Restructured Portfolio Expected to Achieve 96%
of Total Pre-Bankruptcy Rent In 2024
Regal’s Proposed Plan Expected to Significantly
Reduce Its Leverage
EPR Properties (NYSE:EPR) (the “Company”) today announced that
it has entered into a comprehensive restructuring agreement with
Regal Cinemas and certain of its subsidiaries (collectively,
“Regal”) anchored by a new master lease (“Master Lease”) for 41 of
the 57 properties currently leased to Regal (“Master Lease
Properties”).
The Master Lease is a triple-net lease with $65 million in total
annual fixed rent (“Annual Base Rent”) escalating by 10% every five
years. The Master Lease has three tranches of properties. The
initial terms of the tranches are staggered, expiring on the 11th,
13th and 15th anniversaries of the Effective Date (as defined
herein), respectively, and each tranche has three five-year renewal
options. The weighted average lease term was increased by four
years to 13 years.
Regal will also pay percentage rent for each lease year (“Annual
Percentage Rent”) on gross sales exceeding $220 million, with
threshold amounts increasing every five years commensurate with
escalations in Annual Base Rent. Regal revenues on the 41 Master
Lease Properties exceeded $220 million in 2022 as North American
Box Office Gross (“NABOG”) totaled $7.4 billion.
The Company will also reduce its footprint with Regal by taking
back 16 theatres previously operated by Regal (the “Surrendered
Properties”).
- Pursuant to management agreements, Cinemark (NYSE:CNK) will
operate four of the Surrendered Properties and Phoenix Theatres
will operate one.
- As part of the Company’s strategy to reduce its overall theatre
footprint, the remaining 11 theatres will be marketed for
sale.
Percentage rent under the Master Lease was designed to allow the
Company to participate in expected continued improvements in box
office performance, and to provide for income to return to
pre-pandemic levels as performance recovers.
For the initial lease year ending in 2024, assuming NABOG
approximates $9.4 billion, the combined 41 Master Lease Properties
and five operating properties are expected to achieve 96% of the
aggregate pre-bankruptcy Regal rent for the 57 properties. The
median industry analyst estimate of NABOG for 2023 is $9.0 billion
and is $9.8 billion for 2024.
As previously disclosed, on September 7, 2022, Cineworld Group,
plc and Regal, and certain of their subsidiaries (collectively,
“Debtor”) filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. On June 28, 2023, a hearing was held in the case
regarding the confirmation of the Debtor’s Plan of Reorganization
(the “Plan”). Debtor has recently stated that it is seeking
confirmation of the Plan on an expeditious basis and reiterated its
expectation that it will emerge from the Chapter 11 cases in July
2023. As a result of the reorganization, it is expected that
Debtor’s total debt would be reduced from $5.0 billion owed prior
to the bankruptcy, to only $1.5 billion upon effectiveness of the
Plan.
The lease restructuring agreement between the Company and Regal
is memorialized in an Omnibus Lease Amendment Agreement (the
“Omnibus Agreement”), which will be assumed pursuant to the Plan
when the Plan becomes effective (the “Effective Date”). Upon
confirmation by the court, the Plan will become effective, and
Debtor will emerge from the Chapter 11 cases, when its conditions,
including the negotiation of Debtor’s loan documents and closing of
the transactions contemplated thereby, have been completed (the
“Effective Date”). Under the Omnibus Agreement, the Master Lease
and related agreements will become effective at the Effective Date.
On the Effective Date, Regal will surrender the Surrendered
Properties. Regal expects that, assuming all conditions are
satisfied, the Effective Date of the Plan will occur during the
third quarter of 2023.
CEO Commentary
“The resolution of the Regal bankruptcy will provide us with a
much stronger tenant that has a recapitalized and improved balance
sheet with significantly lower leverage,” stated Greg Silvers,
Chairman and CEO of EPR Properties.
“The transition of the portfolio to a single Master Lease will
provide us with a more secure long-term structure. The innovative
percentage rent component allows us to more fully participate in
the recovery of theatrical exhibition, with significant upside
potential. The Management Agreement with Cinemark further
solidifies our deep relationship with one of the nation’s leading
exhibitors, and the planned disposition of 11 theatres will reduce
our overall theatre footprint and provide additional investment
capital. We are pleased with the resolution of the restructuring
and believe it has enhanced our overall company profile.”
Other Terms of the Master Lease and Related
Agreements
- A parent entity of Regal will provide a guaranty of Regal’s
obligations under the Master Lease.
- As of June 28, 2023, Regal owes the Company approximately $51.8
million of deferred rent (the “Deferred Rent Balance”) related to
the 41 theatres under the Master Lease. The Company will not
require any payments toward the Deferred Rent Balance and if Regal
has no uncured events of default prior to the 15th anniversary of
the Effective Date, the Company will forgive the Deferred Rent
Balance. If at any time prior to 15th anniversary of the Effective
Date, Regal has an uncured event of default, the entire Deferred
Rent Balance will become due and payable. The remaining balance of
the deferred rent related to the Surrendered Properties will be an
unsecured claim under the bankruptcy proceeding.
- Upon the fulfillment of certain conditions, the Company will
reimburse Regal 50% up to a maximum of $32.5 million for revenue
enhancing improvements to individual Master Lease Properties
undertaken by Regal at its option and approved by the Company.
The material terms of the agreements with Regal described above
will be more fully described in the Company’s next Quarterly Report
on Form 10-Q.
