10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-13561
 
EPR PROPERTIES
(Exact name of registrant as specified in its charter)
Maryland
 
43-1790877
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
909 Walnut Street, Suite 200
Kansas City, Missouri
 
64106
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (816) 472-1700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
o
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  o    No  x

At April 27, 2016, there were 63,600,457 common shares outstanding.




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, 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,” “anticipates,” “estimates,” “offers,” “plans,” “would,” or other similar expressions or other comparable terms or discussions of strategy, plans or intentions in this Quarterly Report on Form 10-Q. In addition, references to our budgeted amounts and guidance are forward-looking statements.
Factors that could materially and adversely affect us include, but are not limited to, the factors listed below:
Global economic uncertainty and disruptions in financial markets;
Reduction in discretionary spending by consumers;
Adverse changes in our credit ratings;
Fluctuations in interest rates;
The duration or outcome of litigation, or other factors outside of litigation such as project financing, relating to our significant investment in a planned casino and resort development which may cause the development to be indefinitely delayed or cancelled;
Unsuccessful development, operation, financing or compliance with licensing requirements of the planned casino and resort development by the third-party lessee;
The financing of common infrastructure costs for the planned casino and resort development;
Defaults in the performance of lease terms by our tenants;
Defaults by our customers and counterparties on their obligations owed to us;
A borrower's bankruptcy or default;
Our ability to renew maturing leases with theatre tenants on terms comparable to prior leases and/or our ability to lease any re-claimed space from some of our larger theatres at economically favorable terms;
Risks of operating in the entertainment industry;
Our ability to compete effectively;
Risks associated with a single tenant representing a substantial portion of our lease revenues;
The ability of our public charter school tenants to comply with their charters and continue to receive funding from local, state and federal governments, the approval by applicable governing authorities of substitute operators to assume control of any failed public charter schools and our ability to negotiate the terms of new leases with such substitute tenants on acceptable terms, and our ability to complete collateral substitutions as applicable;
Risks relating to our tenants' exercise of purchase options or borrowers' exercise of prepayment options related to public charter school properties;
Risks associated with use of leverage to acquire properties;
Financing arrangements that require lump-sum payments;
Our ability to raise capital;
Covenants in our debt instruments that limit our ability to take certain actions;
The concentration and lack of diversification of our investment portfolio;
Our continued qualification as a real estate investment trust for U.S. federal income tax purposes;
The ability of our subsidiaries to satisfy their obligations;
Financing arrangements that expose us to funding or purchase risks;
Our reliance on a limited number of employees, the loss of which could harm operations;
Risks associated with security breaches and other disruptions;
Fluctuations in the value of real estate income and investments;
Risks relating to real estate ownership, leasing and development, including local conditions such as an oversupply of space or a reduction in demand for real estate in the area, competition from other available

i


space, whether tenants and users such as customers of our tenants consider a property attractive, changes in real estate taxes and other expenses, changes in market rental rates, the timing and costs associated with property improvements and rentals, changes in taxation or zoning laws or other governmental regulation, whether we are able to pass some or all of any increased operating costs through to tenants, and how well we manage our properties;
Our ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
Risks involved in joint ventures;
Risks in leasing multi-tenant properties;
A failure to comply with the Americans with Disabilities Act or other laws;
Risks of environmental liability;
Risks associated with the relatively illiquid nature of our real estate investments;
Risks with owning assets in foreign countries;
Risks associated with owning, operating or financing properties for which the tenants', mortgagors' or our operations may be impacted by weather conditions and climate change;
Risks associated with the development, redevelopment and expansion of properties and the acquisition of other real estate related companies;
Our ability to pay dividends in cash or at current rates;
Fluctuations in the market prices for our shares;
Certain limits on changes in control imposed under law and by our Declaration of Trust and Bylaws;
Policy changes obtained without the approval of our shareholders;
Equity issuances that could dilute the value of our shares;
Future offerings of debt or equity securities, which may rank senior to our common shares;
Risks associated with changes in the Canadian exchange rate; and
Changes in laws and regulations, including tax laws and regulations.

Our 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 Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission ("SEC") on February 24, 2016.

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 of this Quarterly Report on Form 10-Q 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 of this Quarterly Report on Form 10-Q.



ii


TABLE OF CONTENTS
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
Financial Statements
 
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
 
Controls and Procedures
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
Legal Proceedings
 
Item 1A.
 
Risk Factors
 
Item 2.
 
Unregistered Sale of Equity Securities and Use of Proceeds
 
Item 3.
 
Defaults Upon Senior Securities
 
Item 4.
 
Mine Safety Disclosures
 
Item 5.
 
Other Information
 
Item 6.
 
Exhibits

iii


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EPR PROPERTIES
Consolidated Balance Sheets
(Dollars in thousands except share data)
 
March 31, 2016
 
December 31, 2015
 
(unaudited)
 
 
Assets
 
 
 
Rental properties, net of accumulated depreciation of $562,195 and $534,303 at March 31, 2016 and December 31, 2015, respectively
$
3,214,347

 
$
3,025,199

Land held for development
22,530

 
23,610

Property under development
266,574

 
378,920

Mortgage notes and related accrued interest receivable
457,429

 
423,780

Investment in a direct financing lease, net
191,720

 
190,880

Investment in joint ventures
5,869

 
6,168

Cash and cash equivalents
10,980

 
4,283

Restricted cash
23,428

 
10,578

Accounts receivable, net
62,403

 
59,101

Other assets
88,260

 
94,751

Total assets
$
4,343,540

 
$
4,217,270

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
77,523

 
$
92,178

Common dividends payable
20,269

 
18,401

Preferred dividends payable
5,952

 
5,951

Unearned rents and interest
56,627

 
44,952

Debt
1,996,131

 
1,981,920

Total liabilities
2,156,502

 
2,143,402

Equity:
 
 
 
Common Shares, $.01 par value; 75,000,000 shares authorized; and 65,838,128 and 63,195,182 shares issued at March 31, 2016 and December 31, 2015, respectively
658

 
632

Preferred Shares, $.01 par value; 25,000,000 shares authorized:
 
 
 
5,400,000 Series C convertible shares issued at March 31, 2016 and December 31, 2015; liquidation preference of $135,000,000
54

 
54

3,450,000 Series E convertible shares issued at March 31, 2016 and December 31, 2015; liquidation preference of $86,250,000
35

 
35

5,000,000 Series F shares issued at March 31, 2016 and December 31, 2015; liquidation preference of $125,000,000
50

 
50

Additional paid-in-capital
2,643,605

 
2,508,445

Treasury shares at cost: 2,496,860 and 2,371,198 common shares at March 31, 2016 and December 31, 2015, respectively
(104,864
)
 
(97,328
)
Accumulated other comprehensive income
3,708

 
5,622

Distributions in excess of net income
(356,208
)
 
(343,642
)
Total equity
$
2,187,038

 
$
2,073,868

Total liabilities and equity
$
4,343,540

 
$
4,217,270

See accompanying notes to consolidated financial statements.

