year. Before I walk through the key variances, I want to explain some items excluded from FFOs adjusted and AFFO. During the quarter, we continued to make progress reducing our investments in theater and education properties and recycling those proceeds into other experiential assets. First, we recognized a net gain of $112,000 on the sale of two vacant theaters and one vacant early childhood education center for which we received net proceeds totaling $9.3 million. For the year, disposition proceeds totaled $74.4 million. We recognized a net gain on sales of $16.1 million. Second, we have two operating theater properties, as well as two theater properties leased by a smaller office, but by a smaller theater operator under contracts to sell, with closings expected on all four properties in the first half of 2025. During the quarter, we recognized non-cash impairment charges of $40 million related to these properties. However, we expect that the proceeds from these sales, once redeployed into other experiential assets, will be accretive to earnings while also reducing the volatility in reported earnings associated with operating properties. In addition, during the quarter, we made the decision to exit our unconsolidated equity investment in operating RV property located in Breaux Bridge, Louisiana. The RV property underperformed expectations that would have required an ongoing capital infusion to service the non-recourse debt and property operations. We finalized our exit of this investment earlier this month. Accordingly, during the quarter, we…

Thank you, Mark. Our results continue to demonstrate the consumer demand for experiential offerings. With box office off to a strong start, we are excited about a more normalized release schedule. I want to thank all of our tenants, partners and associates for their contributions in 2024. Facing many challenges, we delivered solid results and we are excited about the opportunities before us in 2025 and beyond. With that, why don't I open it up for questions? Layla?

[Operator Instructions] Our first question will come from Rob Stevenson with Janney Montgomery Scott. Please go ahead.

Good morning. How are the two remaining RV parks performing versus the Louisiana one that you exited?

Again, I'll let Greg also jump in -- Greg Zimmerman also jump in. But I think we're seeing a better performance. I think, again, if we go back and look at Breaux Bridge, we would look and say the Margaritaville conversion of that did not work for that property. It was not the right decision. And -- but the others have been more established. We didn't really change the branding of that. We just kind of have expanded the offerings. But Greg?

I think that's great. Rob, they're both Jellystone products which have been around for a long time. On Kozy Rest, we have a number of things that have been under construction for a couple years, so we're not really normalized yet. We expect a number of cabins that we had added last year come online this year along with some of the amenities. So we're feeling better about those performances.

Yeah, as I said, my comments, we expect the go-forward contribution from those two for '25 to be nominal. The ones up and running and doing well and the other ones, as Greg said, is kind of normalizing. So it's was put in service this year as the full interest expense burden. But it's certainly on a good trajectory. But overall that number should be pretty nominal from an FFO point of view.

Okay, that's helpful. And then in terms of future sort of investments, how are you thinking about some of the other sort of lodging type assets like the hot springs and other assets that aren't attached to a water park? Is that something that you're still interested in or is that not likely to be a significant investment going forward for you guys?

No, what I think you should think about this in terms of, Rob, is not the fact that we don't like that space, but we don't like operating versus net lease or fixed income structures. So where we can be in a situation of, like I said, net leasing, likewise, we have a Margaritaville RV park that's on a lease…

Pigeon Forge.

Yeah, Pigeon Forge, that's doing very well. Again, what we have experienced with whether it be insurance costs or some of these others, the volatility that that is introduced to us as a result of being the operating partner is not something I think investors value nor is it something as Greg pointed out candidly, the juice isn't worth the squeeze. So again, we still like some of these sectors, but we like them in our kind of net lease environment.

And then you had also mentioned Hot Springs resorts. I mean, we are very bullish on the Hot Springs area. I think we're one of the leading investors in the country in that. And I would say, there is a lodging component of those, but it's really part of the overall attraction, which includes the ability to do a day pass and so. So, we don't view those as pure lodging placement.

Okay, and then beyond your development pipeline, where are you seeing the best investment opportunities given your improved cost of equity in the back and the strong balance sheet today?

I -- well, again, we're very bullish on fitness and wellness. And again, we're just really proud to have a great portfolio, including we added Iron Mountain last year. We're seeing good traction in the attraction space. We mentioned we were able to acquire Diggerland in Q1. And I think we're seeing good opportunities in almost all of our verticals right now. So we're just being very careful given our cost of capital and we're still seeing a lot of opportunities.

