EPR Properties sells charter school portfolio for $454M

EPR sells charter school portfolio for $454M

EPR Properties Announces Sale of Charter School Portfolio for Approximately $454 Million

EPR Properties has sold substantially all of its charter school portfolio, consisting of 47 charter school related assets, for approximately $454 million of gross cash consideration to a fund sponsored by Rosemawr Management, LLC (“Rosemawr”). This sale does not include three charter schools that the Company sold previously in the fourth quarter of 2019 for proceeds of $21.6 million and the one remaining charter school which the Company expects to sell during the fourth quarter of 2019.

The Company also announced today that the sale of the charter school portfolio activates its strategic migration toward focusing its growth on experiential real estate.

“Since we entered the charter school market we have enjoyed very attractive returns, but competitive financing alternatives, primarily in the tax-exempt bond market, have caused structural market changes that increased earnings volatility and were incompatible with our mandate as a REIT to provide long-term and predictable income,” stated Greg Silvers, President and CEO of the Company. “After deliberate consideration of our strategic options, we are excited about our decision to refocus our growth on experiential real estate.”

Mr. Silvers continued, “We recognize the strong consumer demand for location-based experiences, and believe our decades of experience, longstanding relationships and institutional knowledge will continue to provide us with a sustainable competitive advantage. We believe our diversified portfolio, with the ultimate addition of casino resorts, distinguishes us from other platforms and uniquely positions us to benefit from the strong tailwinds provided by changing consumer preferences and favorable demographics. Experiential real estate represents an estimated $100 billion market opportunity, and we look forward to continuing to build a diversified portfolio of high-quality assets that deliver attractive returns to our shareholders.”

The Company will also discontinue the organization of its portfolio around the discrete segments of Entertainment, Recreation and Education. Going forward the Company’s Experiential portfolio will be organized by the primary property types targeted for growth in experiential real estate. These property types include: Theatres, Eat & Play, Ski, Attractions, Experiential Lodging, Gaming, Fitness & Wellness, Cultural and Live Venues.

The Company expects several benefits from this migration including:

  • Enhanced Focus on Experiential Assets. This migration recognizes consumers’ strong preference for location-based experiences and creates a singularly focused organization that is committed to owning real estate that supports experiential activities and lifestyles.
  • Leveraging Institutional Knowledge. With more than 20 years of experience and knowledge investing in and owning experiential real estate, ​the Company is uniquely positioned to leverage its relationships, intellectual capital and institutional knowledge.
  • Reduced Earnings Volatility and Improved Rent Coverage. The sale of the charter school portfolio removes less predictable pre-payments which had increased in the charter school portfolio over time. Additionally, the Company’s overall rent coverage will improve as it moves from 1.89x to 1.94x following the sale of the charter school portfolio.

The Company intends to rapidly redeploy the proceeds from the sale to fund investments in experiential real estate, including potential casino resort investments. Separately, the Company has no present plans to sell its private school and early childhood education assets that are included in the Education portfolio, but will consider strategic dispositions if those opportunities present themselves in the future.

The Company’s internal rate of return over the life cycle of its charter school investments was approximately 10.5% unlevered, including the fourth quarter dispositions which resulted in a loss of approximately $19.0 million that includes the write-off of non-cash straight line rent and effective interest receivables totaling approximately $26.0 million.

As detailed below, management of the Company will host a conference call to discuss the sale of its charter school portfolio and the activation of its strategic experiential migration.

2019 Guidance Update

As a result of this transaction as well as other less significant items, the Company is increasing its 2019 disposition guidance range to $875.0 million to $900.0 million from the prior range of $400.0 million to $475.0 million, and is decreasing its guidance range for 2019 Funds From Operations as adjusted (“FFOAA”) per diluted common share (a non-GAAP financial measure) to $5.42 to $5.46 from the prior range of $5.44 to $5.52. The revised FFOAA per diluted common share guidance range for 2019 is based on a net income available to common shareholders per diluted common share (the most directly comparable GAAP measure) range of $2.35 to $2.39. The Company is confirming its prior 2019 investment spending guidance of a range of $775.0 million to $825.0 million.

2020 Guidance

The Company’s Board of Trustees expects to approve the next common dividend increase in late February 2020 when the Company announces its fourth quarter 2019 earnings and provides 2020 guidance. The Company plans to continue this approach in the future to match the timing of dividend decisions with the Company’s internal budgeting and external guidance process.

Conference Call Information

Management will host a conference call to discuss the sale of its charter school portfolio and the activation of its strategic experiential migration on November 25, 2019 at 8:30 a.m. Eastern Standard Time. The conference call will be webcast and can be accessed at http://investors.eprkc.com/webcasts. To access the call, audio only, dial (866) 587-2930 and when prompted, provide the passcode 2592777. A copy of the investor slide presentation that will be discussed on the conference call will be available on the Company’s website and at the SEC’s website at www.sec.gov.

You may watch a replay of the webcast by visiting the Webcasts page at http://investors.eprkc.com/webcasts.

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