1


EPR PROPERTIES
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
 
Three Months Ended March 31,
 
 
2016
 
2015
 
Rental revenue
$
93,778

 
$
76,740

 
Tenant reimbursements
3,865

 
4,303

 
Other income
1,210

 
550

 
Mortgage and other financing income
19,915

 
17,843

 
Total revenue
118,768

 
99,436

 
Property operating expense
5,481

 
6,357

 
Other expense
5

 
102

 
General and administrative expense
9,218

 
7,682

 
Retirement severance expense

 
18,578

 
Costs associated with loan refinancing or payoff
552

 

 
Interest expense, net
23,289

 
18,587

 
Transaction costs
444

 
1,606

 
Depreciation and amortization
25,955

 
19,355

 
Income before equity in income from joint ventures and other items
53,824

 
27,169

 
Equity in income from joint ventures
212

 
164

 
Gain on sale of real estate

 
23,924

 
Income before income taxes
54,036

 
51,257

 
Income tax benefit (expense)
144

 
(8,426
)
 
Income from continuing operations
$
54,180

 
$
42,831

 
Discontinued operations:
 
 
 
 
Loss from discontinued operations

 
(10
)
 
Net income attributable to EPR Properties
54,180

 
42,821

 
Preferred dividend requirements
(5,952
)
 
(5,952
)
 
Net income available to common shareholders of EPR Properties
$
48,228

 
$
36,869

 
Per share data attributable to EPR Properties common shareholders:
 
 
 
 
Basic earnings per share data:
 
 
 
 
Income from continuing operations
$
0.77

 
$
0.65

 
Loss from discontinued operations

 

 
Net income available to common shareholders
$
0.77

 
$
0.65

 
Diluted earnings per share data:
 
 
 
 
Income from continuing operations
$
0.77

 
$
0.64

 
Loss from discontinued operations

 

 
Net income available to common shareholders
$
0.77

 
$
0.64

 
Shares used for computation (in thousands):
 
 
 
 
Basic
62,664

 
57,111

 
Diluted
62,744

 
57,378

 
See accompanying notes to consolidated financial statements.

2


EPR PROPERTIES
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three Months Ended March 31,
 
 
2016
 
2015
 
Net income attributable to EPR Properties
$
54,180

 
$
42,821

 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
11,221

 
(17,302
)
 
Change in unrealized gain (loss) on derivatives
(13,135
)
 
13,447

 
Comprehensive income attributable to EPR Properties
$
52,266

 
$
38,966

 
See accompanying notes to consolidated financial statements.

3





EPR PROPERTIES
Consolidated Statements of Changes in Equity
Three Months Ended March 31, 2016
(Unaudited)
(Dollars in thousands)
 
EPR Properties Shareholders’ Equity
 
 
 
Common Stock
 
Preferred Stock
 
Additional
paid-in capital
 
Treasury
shares
 
Accumulated
other
comprehensive
income
 
Distributions
in excess of
net income
 
Total
 
Shares
 
Par
 
Shares
 
Par
 
 
Balance at December 31, 2015
63,195,182

 
$
632

 
13,850,000

 
$
139

 
$
2,508,445

 
$
(97,328
)
 
$
5,622

 
$
(343,642
)
 
$
2,073,868

Issuance of nonvested shares, net
300,752

 
3

 

 

 
4,472

 

 

 

 
4,475

Purchase of common shares for vesting

 

 

 

 

 
(4,208
)
 

 

 
(4,208
)
Amortization of nonvested shares and restricted share units

 

 

 

 
2,528

 

 

 

 
2,528

Share option expense

 

 

 

 
237

 

 

 

 
237

Foreign currency translation adjustment

 

 

 

 

 

 
11,221

 

 
11,221

Change in unrealized gain/loss on derivatives

 

 

 

 

 

 
(13,135
)
 

 
(13,135
)
Net income

 

 

 

 

 

 

 
54,180

 
54,180

Issuances of common shares
2,253,900

 
23

 

 

 
125,230

 

 

 

 
125,253

Stock option exercises, net
88,294

 

 

 

 
2,693

 
(3,328
)
 

 

 
(635
)
Dividends to common and preferred shareholders

 

 

 

 

 

 

 
(66,746
)
 
(66,746
)
Balance at March 31, 2016
65,838,128

 
$
658

 
13,850,000

 
$
139

 
$
2,643,605

 
$
(104,864
)
 
$
3,708

 
$
(356,208
)
 
$
2,187,038


See accompanying notes to consolidated financial statements.

4


EPR PROPERTIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Three Months Ended March 31,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
54,180

 
$
42,821

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations

 
10

Gain on sale of real estate

 
(23,924
)
Deferred income tax expense (benefit)
(602
)
 
6,888

Costs associated with loan refinancing or payoff
552

 

Equity in income from joint ventures
(212
)
 
(164
)
Distributions from joint ventures
511

 

Depreciation and amortization
25,955

 
19,355

Amortization of deferred financing costs
1,172

 
1,096

Amortization of above market leases
48

 
48

Share-based compensation expense to management and Trustees
2,765

 
1,972

Share-based compensation expense included in retirement severance expense

 
6,377

Decrease (increase) in restricted cash
(2,221
)
 
730

Decrease (increase) in mortgage notes accrued interest receivable
514

 
(599
)
Increase in accounts receivable, net
(2,968
)
 
(2,330
)
Increase in direct financing lease receivable
(840
)
 
(934
)
Increase in other assets
(2,907
)
 
(2,891
)
Increase (decrease) in accounts payable and accrued liabilities
(6,878
)
 
2,529

Increase in unearned rents and interest
8

 
6,079

Net operating cash provided by continuing operations
69,077

 
57,063

Net operating cash provided by discontinued operations

 
455

Net cash provided by operating activities
69,077

 
57,518

Investing activities:
 
 
 
Acquisition of rental properties and other assets
(36,907
)
 
(49,207
)
Proceeds from sale of real estate
1,920

 
43,790

Investment in mortgage notes receivable
(53,659
)
 
(18,698
)
Proceeds from mortgage note receivable paydown
19,496

 
148

Additions to properties under development
(61,765
)
 
(69,195
)
Net cash used by investing activities
(130,915
)
 
(93,162
)
Financing activities:
 
 
 
Proceeds from long-term debt facilities
162,000

 
453,914

Principal payments on long-term debt
(148,586
)
 
(251,100
)
Deferred financing fees paid
(36
)
 
(2,878
)
Costs associated with loan refinancing or payoff (cash portion)
(472
)
 

Net proceeds from issuance of common shares
125,199

 
123

Impact of stock option exercises, net
(635
)
 
(33
)
Purchase of common shares for treasury for vesting
(4,208
)
 
(8,222
)
Dividends paid to shareholders
(64,823
)
 
(56,796
)
Net cash provided by financing activities
68,439

 
135,008

Effect of exchange rate changes on cash
96

 
(494
)
Net increase in cash and cash equivalents
6,697

 
98,870

Cash and cash equivalents at beginning of the period
4,283

 
3,336

Cash and cash equivalents at end of the period
$
10,980

 
$
102,206

Supplemental information continued on next page.
 
 
 

5


EPR PROPERTIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Continued from previous page.
 
Three Months Ended March 31,
 
2016
 
2015
Supplemental schedule of non-cash activity:
 
 
 
Transfer of property under development to rental property
$
173,877

 
$
30,466

Issuance of nonvested shares and restricted share units at fair value, including nonvested shares issued for payment of bonuses
$
18,505

 
$
11,610

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for interest
$
34,257

 
$
34,871

Cash paid during the period for income taxes
$
418

 
$
397

Interest cost capitalized
$
2,291

 
$
4,348

Decrease in accrued capital expenditures
$
(7,320
)
 
$
(5,009
)
See accompanying notes to consolidated financial statements.

6



EPR PROPERTIES
Notes to Consolidated Financial Statements (Unaudited)


1. Organization

Description of Business
EPR Properties (the Company) is a specialty real estate investment trust (REIT) organized on August 29, 1997 in Maryland. The Company develops, owns, leases and finances properties in select market segments primarily related to Entertainment, Education and Recreation. The Company’s properties are located in the United States and Canada.

2. Summary of Significant Accounting Policies

Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. In addition, operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The Company consolidates certain entities when it is deemed to be the primary beneficiary in a variable interest entity (VIE) in which it has a controlling financial interest. A controlling financial interest will have both of the following characteristics: the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This topic requires an ongoing reassessment.  The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in the Consolidation Topic of the FASB ASC, or does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.

The consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (SEC) on February 25, 2016.

Operating Segments
For financial reporting purposes, the Company groups its investments into four reportable operating segments: Entertainment, Education, Recreation and Other. See Note 14 for financial information related to these operating segments.

