We know of multifamily, office assets; but there are some surprise successes
Much has been written about how commercial real estate firms are faring in the areas of office, multifamily properties, warehouses, retail and the like. But how about firms focused on experiential assets – amusement parks, movie theatres and ski resorts?
If the fourth quarter results posted by EPR Properties on Thursday are any indication, the sector is robust.
“For the full year, we delivered 52% per share growth in FFO as adjusted, demonstrating our continuing recovery and the resilience of our experiential investments,” Greg Silvers, chairman and CEO of the real estate investment trust, told shareholders during an earnings call. “This resilience is also reflected in our improving theater rent coverage levels and the continued strength of our non-theater rent coverage.”
What is the current state of the economy?
Silvers noted the challenging economic climate under which the strong performance was posted: “Even against the backdrop of recession fears, the consumer continues to support our affordable drive to experiential properties,” he said. “We are also pleased that in the fourth quarter and through February 2023, we have received all scheduled rent and deferral payments from Regal as we are working through the process toward a resolution. Our tenant industries continue to demonstrate healthy momentum. This is particularly evident at the box office, which was up by more than 64% in 2022.”
The fly in the ointment going forward comes in the form of Regal Cinemas – the nation’s second-largest chain of movie theaters – after the September bankruptcy filing of its parent company Cineworld. The company was hit hard after a major decline in business during the pandemic, slating closures for 39 of its locations this year as a result.
“At this time, we aren’t providing earnings guidance due to the uncertainty of Regal’s bankruptcy proceeding,” Silvers said. “However, we remain confident in our outlook and are maintaining our well-covered monthly dividend to common shareholders at its current level. While we still have work to do to regain our full momentum, we are heartened by our significant progress, and we remain resolute and confident in the quality of our properties.”
He focused instead on the growth seen last year, while assuaging shareholders of the Regal issue: “We delivered significant earnings growth in 2022, demonstrating our strong recovery and the resiliency of experiential investments,” Silvers said. “We are pleased that in the fourth quarter and in January and February of 2023, we have received all scheduled rent and deferral payments from Regal, and we are working with them through the bankruptcy process toward a resolution.”
Notwithstanding the Regal bankruptcy, Greg Zimmerman, executive vice president and chief investment officer, extolled the strengths of the company’s portfolio: “Our high-quality theater portfolio continues to outperform the industry,” he told investors. “When strong pictures are available theatrically, the public is responding very favorably and the results prove it out.”
Regal Cinemas – lessons learned
As further assurance to those worried about the Regal filing, he pointed to future strategies designed for further expansion: “During the year, we also reinitiated our investment spending platform, deploying capital in a disciplined manner across a variety of experiential assets, and have an actionable growth pipeline including capital already committed to forward projects,” he said. “We maintain a well-covered dividend and continue to generate strong free cash flow, which, along with our well-positioned balance sheet, should allow us to continue to grow our experiential portfolio.”
All told, the company’s investment spending for the fourth quarter ended Dec. 31, 2022, totaled $81.2 million, bringing total investment spending for the year to $402.5 million – including $56.8 million in funding on a new mortgage note secured by six fitness & wellness properties, along with purchase of a 92% stake in an experiential lodging property valued at $6.8 million.
The company has also committed another $250 million for experiential development and redevelopment projects, which is expected to be funded over the next two years without the need to raise additional capital. At year-end, total investments were approximately $6.7 billion, with 363 properties in service and 97% leased, the company said.