And just to add to that, in the eat & play area, we've got the Andretti Karting that we're doing three new locations and that's performing well.

Okay. Thanks, guys. Appreciate the time this morning.

Thank you, Rob.

Our next question will come from Anthony Paolone with JPMorgan. Your line is open. Please go ahead.

Great, thanks. Good morning. And just to maybe continue with some of the questioning along Rob's lines. Your -- if look at your guidance, your growth rate is pretty competitive with the peer set. And if we look at the midpoint of your capital deployment net of sales, a lot of that's already even in the bag, it seems with what you've committed to. So I guess where do yields need to be right now for you to get interested in kind of deploying more? And I guess, you talked about what areas are most interesting, but just how does the deal flow look like relative to history?

I would say the deal flow is pretty consistent kind of, Tony. And I think where we get excited more about, there's two different standards there. Again, I don't think our equity cost of capital is where it needs to be for us to raise capital. But on the margin, could we get to the higher end of our range depending upon when some of these asset sales happen? Yeah, I mean, I think we think the depth of our opportunity set is, would allow us to do that. We just need to kind of we're conscious of our balance sheet and maintaining that kind of investment grade fortress balance sheet. But, Mark, maybe you have…

Yeah. On the cost of capital side, both our equity cost has come down quite substantially recently and our debt cost continues to come down. So if you kind of do the equity multiple approach and your debt at a 60-40 relationship, we're in the low 8s right now cost of capital, we'd like to see at least 100 basis points or 150 basis points of spread. So we're not quite there yet to do incremental over the 200 to 300 that we're talking about here for next year and what we did this year, but it's certainly moving in the right direction.

Okay, thank you for that. And then just my second one on Kartrite. I appreciate the exit from operating and what you've done with some of the other ones. But I mean, how do you think about the long-term options with that one? Because it is, I think, still the most sizable of the pack there?

Yeah, Tony, again, we've had numerous challenges every year whether it's been shut down or last year the balcony challenge. Again, we have to remember that, that we entered into that transaction to activate the gaming. And on an overall basis, we look at those on a combined basis and we're doing quite well on the ground lease of that. Yes, again, we would we like to at some point in the future get out of the operating of that asset. Its performance needs to step up to allow that. But it's definitely something we will and will continue to look out and explore.

Okay, thank you.

Operator?

Question will come from the line of Bennett Rose from Citi. Please go ahead.

Hi, thanks. Appreciate the time. I wanted to ask you just on the percentage rents you mentioned, I guess continue to expect improvement in the box office, but just to achieve kind of the higher end of the range, is that really a box office dependent factor or is there something else in there that could help drive you those numbers up?

I mean, the performance -- there's percentage rents across a number of different properties. So you could have outperformance in any of the properties, but probably theater box office driving that Regal percentage number is probably the most significant to get to that higher end range which is only -- our range is only $18 million to $22 million. So we're talking about maybe $2 million more at the high end.

I think also, [again, Smedes] (ph) is like all of us, additional investment, timing of that investment, all of those things factor in to get to the higher end of the range when we think about getting to the higher end of earnings range. So I think there's better performance and some of the operating. So there's a lot of contributing factors that could drive us to better than the midpoint. I think we've given the market our best expectations on where box office will come in. And I think our stated range at the midpoint is consistent with that.

And then, would you -- for their two remaining JV properties, I realize that they're, I guess, relatively small overall. But are you -- would you expect to exit from those the Jellystone and Yogi Bear properties that you mentioned?

Again, we're just going to have to see on a relative value on what they contribute. As you said, it's relatively insignificant. I don't think we're committed to necessarily owning them for the long-term, but their contribution is such that it's -- they're performing fine. If we get an opportunity to exit and redeploy that into a more net lease investment, I'm sure we'll take a look at that over time.

Okay. Thank you.

Thank you, Smedes.

Our next question will come from the line of Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. First question is just, can you outline what you're assuming for credit loss for the year and just some of the thought process around that and how that compares to maybe prior years?