Rental Properties
Rental properties are carried at cost less accumulated depreciation. Costs incurred for the acquisition and development of the properties are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which generally are estimated to be 30 to 40 years for buildings and 3 to 25 years for furniture, fixtures and equipment. Tenant improvements, including allowances, are depreciated over the shorter of the base term of the lease or the estimated useful life. Expenditures for ordinary maintenance and repairs are charged to operations in the period incurred. Significant renovations and improvements that improve or extend the useful life of the asset are capitalized and depreciated over their estimated useful life.

Management reviews a property for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. The review of recoverability is based on an estimate of undiscounted future cash flows expected to result from its use and eventual disposition. If impairment exists due to the inability to recover

7


the carrying value of the property, an impairment loss is recorded to the extent that the carrying value of the property exceeds its estimated fair value.

The Company evaluates the held-for-sale classification of its real estate as of the end of each quarter. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less costs to sell. Assets are generally classified as held for sale once management has initiated an active program to market them for sale and has received a firm purchase commitment that is expected to close within one year. On occasion, the Company will receive unsolicited offers from third parties to buy individual Company properties. Under these circumstances, the Company will classify the properties as held for sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.

Deferred Financing Costs
Deferred financing costs are amortized over the terms of the related debt obligations or mortgage note receivable as applicable. The Company early adopted the FASB issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issue Costs, during 2015 and applied the guidance retrospectively. Deferred financing costs of $17.5 million and $18.3 million as of March 31, 2016 and December 31, 2015, respectively, are shown as a reduction of debt. The deferred financing costs related to our unsecured revolving credit facility are included in other assets.

Allowance for Doubtful Accounts
The Company makes estimates of the collectability of its accounts receivable related to base rents, tenant escalations (straight-line rents), reimbursements and other income. The Company specifically analyzes trends in accounts receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of its allowance for doubtful accounts. When evaluating customer creditworthiness, management reviews the periodic financial statements for significant tenants and specifically evaluates the strength and material changes in net operating income, coverage ratios, leverage and other factors to assess the tenant's credit quality. In addition, when customers are in bankruptcy, the Company makes estimates of the expected recovery through bankruptcy claims and increases the allowance for amounts deemed uncollectible. These estimates have a direct impact on the Company's net income.

Revenue Recognition
Rents that are fixed and determinable are recognized on a straight-line basis over the minimum term of the leases. Base rent escalation on leases that are dependent upon increases in the Consumer Price Index (CPI) is recognized when known. In addition, most of the Company's tenants are subject to additional rents if gross revenues of the properties exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents as well as participating interest for those mortgage agreements that contain similar such clauses are recognized at the time when specific triggering events occur as provided by the lease or mortgage agreements. Rental revenue included percentage rents of $0.6 million and $0.3 million for the three months ended March 31, 2016 and 2015, respectively. The Company recognized no participating interest income in mortgage and other financing income for both the three months ended March 31, 2016 and 2015, respectively. For the three months ended March 31, 2016, mortgage and other financing income included a $3.6 million prepayment fee related to a mortgage note that was paid fully in advance of its maturity date.

Direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values at the date of lease inception represent management's initial estimates of fair value of the leased assets at the expiration of the lease, not to exceed original cost. Significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values. The Company evaluates on an annual basis (or more frequently, if necessary) the collectability of its direct financing lease receivable and unguaranteed residual value to determine whether they are impaired. A direct financing lease receivable is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a direct financing lease receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable's effective interest rate or to the fair value of the underlying collateral, less costs to sell, if such receivable is collateralized.

8



Mortgage Notes and Other Notes Receivable
Mortgage notes and other notes receivable, including related accrued interest receivable, consist of loans originated by the Company and the related accrued and unpaid interest income as of the balance sheet date. Mortgage notes and other notes receivable are initially recorded at the amount advanced to the borrower and the Company defers certain loan origination and commitment fees, net of certain origination costs, and amortizes them over the term of the related loan. Interest income on performing loans is accrued as earned. The Company evaluates the collectability of both interest and principal of each of its loans to determine whether it is impaired. A loan is considered to be impaired when, based on current information and events, the Company determines that it is probable that it will be unable to collect all amounts due according to the existing contractual terms. An insignificant delay or shortfall in amounts of payments does not necessarily result in the loan being identified as impaired. When a loan is considered to be impaired, the amount of loss, if any, is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the Company’s interest in the underlying collateral, less costs to sell, if the loan is collateral dependent. For impaired loans, interest income is recognized on a cash basis, unless the Company determines based on the loan to estimated fair value ratio the loan should be on the cost recovery method, and any cash payments received would then be reflected as a reduction of principal. Interest income recognition is recommenced if and when the impaired loan becomes contractually current and performance is demonstrated to be resumed.

Concentrations of Risk
American Multi-Cinema, Inc. (AMC) is the lessee of a substantial portion (25%) of the megaplex theatre rental properties held by the Company at March 31, 2016 primarily as a result of a series of sale leaseback transactions pertaining to AMC megaplex theatres. A substantial portion of the Company’s total revenues (approximately $21.8 million or 18% and $21.4 million or 21%, for the three months ended March 31, 2016 and 2015, respectively) results from the revenue from AMC under the leases, or from its parent, AMC Entertainment, Inc. (AMCE), as the guarantor of AMC’s obligations under the leases. AMCE is wholly owned by AMC Entertainment Holdings, Inc. (AMCEH). AMCEH is a publicly held company (NYSE: AMC) and its consolidated financial information is publicly available as www.sec.gov.

Share-Based Compensation
Share-based compensation to employees of the Company is granted pursuant to the Company's Annual Incentive Program and Long-Term Incentive Plan. Share-based compensation to non-employee Trustees of the Company is granted pursuant to the Company's Trustee compensation program and shares to employees and non-employee Trustees are issued under the 2007 Equity Incentive Plan.

Share-based compensation expense consists of share option expense, amortization of nonvested share grants, and amortization of share units issued to non-employee Trustees for payment of their annual retainers. Share-based compensation included in general and administrative expense in the accompanying consolidated statements of income totaled $2.8 million and $2.0 million for the three months ended March 31, 2016 and 2015, respectively. Share-based compensation included in retirement severance expense in the accompanying consolidated statements of income totaled $6.4 million for the three months ended March 31, 2015 and related to the retirement of the Company's former President and Chief Executive Officer.

Share Options
Share options are granted to employees pursuant to the Long-Term Incentive Plan. The fair value of share options granted is estimated at the date of grant using the Black-Scholes option pricing model. Share options granted to employees vest over a period of four years and share option expense for these options is recognized on a straight-line basis over the vesting period. Expense recognized related to share options and included in general and administrative expense in the accompanying consolidated statements of income was $237 thousand and $274 thousand for the three months ended March 31, 2016 and 2015, respectively. Expense recognized related to share options and included in retirement severance expense in the accompanying consolidated statements of income was $1.4 million for the three months ended March 31, 2015 and related to the retirement of the Company's former President and Chief Executive Officer.



9



Nonvested Shares Issued to Employees
The Company grants nonvested shares to employees pursuant to both the Annual Incentive Program and the Long-Term Incentive Plan. The Company amortizes the expense related to the nonvested shares awarded to employees under the Long-Term Incentive Plan and the premium awarded under the nonvested share alternative of the Annual Incentive Program on a straight-line basis over the future vesting period (three or four years). Expense recognized related to nonvested shares and included in general and administrative expense in the accompanying consolidated statements of income was $2.3 million and $1.4 million for the three months ended March 31, 2016 and 2015, respectively. Expense related to nonvested shares and included in retirement severance expense in the accompanying consolidated statements of income was $5.0 million for the three months ended March 31, 2015 and related to the retirement of the Company's former President and Chief Executive Officer.

Restricted Share Units Issued to Non-Employee Trustees
The Company issues restricted share units to non-employee Trustees for payment of their annual retainers. The fair value of the share units granted was based on the share price at the date of grant. The share units vest upon the earlier of the day preceding the next annual meeting of shareholders or a change of control. The settlement date for the shares is selected by the non-employee Trustee, and ranges from one year from the grant date to upon termination of service. This expense is amortized by the Company on a straight-line basis over the year of service by the non-employee Trustees. Total expense recognized related to shares issued to non-employee Trustees was $260 thousand and $264 thousand for the three months ended March 31, 2016 and 2015, respectively.