Operating Properties
In taking back the Surrendered Properties, the Company is
reducing its footprint with Regal while expanding and strengthening
its long-standing relationship with Cinemark, one of the nation’s
leading exhibitors, and adding to its existing managed portfolio
with Phoenix Theatres.
Cinemark will manage four high performing theatres located in
top 20 MSAs. Three of the theatres have recliners and two have
premium large format screens. Phoenix will manage one productive
smaller-market theatre.
Properties To Be Marketed for Sale
To reduce its overall theatre footprint, the Company plans to
sell the remaining 11 Surrendered Properties and deploy the
proceeds to acquire non-theatre experiential properties.
Pending Write-Down
In conjunction with taking back the Surrendered Properties, the
Company expects to record a non-cash impairment charge in the
second quarter of approximately $50 million based on recently
appraised values.
Conference Call Information
Management will host a conference call to discuss the Company's
restructuring agreement with Regal and related matters on June 28,
2023 at 5:00 p.m. Eastern Time. The call may also include
discussion of Company developments and forward-looking and other
material information about business and financial matters. The
conference will be webcast and can be accessed via the Webcasts
page in the Investor Center on the Company's website located at
https://investors.eprkc.com/webcasts. To access the audio-only
call, visit the Webcasts page for the link to register and receive
dial-in information and a PIN providing access to the live call. It
is recommended that you join 10 minutes prior to the start of the
event (although you may register and dial-in at any time during the
call).
You may watch a replay of the webcast by visiting the Webcasts
page at https://investors.eprkc.com/webcasts.
About EPR Properties
EPR Properties (NYSE:EPR) is the leading diversified
experiential net lease real estate investment trust (REIT),
specializing in select enduring experiential properties in the real
estate industry. We focus on real estate venues which create value
by facilitating out of home leisure and recreation experiences
where consumers choose to spend their discretionary time and money.
We have total assets of approximately $5.8 billion (after
accumulated depreciation of approximately $1.3 billion) across 44
states. We adhere to rigorous underwriting and investing criteria
centered on key industry, property and tenant level cash flow
standards. We believe our focused approach provides a competitive
advantage and the potential for stable and attractive returns.
Further information is available at www.eprkc.com.
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 guidance,
projected percentage rent, revenues and theatre performance, the
expected amount of the Company's pending write-down, the financial
impact of the COVID-19 pandemic, the outcome of the Debtor's
pending bankruptcy proceeding and its potential impact on our
existing leases with Regal theatre tenants, and the timing of
transaction closings and bankruptcy proceedings. The
forward-looking statements presented herein are based on the
Company's current expectations. Forward-looking statements involve
numerous risks and uncertainties, and you should not rely on them
as predictions of actual events. There is no assurance the events
or circumstances reflected in the forward-looking statements will
occur. You can identify forward-looking statements by use of words
such as “will be,” “intend,” “continue,” “believe,” “may,”
“expect,” “hope,” “anticipate,” “goal,” “forecast,” “pipeline,”
“estimates,” “offers,” “plans,” “would” or other similar
expressions or other comparable terms or discussions of strategy,
plans or intentions contained or incorporated by reference herein.
Forward-looking statements necessarily are dependent on
assumptions, data or methods that may be incorrect or imprecise.
These forward-looking statements represent our intentions, plans,
expectations and beliefs and are subject to numerous assumptions,
risks and uncertainties. Many of the factors that will determine
these items are beyond our ability to control or predict, and
include risks relating to the Debtor's ability to obtain approval
of its Plan of Reorganization and successfully complete negotiation
of its financing agreements in a timely manner; risks relating to
the theatre industry, including the quality of future releases,
shorter theatre windows for certain releases, continuing changes in
consumer preferences and production delays relating to the Writers
Guild of America strike; general economic conditions, continuing
inflation and higher interest rates, as well as the factors
described in “Item 1A. Risk Factors” in our most recent Annual
Report on Form 10-K and, to the extent applicable, our Quarterly
Reports on Form 10-Q.
For these statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You are cautioned not to place undue
reliance on our forward-looking statements, which speak only as of
the date hereof or the date of any document incorporated by
reference herein. All subsequent written and oral forward-looking
statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. Except as
required by law, we do not undertake any obligation to release
publicly any revisions to our forward-looking statements to reflect
events or circumstances after the date hereof.
MARKET AND INDUSTRY DATA
This release contains market and industry forecasts that have
been obtained from publicly available information, various industry
publications, other published industry sources and our internal
data and estimates. We have not independently verified the
information from third party sources and cannot make any
representation as to the accuracy or completeness of such
information. None of the reports and other materials of third-party
sources referred to in this release were prepared for use in, or in
connection with, this release. Additionally, our internal data and
estimates are based upon information obtained from our past
experience and our management’s understanding of industry
conditions. Estimates are difficult to develop and inherently
uncertain, and we cannot assure you that they are accurate. Our
estimates involve risks and uncertainties and are subject to change
based on various factors, including those detailed above and under
“Part I, Item 1A. Risk Factors” in our most recent Annual Report on
Form 10-K and, to the extent applicable, our Quarterly Reports on
Form 10-Q.
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version on businesswire.com: https://www.businesswire.com/news/home/20230628969070/en/
EPR Properties Brian Moriarty Vice President, Corporate
Communications brianm@eprkc.com | 816-472-1700
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