Yeah, the -- well, I'll start with mortgages. Credit loss on mortgages is booked through the credit loss model per gap. So that's kind of booked ongoing basis. I'd say overall, it's probably about 1% of EBITDA, which is about $5 million. So, we've got, I think about that amount of cushion kind of baked in for bad debts.

And I think, that's consistent with what we do every year.

Got it. And then just a follow-up question is on funding the 2025 investments, right? You've got a little bit of room on the revolver, but then you also mentioned kind of how you also have 2025 debt maturities of $300 million. So can you talk a little bit about how you plan on funding maybe just on the debt as well. And it sounds like you're not quite there on issuing equity. So you just talk about the interplay of those three? Thanks.

Sure. Yeah, let me just run through the sources and uses. At the midpoint, we got uses of investment spending at $250 million. And like you said, we have a loan maturity for $300 million, so $550 million on the uses side, and on the sources side, we've got $50 million of dispositions at the midpoint and free cash flow of about $120 million roughly. So it's $175 million of sources. So that if you didn't do any long-term financing, that would increase your line by about $380 million. So we'd be about -- add that to the $175 million that we're at year end. We would be about half-drawn on the line. So we've got -- we could do it that way or you know -- and more what we have on our plan is ultimately to term that out and do a bond deal, which would, call it, a $400 million bond deal, which would take our line down to under $200 million. So I think the point is we have flexibility given the fact that we could fund the whole thing on our line and only be half drawn. But our intention is to ultimately term that out. And I think with respect to that, we've got a lot of flexibility. Also, we've got room in our laddering for a five-year, a seven-year or a course of 10-year. So I think we've got a lot of flexibility to kind of watch the market and determine the right time to potentially do a bond deal.

Thank you very much.

Our next question will come from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Yeah, thanks. I wanted to touch back on percentage rents that you guys were kind of highlighting. I guess. Mark, can you kind of break out what is the non-theater percentage rents versus the theater percentage rents and do you expect the non-theater percentage rents to be largely stable in '25 or 24? I guess, how does that specifically change between the two years?

Yeah, we don't break that out. I mean, the large part of the increase is the Regal Master Lease and the rest of the properties, we've got some puts and takes but in some cases, there is a -- been a rent bump. So, the percent rent might go down slightly, but you're getting an amount of rent. This shifts location on the income statement. But, overall, fairly stable year-over-year, but for the caps. And then of course, you have on the Regal side the increase from the box office.

Okay. And then related to the Regal lease, what's included in guidance, I know that that lease year ends in July and you provide us a box office guidance for 2025. So, does the full year 2025 box office guidance differ too meaningfully from the Regal lease year box office expectation?

No, I would say, Michael, that it's not meaningfully different when you look at a July to July. If you look, remember, last year, we started talking about the acceleration of the box office in the second half. And so on a run rate basis, those are fairly consistent.

Okay, great. And then just one clarification on Kartrite. I know you were talking to Tony about this. How is -- or how are those properties performing? I know if you look at the other income guidance, it looks like you're assuming it's largely flat between '25 and '24. So should we assume that your expectation for Kartrite is it kind of stays where it is right now through 2025. And do you think that's a conservative estimate?

Again, I think here is the thing that again, what we talked in operating properties, even when we get better performance, we get slammed with insurance costs like we did this year. So it's very difficult to climb out and kind of make continued progress. So I think we're keeping it in the fashion that we have. We continue to work to make progress on that. It's -- as I said earlier, it's had a multitude of challenges getting started with shutdown, the balconies, things of that nature. Operating expenses are running significantly higher than we anticipated. So we continue to work through that.

Yeah, I'd say, overall other income and other expense obviously are both coming down as we sell these two operating theaters and the timing of that could affect those two numbers, but that's one thing to point out. The second thing is in the theaters that we do operate this year, we do expect performance to improve given the box office improvement. But it's kind of, as Greg said, kind of being offset by some of the Kartrite, particularly expense side, expense pressures like insurance. So that's why we guide it kind of at the midpoint, sort of a breakeven -- net breakeven scenario.

Great. Thank you.

Thank you, Michael.

Our next question will come from the line of Upal Rana with KeyBanc Capital Markets.

Great. Thanks for taking the question. What do you guys think that drove the stronger second half in the movie theater business because it came in ahead of even your projection that you gave during 3Q earnings. Was it just more movies or is this something else that you think will continue into '25 and beyond?