Derivative Instruments
The Company has acquired certain derivative instruments to reduce exposure to fluctuations in foreign currency exchange rates and variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These derivatives consist of foreign currency forward contracts, cross-currency swaps and interest rate swaps.

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company's policy is to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.


10


3. Rental Properties

The following table summarizes the carrying amounts of rental properties as of March 31, 2016 and December 31, 2015 (in thousands):
 
March 31, 2016
 
December 31, 2015
Buildings and improvements
$
2,884,181

 
$
2,837,611

Furniture, fixtures & equipment
35,213

 
34,423

Land
857,148

 
687,468

 
3,776,542

 
3,559,502

Accumulated depreciation
(562,195
)
 
(534,303
)
Total
$
3,214,347

 
$
3,025,199

Depreciation expense on rental properties was $25.0 million and $18.4 million for the three months ended March 31, 2016 and 2015, respectively.

4. Investments and Dispositions

The Company's investment spending during the three months ended March 31, 2016 totaled $145.1 million, and included investments in each of its four operating segments.

Entertainment investment spending during the three months ended March 31, 2016 totaled $47.7 million, and was related to the acquisition of one family entertainment center located in Georgia, which is subject to a long-term triple net lease, an additional investment in a mortgage note secured by an entertainment retail center located in North Carolina, as well as investments in the development or redevelopment of six megaplex theatres, one family entertainment center and four entertainment retail centers.

Education investment spending during the three months ended March 31, 2016 totaled $45.8 million, and was related to investments in the development or expansion of 19 public charter schools, three private schools, and 14 early childhood education centers.
 
Recreation investment spending during the three months ended March 31, 2016 totaled $51.4 million, and was related to build-to-suit construction of 11 Topgolf golf entertainment facilities, the investment in one ski resort located in Hunter, New York, which is subject to a long-term mortgage agreement, as well as the Adelaar waterpark project.

Other investment spending during the three months ended March 31, 2016 totaled $0.2 million, and was related to the Adelaar casino and resort project in Sullivan County, New York.

On January 5, 2016, the Company received prepayment on one mortgage note receivable of $19.3 million that was secured by a public charter school located in Washington D.C. In connection with the full payoff of this note, the Company received a prepayment fee of $3.6 million which is included in mortgage and other financing income. Additionally, $80 thousand of prepaid mortgage fees were expensed and are included in costs associated with loan refinancing or payoff.

On February 26, 2016, the Company completed the sale of a land parcel at Adelaar for net proceeds of $1.5 million and no gain or loss was recognized.

Subsequent to March 31, 2016, the Company received prepayment in full on one mortgage note receivable of $44.3 million that was secured by an entertainment retail center located in North Carolina.





11






5. Accounts Receivable, Net
The following table summarizes the carrying amounts of accounts receivable, net as of March 31, 2016 and December 31, 2015 (in thousands):
 
March 31,
2016
 
December 31,
2015
Receivable from tenants
$
9,851

 
$
9,999

Receivable from non-tenants
264

 
353

Straight-line rent receivable
55,746

 
52,336

Allowance for doubtful accounts
(3,458
)
 
(3,587
)
Total
$
62,403

 
$
59,101


6. Investment in a Direct Financing Lease

The Company’s investment in a direct financing lease relates to the Company’s master lease of 21 public charter school properties as of March 31, 2016 and December 31, 2015, with affiliates of Imagine Schools, Inc. (Imagine). Investment in a direct financing lease, net represents estimated unguaranteed residual values of leased assets and net unpaid rentals, less related deferred income. The following table summarizes the carrying amounts of investment in a direct financing lease, net as of March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31, 2016
 
December 31, 2015
Total minimum lease payments receivable
$
434,756

 
$
439,646

Estimated unguaranteed residual value of leased assets
162,669

 
162,669

Less deferred income (1)
(405,705
)
 
(411,435
)
Investment in a direct financing lease, net
$
191,720

 
$
190,880

 
 
 
 
(1) Deferred income is net of $1.4 million of initial direct costs at March 31, 2016 and December 31, 2015.

Additionally, the Company determined that no allowance for losses was necessary at March 31, 2016 and December 31, 2015.

The Company’s direct financing lease has expiration dates ranging from approximately 16 to 19 years. Future minimum rentals receivable on this direct financing lease at March 31, 2016 are as follows (in thousands): 
 
Amount
Year:
 
2016
$
14,897

2017
20,380

2018
20,992

2019
21,621

2020
22,270

Thereafter
334,596

Total
$
434,756



12


7. Debt and Capital Markets

On January 21, 2016, the Company issued 2,250,000 common shares in a registered public offering for a total net proceeds, after the underwriting discount and offering expenses, of approximately $125.0 million. The net proceeds from the public offering were used to pay down the Company's unsecured revolving credit facility.

On February 18, 2016, the Company prepaid in full a mortgage note payable of $4.6 million which was secured by one theatre property. In connection with this note payoff, the Company paid $472 thousand in additional costs included in costs associated with loan refinancing or payoff.

Subsequent to March 31, 2016, the Company issued an aggregate of 258,263 common shares under the direct share purchase component of its Dividend Reinvestment and Direct Share Purchase Plan (DSPP) for total net proceeds of $16.9 million. These proceeds were used to pay down a portion of the Company's unsecured revolving credit facility.

8. Variable Interest Entities

The Company’s variable interest in VIEs currently are in the form of equity ownership and loans provided by the Company to a VIE or other partner. The Company examines specific criteria and uses its judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, and level of economic disproportionality between the Company and the other partner(s).

Consolidated VIEs
As of March 31, 2016, the Company had invested in one real estate project which is a VIE. This entity does not have any significant assets and liabilities at March 31, 2016 and was established to facilitate the development of a theatre project.

Unconsolidated VIE
At March 31, 2016, the Company’s recorded investment in SVVI, a VIE that is unconsolidated, was $164.5 million. The Company’s maximum exposure to loss associated with SVVI is limited to the Company’s outstanding mortgage note of $164.5 million. While this entity is a VIE, the Company has determined that the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance is not held by the Company.

9. Derivative Instruments

All derivatives are recognized at fair value in the consolidated balance sheets within the line items "Other assets" and "Accounts payable and accrued liabilities" as applicable. The Company's derivatives are subject to a master netting arrangement and the Company has elected not to offset its derivative position for purposes of balance sheet presentation and disclosure. The Company had derivative liabilities of $9.2 million and $5.7 million recorded in “Accounts payable and accrued liabilities” and derivative assets of $32.6 million and $42.2 million recorded in “Other assets” in the consolidated balance sheet at March 31, 2016 and December 31, 2015, respectively. Had the Company elected to offset derivatives in the consolidated balance sheet, the Company would have had a net derivative asset of $23.4 million and $36.5 million (with no derivative liability) at March 31, 2016 and December 31, 2015, respectively.  The Company had not posted or received collateral with its derivative counterparties as of March 31, 2016 or December 31, 2015. See Note 10 for disclosures relating to the fair value of the derivative instruments as of March 31, 2016 and December 31, 2015.

Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions including the effect of changes in foreign currency exchange rates and interest rates on its LIBOR based borrowings. The Company manages this risk by following established risk management policies and procedures including the use of derivatives. The Company’s objective in using derivatives is to add stability to reported earnings and to manage its exposure to

13


foreign exchange and interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps, cross-currency swaps and foreign currency forwards.

Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its LIBOR based borrowings. To accomplish this objective, the Company currently uses interest rate swaps as its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
 
As of March 31, 2016, the Company had three interest rate swap agreements to fix the interest rate on $240.0 million of the unsecured term loan facility at 3.78% from January 5, 2016 to July 5, 2017.  Additionally as of March 31, 2016, the Company had two interest rate swap agreements to fix the interest rate at 2.94% on an additional $60.0 million of the unsecured term loan facility from September 8, 2015 to July 5, 2017 and on $300.0 million of the unsecured term loan facility from July 6, 2017 to April 5, 2019.

The effective portion of changes in the fair value of interest rate derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2016 and 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness on cash flow hedges was recognized during the three months ended March 31, 2016 and 2015.

Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of March 31, 2016, the Company estimates that during the twelve months ending March 31, 2017, $5.0 million will be reclassified from AOCI to interest expense.

Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to foreign currency exchange risk against its functional currency, USD, on its four Canadian properties. The Company uses cross currency swaps and foreign currency forwards to mitigate its exposure to fluctuations in the USD-CAD exchange rate on its Canadian properties. These foreign currency derivatives should hedge a significant portion of the Company's expected CAD denominated cash flow of the Canadian properties as their impact on the Company's cash flow when settled should move in the opposite direction of the exchange rates used to translate revenues and expenses of these properties.

As of March 31, 2016, the Company had a USD-CAD cross-currency swaps with a fixed original notional value of $100.0 million CAD and $98.1 million USD. The net effect of these swaps is to lock in an exchange rate of $1.05 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows on the properties through June 2018.

The effective portion of changes in the fair value of foreign currency derivatives designated and that qualify as cash flow hedges of foreign exchange risk is recorded in AOCI and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative, as well as amounts excluded from the assessment of hedge effectiveness, is recognized directly in earnings. No hedge ineffectiveness on foreign currency derivatives was recognized for the three months ended March 31, 2016 and 2015. As of March 31, 2016, the Company estimates that during the twelve months ending March 31, 2017, $2.5 million of gains will be reclassified from AOCI to other income.

Net Investment Hedges
As discussed above, the Company is exposed to fluctuations in foreign exchange rates on its four Canadian properties. As such, the Company uses currency forward agreements to hedge its exposure to changes in foreign exchange rates. Currency forward agreements involve fixing the USD-CAD exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in USD for their fair value at or close to their settlement date. In order to hedge the net investment in four of the Canadian properties, on June 13,

14


2013 the Company entered into a forward contract with a fixed notional value of $100.0 million CAD and $94.3 million USD with a July 2018 settlement. The exchange rate of this forward contract is approximately $1.06 CAD per USD. Additionally, on February 28, 2014, the Company entered into a forward contract with a fixed notional value of $100.0 million CAD and $88.1 million USD with a July 2018 settlement date. The exchange rate of this forward contract is approximately $1.13 CAD per USD. These forward contracts should hedge a significant portion of the Company’s CAD denominated net investment in these four centers through July 2018 as the impact on AOCI from marking the derivative to market should move in the opposite direction of the translation adjustment on the net assets of these four Canadian properties.

For foreign currency derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in AOCI as part of the cumulative translation adjustment. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness on net investment hedges was recognized for the three months ended March 31, 2016 and 2015. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.
 
Below is a summary of the effect of derivative instruments on the consolidated statements of changes in equity and income for the three months ended March 31, 2016.
 
Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Income for the Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
 
Three Months Ended March 31,
Description
2016
 
2015
Interest Rate Swaps
 
 
 
Amount of Loss Recognized in AOCI on Derivative (Effective Portion)
$
(4,857
)
 
$
(1,502
)
Amount of Expense Reclassified from AOCI into Earnings (Effective Portion) (1)
(1,314
)
 
(443
)
Cross Currency Swaps
 
 
 
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
(1,350
)
 
3,062

Amount of Income Reclassified from AOCI into Earnings (Effective Portion) (2)
719

 
547

Currency Forward Agreements
 
 
 
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
(7,523
)
 
11,991

Amount of Income Reclassified from AOCI into Earnings (Effective Portion) (2)

 

Total
 
 
 
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
$
(13,730
)
 
$
13,551

Amount of Income (Expense) Reclassified from AOCI into Earnings (Effective Portion)
(595
)
 
104

 
(1)
Included in "Interest expense, net" in the accompanying consolidated statements of income for the three months ended March 31, 2016 and 2015.
(2)
Included in "Other income" in the accompanying consolidated statements of income for the three months ended March 31, 2016 and 2015.

Credit-risk-related Contingent Features
The Company has agreements with each of its interest rate derivative counterparties that contain a provision where if the Company defaults on any of its obligations for borrowed money or credit in an amount exceeding $25.0 million and such default is not waived or cured within a specified period of time, including default where repayment of the

15


indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its interest rate derivative obligations.

As of March 31, 2016, the fair value of the Company’s derivatives in a liability position related to these agreements was $1.2 million. If the Company breached any of the contractual provisions of these derivative contracts, it would be required to settle its obligations under the agreements at their termination value of $1.2 million.

10. Fair Value Disclosures

The Company has certain financial instruments that are required to be measured under the FASB’s Fair Value Measurements and Disclosures guidance. The Company currently does not have any non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurements and Disclosures guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative Financial Instruments

The Company uses interest rate swaps, foreign currency forwards and cross-currency swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with the FASB's fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives also use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2016, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives and therefore, classified its derivatives as Level 2 within the fair value reporting hierarchy.

The table below presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 aggregated by the level in the fair value hierarchy within which those measurements are classified and by derivative type.

16


Assets and Liabilities Measured at Fair Value on a Recurring Basis at
March 31, 2016 and December 31, 2015
(Dollars in thousands)
Description
Quoted Prices in
Active Markets
for Identical
Assets (Level I)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Assets (Liabilities) Balance at
end of period
March 31, 2016
 
 
 
 
 
 
 
Cross-Currency Swaps*
$

 
$
5,506

 
$

 
$
5,506

Currency Forward Agreements*
$

 
$
27,064

 
$

 
$
27,064

Interest Rate Swap Agreements**
$

 
$
(9,217
)
 
$

 
$
(9,217
)
December 31, 2015:
 
 
 
 
 
 
 
Cross-Currency Swaps*
$

 
$
7,575

 
$

 
$
7,575

Currency Forward Agreements*
$

 
$
34,587

 
$

 
$
34,587

Interest Rate Swap Agreements**
$

 
$
(5,674
)
 
$

 
$
(5,674
)
*Included in "Other assets" in the accompanying consolidated balance sheet.
**Included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheet.

Non-recurring fair value measurements
There were no assets or liabilities measured at fair value on a non-recurring basis during the three months ended March 31, 2016 and 2015.

Fair Value of Financial Instruments
Management compares the carrying value to the estimated fair value of the Company’s financial instruments. The following methods and assumptions were used by the Company to estimate the fair value of each class of financial instruments at March 31, 2016 and December 31, 2015:

Mortgage notes receivable and related accrued interest receivable:
The fair value of the Company’s mortgage notes and related accrued interest receivable is estimated by discounting the future cash flows of each instrument using current market rates. At March 31, 2016, the Company had a carrying value of $457.4 million in fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately 9.39%. The fixed rate mortgage notes bear interest at rates of 5.50% to 11.31%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of 8.00% to 11.31%, management estimates the fair value of the fixed rate mortgage notes receivable to be approximately $432.2 million with an estimated weighted average market rate of 10.04% at March 31, 2016.

At December 31, 2015, the Company had a carrying value of $423.8 million in fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately 9.36%. The fixed rate mortgage notes bear interest at rates of 5.50% to 11.31%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of 8.50% to 11.31%, management estimates the fair value of the fixed rate mortgage notes receivable to be $415.7 million with an estimated weighted average market rate of 10.05% at December 31, 2015.

Investment in a direct financing lease, net:
The fair value of the Company’s investment in a direct financing lease is estimated by discounting the future cash flows of the instrument using current market rates. At March 31, 2016 and December 31, 2015, the Company had an investment in a direct financing lease with a carrying value of $191.7 million and $190.9 million, respectively, and a weighted average effective interest rate of 12.00% for both periods. The investment in a direct financing lease bears interest at effective interest rates of 11.74% to 12.38%. The carrying value of the investment in a direct financing lease approximated the fair market value at March 31, 2016 and December 31, 2015.