Again, and I'll let Greg jump in. I think fundamentally, as we've always said, quantum of titles matters. And we got back to a more normalized kind of titles. And when you have a -- the number of titles, the consumer gets into the habit of going to the movies. So again, we think that that kind of -- it feeds itself. And so that tenor and tone of enough movies to get people more into the habit we think will carry into '25 and beyond. But Greg?

No, I think that covers it, yeah.

Okay, great. That was helpful. And then of the $200 million to $300 million investment guidance you provided, how are you planning on allocating that capital across either development, asset acquisitions, mortgage notes, or JVs, given in '24 almost half year investment volumes were towards mortgages?

Yeah. So, as I say all the time, it's an art, not a science. We try to do the best deals that come before us. In general, it usually ends up being about 50-50. I can't say we target that, but that's generally how it comes out. Now we mentioned we -- we're finishing up a couple of development projects, including the Andretti Karting deals and then obviously, Diggerland, which we've already acquired, was an acquisition.

I do think it's important though that we draw a distinction. Most of our mortgages lead to ownership. So, again, most of these investments that you saw last year where we are investing in, say, a mortgage structure, it may have historic tax credits that we can't convert until we get outside the period or things of that nature. But these aren't long term mortgages. There are a structure to a path forward ownership and that's what most of ours are.

Not short-term [indiscernible]

Okay. Great. That was helpful. Thank you.

Our next question comes from the line of [Jane Gallen] (ph) with Bank of America. Please go ahead.

Thank you. Good morning. You've had a lot of success and traction with the theater dispositions. I was hoping you could talk to kind of the depth and breadth of buyers out there. And as the box office improves and you pivot to non-vacant asset sales, kind of any cap rate expectations around that.

So, thanks. First of all, I got to shout out to my team, I mean they're just fantastic at the ability to source these deals. For vacant theaters, we're agnostic. We just market them as real estate. So the better the real estate, the better the transaction that we're able to execute. I would say we're not really seeing a lot of visibility on theater transactions for leased properties yet. We did mention that we have one under contract and we're pleased with the [indiscernible] on that. It's probably going to come in about 9% again as we mentioned that's subject to closing, hasn't closed yet. But I do think you're right. As the box office recovers, there will be more of these trades starting to happen.

Great, thank you. And then just in conversations with tenants and what you've experienced directly from the operating properties, where do you think we are in terms of kind of the expense pressures? Have we kind of -- will we kind of lap already the peak expenses or do you still see some kind of wild cards with insurance?

Again, I think the insurance, what we're starting to see is that again, it seems to be kind of topping out. I mean, we just had a meeting yesterday where we were talking with insurance people who said that, again, that's going to be a function of what events occur. I mean, fortunately, the California wildfires didn't hit many commercial properties. So that one will flow back through on kind of the reinsurance issues. But again, what we're kind of 20%, 30%, 40%, 50% kind of impacts over the last two years. Hopefully, we've seen the peak of that.

I would say we've seen the peak, but we're going to still see [indiscernible] that's the challenge. It just -- it's hard to get your handle on it. And that's all. Not just our operating properties, our tenants are facing that too, daily.

Yeah. But again, what we've seen so far is they're managing through that. I mean, we saw, as we said, a slight tick, a down a tenth in coverage, which is really kind of driven by those kind of expenses, but still considerably higher than where we were pre-pandemic. So, I think they're managing through it, but it's not without its challenges.

Great. Thank you.

And our final question will come from the line of Ki Bin Kim with Truist. Your line is open. Please go ahead. Ki Bin Kim, your line is open. Please go ahead with your question. And I see your line is unmuted, but we cannot hear you. Please go ahead. Unfortunately, we're not able to hear you, Ki Bin Kim. So we'll…

We'll follow up.

Hand to Greg Silver for closing remarks.

Thank you, Layla, and thank you, everyone, for your time and attention today. We greatly appreciate it. We look forward to talking to you through the remainder of the balance of the year and look forward to another solid year. Thank you.

Thanks.

Thank you for joining EPR Properties Q4 2024 earnings call. This concludes today's call. You may now disconnect.