Derivative instruments:
Derivative instruments are carried at their fair market value.



17


Debt instruments:
The fair value of the Company's debt is estimated by discounting the future cash flows of each instrument using current market rates. At March 31, 2016, the Company had a carrying value of $592.0 million in variable rate debt outstanding with a weighted average interest rate of approximately 2.61%. The carrying value of the variable rate debt outstanding approximated the fair market value at March 31, 2016.

At December 31, 2015, the Company had a carrying value of $571.0 million in variable rate debt outstanding with an average weighted interest rate of approximately 1.65%. The carrying value of the variable rate debt outstanding approximated the fair market value at December 31, 2015.

At March 31, 2016 and December 31, 2015, $300.0 million of variable rate debt outstanding under the Company's unsecured term loan facility had been effectively converted to a fixed rate through April 5, 2019 by interest rate swap agreements.

At March 31, 2016, the Company had a carrying value of $1.42 billion in fixed rate long-term debt outstanding with a weighted average interest rate of approximately 5.65%. Discounting the future cash flows for fixed rate debt using rates of 3.52% to 4.92%, management estimates the fair value of the fixed rate debt to be approximately $1.54 billion with an estimated weighted average market rate of 4.27% at March 31, 2016.

At December 31, 2015, the Company had a carrying value of $1.43 billion in fixed rate long-term debt outstanding with an average weighted interest rate of approximately 5.66%. Discounting the future cash flows for fixed rate debt using rates of 3.33% to 4.94%, management estimates the fair value of the fixed rate debt to be approximately $1.55 billion with an estimated weighted average market rate of 4.28% at December 31, 2015.

11. Earnings Per Share

The following table summarizes the Company’s computation of basic and diluted earnings per share (EPS) for the three months ended March 31, 2016 and 2015 (amounts in thousands except per share information):
 
Three Months Ended March 31, 2016
 
 
Income
(numerator)
 
Shares
(denominator)
 
Per Share
Amount
 
Basic EPS:
 
 
 
 
 
 
Income from continuing operations
$
54,180

 
 
 
 
 
Less: preferred dividend requirements
(5,952
)
 
 
 
 
 
Net income available to common shareholders
$
48,228

 
62,664

 
$
0.77

 
Diluted EPS:
 
 
 
 
 
 
Income from continuing operations available to common shareholders
$
48,228

 
62,664

 
 
 
Effect of dilutive securities:
 
 
 
 
 
 
Share options

 
80

 
 
 
Net income available to common shareholders
$
48,228

 
62,744

 
$
0.77

 


18


 
Three Months Ended March 31, 2015
 
 
Income
(numerator)
 
Shares
(denominator)
 
Per Share
Amount
 
Basic EPS:
 
 
 
 
 
 
Income from continuing operations
$
42,831

 
 
 
 
 
Less: preferred dividend requirements
(5,952
)
 
 
 
 
 
Income from continuing operations available to common shareholders
$
36,879

 
57,111

 
$
0.65

 
Loss from discontinued operations available to common shareholders
$
(10
)
 
57,111

 
$

 
Net income available to common shareholders
$
36,869

 
57,111

 
$
0.65

 
Diluted EPS:
 
 
 
 
 
 
Income from continuing operations available to common shareholders
$
36,879

 
57,111

 
 
 
Effect of dilutive securities:
 
 
 
 
 
 
Share options

 
267

 
 
 
Income from continuing operations available to common shareholders
$
36,879

 
57,378

 
$
0.64

 
Loss from discontinued operations available to common shareholders
$
(10
)
 
57,378

 
$

 
Net income available to common shareholders
$
36,869

 
57,378

 
$
0.64

 
 
 
 
 
 
 
 

The additional 2.0 million common shares that would result from the conversion of the Company’s 5.75% Series C cumulative convertible preferred shares and the additional 1.6 million common shares that would result from the conversion of the Company’s 9.0% Series E cumulative convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted earnings per share for the three months ended March 31, 2016 and 2015 because the effect is anti-dilutive.

The dilutive effect of potential common shares from the exercise of share options is included in diluted earnings per share for the three months ended March 31, 2016 and 2015. For the three months ended March 31, 2016 and 2015, options to purchase 140 thousand and 249 thousand shares of common shares, respectively, at per share prices ranging from $51.64 to $65.50 for both periods, were not included in the computation of diluted earnings per share because the options were anti-dilutive.

12. Equity Incentive Plan

All grants of common shares and options to purchase common shares are issued under the Company's 2007 Equity Incentive Plan and an aggregate of 3,650,000 common shares, options to purchase common shares and restricted share units, subject to adjustment in the event of certain capital events, may be granted. At March 31, 2016, there were 766,007 shares available for grant under the 2007 Equity Incentive Plan.

Share Options

Share options granted under the 2007 Equity Incentive Plan have exercise prices equal to the fair market value of a common share at the date of grant. The options may be granted for any reasonable term, not to exceed 10 years, and for employees typically become exercisable at a rate of 25% per year over a four-year period. The Company generally issues new common shares upon option exercise. A summary of the Company’s share option activity and related information is as follows:

19


 
 
Number of
shares
 
Option price
per share
 
Weighted avg.
exercise price
Outstanding at December 31, 2015
516,305

 
$
19.02

 

 
$
65.50

 
$
48.42

Exercised
(88,294
)
 
19.41

 

 
61.79

 
30.51

Outstanding at March 31, 2016
428,011

 
$
19.02

 

 
$
65.50

 
$
52.11

There were no options granted during the three months ended March 31, 2016. The weighted average fair value of options granted was $16.35 during the three months ended March 31, 2015. The intrinsic value of stock options exercised was $2.8 million and $0.2 million for the three months ended March 31, 2016 and 2015, respectively. Additionally, the Company repurchased 53,687 shares into treasury shares in conjunction with the stock options exercised during the three months ended March 31, 2016 with a total value of $3.3 million. At March 31, 2016, stock-option expense to be recognized in future periods was $1.6 million.

The expense related to share options included in the determination of net income for the three months ended March 31, 2016 and 2015 was $0.2 million and $1.7 million (including $1.4 million included in retirement severance expense in the accompanying consolidated statements of income), respectively. The following assumptions were used in applying the Black-Scholes option pricing model at the grant dates for the three months ended March 31, 2015: risk-free interest rate of 1.9%, dividend yield of 5.9%, volatility factors in the expected market price of the Company’s common shares of 48.0%, 0.78% expected forfeiture rate and an expected life of approximately six years. The Company uses historical data to estimate the expected life of the option and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Additionally, expected volatility is computed based on the average historical volatility of the Company’s publicly traded shares.
The following table summarizes outstanding options at March 31, 2016:
Exercise price range
 
Options
outstanding
 
Weighted avg.
life remaining
 
Weighted avg.
exercise price
 
Aggregate intrinsic
value  (in thousands)
$ 19.02 - 19.99
 
11,097

 
3.1

 
 
 
 
20.00 - 29.99
 

 

 
 
 
 
30.00 - 39.99
 
2,625

 
3.8

 
 
 
 
40.00 - 49.99
 
175,166

 
5.0

 
 
 
 
50.00 - 59.99
 
106,275

 
7.3

 
 
 
 
60.00 - 65.50
 
132,848

 
6.2

 
 
 
 
 
 
428,011

 
5.9

 
$
52.11

 
$
6,210

The following table summarizes exercisable options at March 31, 2016:
Exercise price range
 
Options
outstanding
 
Weighted avg.
life  remaining
 
Weighted avg.
exercise price
 
Aggregate  intrinsic
value (in thousands)
$ 19.02 - 19.99
 
11,097

 
3.1

 
 
 
 
20.00 - 29.99
 

 

 
 
 
 
30.00 - 39.99
 
2,625

 
3.8

 
 
 
 
40.00 - 49.99
 
155,636

 
4.8

 
 
 
 
50.00 - 59.99
 
52,259

 
6.9

 
 
 
 
60.00 - 65.50
 
66,863

 
3.5

 
 
 
 
 
 
288,480

 
4.8

 
$
50.24

 
$
4,726


Nonvested Shares
A summary of the Company’s nonvested share activity and related information is as follows:

20


 
Number  of
shares
 
Weighted avg.
grant  date
fair value
 
Weighted avg.
life remaining
Outstanding at December 31, 2015
390,441

 
$
54.84

 
 
Granted
300,752

 
61.53

 
 
Vested
(156,767
)
 
52.73

 
 
Forfeited

 

 
 
Outstanding at March 31, 2016
534,426

 
$
59.22

 
1.77
The holders of nonvested shares have voting rights and receive dividends from the date of grant. These shares vest ratably over a period of three to four years. The fair value of the nonvested shares that vested was $9.2 million and $17.1 million (including $6.7 million in retirement severance expense in the accompanying consolidated statements of income) for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016, unamortized share-based compensation expense related to nonvested shares was $23.2 million.

Restricted Share Units
A summary of the Company’s restricted share unit activity and related information is as follows:
 
Number  of
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Weighted
Average
Life
Remaining
Outstanding at December 31, 2015
18,036

 
$
57.57

 
 
Granted

 

 
 
Vested

 

 
 
Outstanding at March 31, 2016
18,036

 
$
57.57

 
0.12

The holders of restricted share units receive dividend equivalents from the date of grant. The share units vest upon the earlier of the day preceding the next annual meeting of shareholders or a change of control. The settlement date for the shares is selected by the non-employee Trustee, and ranges from one year from the grant date to upon termination of service. At March 31, 2016, unamortized share-based compensation expense related to restricted share units was $87 thousand.

13. Other Commitments and Contingencies

As of March 31, 2016, the Company had an aggregate of approximately $274.6 million of commitments to fund development projects including seven entertainment development projects for which it had commitments to fund approximately $43.1 million, 24 education development projects for which it had commitments to fund approximately $175.5 million, and four recreation development projects for which it had commitments to fund approximately $56.0 million. Development costs are advanced by the Company in periodic draws. If the Company determines that construction is not being completed in accordance with the terms of the development agreement, it can discontinue funding construction draws. The Company has agreed to lease the properties to the operators at pre-determined rates upon completion of construction.

Additionally as of March 31, 2016, the Company had a commitment to fund approximately $120.0 million over the next three years, of which none has been funded, to complete an indoor waterpark hotel and adventure park at its casino and resort project in Sullivan County, New York. The Company is also responsible for the construction of the casino and resort project common infrastructure, which is expected to be financed primarily through the issuance of tax-exempt public infrastructure bonds and currently budgeted at approximately $90.0 million, subject to budget adjustments and related approvals. Through March 31, 2016, the Company has funded approximately $35.0 million for common infrastructure.


21


The Company has certain commitments related to its mortgage note investments that it may be required to fund in the future. The Company is generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of its direct control. As of March 31, 2016, the Company had four mortgage notes receivable with commitments totaling approximately $17.2 million. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

The Company has provided guarantees of the payment of certain economic development revenue bonds totaling $22.9 million related to two theatres in Louisiana for which the Company earns a fee at annual rates of 2.88% to 4.00% over the 30-year terms of the related bonds. The Company recorded $9.6 million as a deferred asset included in other assets and $9.6 million included in other liabilities in the accompanying consolidated balance sheet as of March 31, 2016 related to these guarantees. No amounts have been accrued as a loss contingency related to these guarantees because payment by the Company is not probable.

In connection with construction of its development projects and related infrastructure, certain public agencies require posting of surety bonds to guarantee that the Company's obligations are satisfied. These bonds expire upon the completion of the improvements or infrastructure. As of March 31, 2016, the Company had three surety bonds outstanding totaling $21.7 million.

Prior proposed casino and resort developers Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha LLC, which are affiliates of Louis Cappelli and from whom the Company acquired the Adelaar resort property (the Cappelli Group), commenced litigation against the Company beginning in 2011 regarding matters relating to the acquisition of that property and our relationship with the Empire Resorts, Inc. This litigation involves three separate cases filed in state and federal court.

The first case was filed on June 7, 2011 by the Cappelli Group in the Supreme Court of the State of New York, County of Sullivan, against two subsidiaries of the Company. The Company obtained a summary judgment on June 30, 2014 in this case which was affirmed on appeal. As a result, this case is now closed.

The second case was filed on October 20, 2011 by the Cappelli Group against the Company and two of its affiliates in the Supreme Court of the State of New York, County of Westchester, asserting a claim for breach of contract and the implied covenant of good faith, and seeking damages of at least $800 million, based on the same allegations as in the action the Cappelli Group filed in Sullivan County Supreme Court. The Company moved to dismiss the Amended Complaint in Westchester County based on the Sullivan County Supreme Court’s June 30, 2014 decision (which has now been affirmed). On January 26, 2016, the Westchester County Supreme Court denied the Company's motion to dismiss but ordered the Cappelli Group to amend its pleading and remove all claims and allegations previously determined by the Sullivan County case (discussed above). On February 18, 2016, the Cappelli Group revised their amended complaint, which the Company believes remains deficient. On March 23, 2016, the Company filed with the Westchester County Supreme Court a motion to dismiss the Cappelli Group’s revised amended complaint. The motion is currently pending.

The third case was filed with the United States District Court for the Southern District of New York (the District Court) by Concord Associates L.P. and six other companies affiliated with Mr. Cappelli against the Company and certain of its subsidiaries, Empire Resorts, Inc. and Monticello Raceway Management, Inc. (collectively, Empire), and Kien Huat Realty III Limited and Genting New York LLC (collectively, Genting). The complaint alleged, among other things, that the Company had conspired with Empire to monopolize the racing and gaming market in the Catskills by entering into exclusivity and development agreements to develop a comprehensive resort destination in Sullivan County, New York. The plaintiffs are seeking $500 million in damages (trebled to $1.5 billion under antitrust law), punitive damages, and injunctive relief. On September 18, 2013, the District Court dismissed the complaint filed. Specifically, the District Court dismissed plaintiffs’ federal antitrust claims against all defendants with prejudice, and dismissed the pendent state law claims against Empire and Genting without prejudice, meaning they could be further pursued in state court. On October 2, 2013, the plaintiffs filed a motion for reconsideration with the District Court, seeking permission to file a Second Amended Complaint, and soon after filed a Notice of Appeal. The District Court denied the motion for reconsideration in an Opinion and Order dated November 3, 2014, and the plaintiffs perfected their appeal in the Second Circuit on or about December 17, 2014. On March 18, 2016, the Second Circuit affirmed the District Court’s dismissal

22


of the case in favor of the Company, Empire and Genting. The plaintiffs may file a writ of certiorari seeking review by the Supreme Court of the United States within 90 days of the entry of the judgment.

The Company has not determined that losses related to these matters are probable. Because of the favorable rulings described above, and the pending or potential appeals, together with the inherent difficulty of predicting the outcome of litigation generally, the Company does not have sufficient information to determine the amount or range of reasonably possible loss with respect to these matters. The Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. The Company intends to vigorously defend the claims asserted against the Company and certain of its subsidiaries by the Cappelli Group and its affiliates, for which the Company believes it has meritorious defenses, but there can be no assurances as to the outcome of the claims and related litigation.

14. Segment Information

The Company groups investments into four reportable operating segments: Entertainment, Education, Recreation and Other. The financial information summarized below is presented by reportable operating segment:
Balance Sheet Data:
 
 
As of March 31, 2016
 
 
Entertainment
Education
Recreation
Other
Corporate/Unallocated
Consolidated
Total Assets
 
$
2,053,555

$
1,040,058

$
986,945

$
208,864

$
54,118

$
4,343,540

 
 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
Entertainment
Education
Recreation
Other
Corporate/Unallocated
Consolidated
Total Assets
 
$
2,006,926

$
1,013,930

$
935,266

$
203,757

$
57,391

$
4,217,270



23


Operating Data:
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016
 
 
Entertainment
Education
Recreation
Other
Corporate/Unallocated
Consolidated
Rental revenue
 
$
60,138

$
17,180

$
14,696

$
1,764

$

$
93,778

Tenant reimbursements
 
3,863

2




3,865

Other income
 
4


489


717

1,210

Mortgage and other financing income
 
2,152

10,731

6,998

34


19,915

Total revenue
 
66,157

27,913

22,183

1,798

717

118,768

 
 
 
 
 
 
 
 
Property operating expense
 
5,252


8

83

138

5,481

Other expense
 



5


5

Total investment expenses
 
5,252


8

88

138

5,486

Net operating income - before unallocated items
 
60,905

27,913

22,175

1,710

579

113,282

 
 
 
 
 
 
 
 
Reconciliation to Consolidated Statements of Income:
 
 
 
 
General and administrative expense
 
 
 
 
(9,218
)
Costs associated with loan refinancing or payoff
 
 
 
(552
)
Interest expense, net
 
 
 
 
 
 
(23,289
)
Transaction costs
 
 
 
 
 
 
(444
)
Depreciation and amortization
 
 
 
(25,955
)
Equity in income from joint ventures
 
 
 
 
212

Income tax benefit
 
 
 
144

Net income attributable to EPR Properties
 
 
 
54,180

Preferred dividend requirements
 
 
 
(5,952
)
Net income available to common shareholders of EPR Properties
$
48,228



24


 
 
Three Months Ended March 31, 2015
 
 
Entertainment
Education
Recreation
Other
Corporate/Unallocated
Consolidated
Rental revenue
 
$
59,941

$
10,094

$
6,705

$

$

$
76,740

Tenant reimbursements
 
4,326



(23
)

4,303

Other income
 
3




547

550

Mortgage and other financing income
 
1,782

7,783

8,181

97


17,843

Total revenue
 
66,052

17,877

14,886

74

547

99,436

 
 
 
 
 
 
 
 
Property operating expense
 
6,294



63


6,357

Other expense
 



102


102

Total investment expenses
 
6,294



165


6,459

Net operating income - before unallocated items
 
59,758

17,877

14,886

(91
)
547

92,977

 
 
 
 
 
 
 
 
Reconciliation to Consolidated Statements of Income:
 
 
 
 
General and administrative expense
 
 
 
 
(7,682
)
Retirement severance expense
 
 
 
 
(18,578
)
Interest expense, net
 
 
 
 
 
 
(18,587
)
Transaction costs
 
 
 
 
 
 
(1,606
)
Depreciation and amortization
 
 
 
 
(19,355
)
Equity in income from joint ventures
 
 
 
164

Gain on sale of real estate
 
 
 
23,924

Income tax expense
 
 
 
 
 
 
(8,426
)
Discontinued operations:
 
 
 
 
 
 
 
Loss from discontinued operations
 
 
 
 
(10
)
Net income attributable to EPR Properties
 
 
 
42,821

Preferred dividend requirements
 
 
(5,952
)
Net income available to common shareholders of EPR Properties
$
36,869











25


15. Condensed Consolidating Financial Statements

A portion of the Company's subsidiaries have guaranteed the Company’s indebtedness under the Company's unsecured senior notes and combined unsecured revolving credit and term loan facility. The guarantees are joint and several, full and unconditional and subject to customary release provisions. The following summarizes the Company’s condensed consolidating information as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015 (in thousands):
Condensed Consolidating Balance Sheet
As of March 31, 2016
 
EPR Properties 
(Issuer)
 
Wholly  Owned
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Consolidated
Elimination
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Rental properties, net
$

 
$
2,515,063

 
$
699,284

 
$

 
$
3,214,347

Land held for development

 
1,258

 
21,272

 

 
22,530

Property under development

 
185,424

 
81,150

 

 
266,574

Mortgage notes and related accrued interest receivable

 
454,729

 
2,700

 

 
457,429

Investment in a direct financing lease, net

 
191,720

 

 

 
191,720

Investment in joint ventures

 

 
5,869

 

 
5,869

Cash and cash equivalents
7,519

 
753

 
2,708

 

 
10,980

Restricted cash
525

 
20,803

 
2,100

 

 
23,428

Accounts receivable, net
298

 
50,003

 
12,102

 

 
62,403

Intercompany notes receivable

 
175,757

 

 
(175,757
)
 

Investments in subsidiaries
3,946,482

 

 

 
(3,946,482
)
 

Other assets
23,002

 
11,337

 
53,921

 

 
88,260

Total assets
$
3,977,826

 
$
3,606,847

 
$
881,106

 
$
(4,122,239
)
 
$
4,343,540

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
39,918

 
$
33,742

 
$
3,863

 
$

 
$
77,523

Dividends payable
26,221

 

 

 

 
26,221

Unearned rents and interest

 
48,316

 
8,311

 

 
56,627

Intercompany notes payable

 

 
175,757

 
(175,757
)
 

Debt
1,724,649

 

 
271,482

 

 
1,996,131

Total liabilities
1,790,788

 
82,058

 
459,413

 
(175,757
)
 
2,156,502

Total equity
$
2,187,038

 
$
3,524,789

 
$
421,693

 
$
(3,946,482
)
 
$
2,187,038

Total liabilities and equity
$
3,977,826

 
$
3,606,847

 
$
881,106

 
$
(4,122,239
)
 
$
4,343,540

 

26


Condensed Consolidating Balance Sheet
As of December 31, 2015
 
EPR
Properties 
(Issuer)
 
Wholly  Owned
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Consolidated
Elimination
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Rental properties, net
$

 
$
2,485,411

 
$
539,788

 
$

 
$
3,025,199

Land held for development

 
1,258

 
22,352

 

 
23,610

Property under development

 
152,197

 
226,723

 

 
378,920

Mortgage notes and related accrued interest receivable, net

 
400,935

 
22,845

 

 
423,780

Investment in a direct financing lease, net

 
190,880

 

 

 
190,880

Investment in joint ventures

 

 
6,168

 

 
6,168

Cash and cash equivalents
1,089

 
735

 
2,459

 

 
4,283

Restricted cash
475

 
8,220

 
1,883

 

 
10,578

Accounts receivable, net
285

 
47,502

 
11,314

 

 
59,101

Intercompany notes receivable

 
175,757

 

 
(175,757
)
 

Investments in subsidiaries
3,825,897

 

 

 
(3,825,897
)
 

Other assets
23,053

 
10,607

 
61,091

 

 
94,751

Total assets
$
3,850,799

 
$
3,473,502

 
$
894,623

 
$
(4,001,654
)
 
$
4,217,270

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
49,671

 
$
38,759

 
$
3,748

 
$

 
$
92,178

Dividends payable
24,352

 

 

 

 
24,352

Unearned rents and interest

 
35,512

 
9,440

 

 
44,952

Intercompany notes payable

 

 
175,757

 
(175,757
)
 

Debt
1,702,908

 

 
279,012

 

 
1,981,920

Total liabilities
1,776,931

 
74,271

 
467,957

 
(175,757
)
 
2,143,402

Total equity
$
2,073,868

 
$
3,399,231

 
$
426,666

 
$
(3,825,897
)
 
$
2,073,868

Total liabilities and equity
$
3,850,799

 
$
3,473,502

 
$
894,623

 
$
(4,001,654
)
 
$
4,217,270

 



27


Condensed Consolidating Statement of Income
Three Months Ended March 31, 2016
 
EPR Properties 
(Issuer)
 
Wholly  Owned
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Consolidated
Elimination
 
Consolidated
Rental revenue
$

 
$
74,001

 
$
19,777

 
$

 
$
93,778

Tenant reimbursements

 
1,349

 
2,516

 

 
3,865

Other income

 
491

 
719