EPR PROPERTIES - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐			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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common shares, par value $0.01 per share

EPR

New York Stock Exchange

5.75% Series C cumulative convertible preferred shares, par value $0.01 per share

EPR PrC

New York Stock Exchange

9.00% Series E cumulative convertible preferred shares, par value $0.01 per share

EPR PrE

New York Stock Exchange

5.75% Series G cumulative redeemable preferred shares, par value $0.01 per share

EPR PrG

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

At July 27, 2021, there were 74,803,698 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 the uncertain financial impact of the COVID-19 pandemic, our capital resources and liquidity, our expected dividend payments, our expected cash flows and liquidity, the performance of our customers, our expected cash collections, expected use of proceeds from dispositions and our results of operations and financial condition. The estimates presented herein are based on the Company's current expectations and, given the current economic uncertainty, there can be no assurances that the Company will be able to continue to comply with applicable covenants under its debt agreements, which could materially impact actual performance. 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 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:

•Risks associated with the current outbreak of the novel coronavirus, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases;

•Global economic uncertainty and disruptions in financial markets;

•Reduction in discretionary spending by consumers;

•Covenants in our debt instruments that limit our ability to take certain actions;

•Adverse changes in our credit ratings;

•Fluctuations in interest rates;

•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 on terms comparable to prior leases and/or our ability to locate substitute lessees for these properties on economically favorable terms;

•Risks of operating in the experiential real estate industry;

•Our ability to compete effectively;

•Risks associated with four tenants representing a substantial portion of our lease revenues;

•The ability of our build-to-suit tenants to achieve sufficient operating results within expected time-frames and therefore have capacity to pay their agreed upon rent;

•Risks associated with our dependence on third-party managers to operate certain of our properties;

•Risks associated with our level of indebtedness;

•Risks associated with use of leverage to acquire properties;

•Financing arrangements that require lump-sum payments;

•Our ability to raise capital;

•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 and related tax matters;

•The ability of our subsidiaries to satisfy their obligations;

•Financing arrangements that expose us to funding and completion risks;

•Our reliance on a limited number of employees, the loss of which could harm operations;

•Risks associated with the employment of personnel by managers of certain of our properties;

•Risks associated with the gaming industry;

•Risks associated with gaming and other regulatory authorities;

•Delays or prohibitions of transfers of gaming properties due to required regulatory approvals;

•Risks associated with security breaches and other disruptions;

•Changes in accounting standards that may adversely affect our financial statements;

•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 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 or other customers, and how well we manage our properties;

•Our ability to secure adequate insurance and risk of potential uninsured losses, including losses 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, climate change and natural disasters;

•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 foreign exchange rates; 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, 2020 filed with the Securities and Exchange Commission ("SEC") on February 25, 2021.

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.

TABLE OF CONTENTS

Page

PART I

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

PART II

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)


	June 30, 2021		December 31, 2020
	(unaudited)
Assets
Real estate investments, net of accumulated depreciation of $1,130,409 and $1,062,087 at June 30, 2021 and December 31, 2020, respectively	$	4,834,652	$	4,851,302
Land held for development	23,225		23,225
Property under development	35,082		57,630
Operating lease right-of-use assets	179,354		163,766
Mortgage notes and related accrued interest receivable	366,064		365,628

Investment in joint ventures	27,476		28,208
Cash and cash equivalents	509,836		1,025,577
Restricted cash	3,570		2,433


Accounts receivable	91,319		116,193

Other assets	71,634		70,223
Total assets	$	6,142,212	$	6,704,185
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	103,778	$	105,379
Operating lease liabilities	217,575		202,223
Common dividends payable	54		36
Preferred dividends payable	6,033		6,034
Unearned rents and interest	79,992		65,485
Debt	3,081,485		3,694,443
Total liabilities	3,488,917		4,073,600
Equity:
Common Shares, $0.01 par value; 100,000,000 shares authorized; and 82,216,474 and 81,917,876 shares issued at June 30, 2021 and December 31, 2020, respectively	822		819
Preferred Shares, $0.01 par value; 25,000,000 shares authorized:
5,393,250 and 5,394,050 Series C convertible shares issued at June 30, 2021 and December 31, 2020, respectively; liquidation preference of $134,831,250	54		54
3,447,381 Series E convertible shares issued at June 30, 2021 and December 31, 2020; liquidation preference of $86,184,525	34		34
6,000,000 Series G shares issued at June 30, 2021 and December 31, 2020; liquidation preference of $150,000,000	60		60
Additional paid-in-capital	3,868,865		3,857,632
Treasury shares at cost: 7,413,471 and 7,315,087 common shares at June 30, 2021 and December 31, 2020, respectively	(264,660)		(261,238)
Accumulated other comprehensive income	5,265		216
Distributions in excess of net income	(957,145)		(966,992)


Total equity	$	2,653,295	$	2,630,585
Total liabilities and equity	$	6,142,212	$	6,704,185

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(Unaudited)

(Dollars in thousands except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Rental revenue	$	115,883	$	97,531	$	218,497	$	232,574
Other income	1,033		416		1,711		7,989
Mortgage and other financing income	8,446		8,413		16,919		16,809
Total revenue	125,362		106,360		237,127		257,372
Property operating expense	14,678		15,329		29,991		28,422
Other expense	3,025		2,798		5,577		12,332
General and administrative expense	11,376		10,432		22,712		21,420


Costs associated with loan refinancing or payoff	—		820		241		820

Interest expense, net	38,312		38,340		77,506		73,093
Transaction costs	662		771		1,210		1,846
Credit loss (benefit) expense	(2,819)		3,484		(5,581)		4,676
Impairment charges	—		51,264		—		51,264
Depreciation and amortization	40,538		42,450		80,864		86,260
Income (loss) before equity in loss from joint ventures and other items	19,590		(59,328)		24,607		(22,761)
Equity in loss from joint ventures	(1,151)		(1,724)		(2,582)		(2,144)
Impairment charges on joint ventures	—		(3,247)		—		(3,247)
Gain on sale of real estate	511		22		712		242

Income (loss) before income taxes	18,950		(64,277)		22,737		(27,910)
Income tax (expense) benefit	(398)		1,312		(805)		2,063









Net income (loss)	18,552		(62,965)		21,932		(25,847)
Preferred dividend requirements	(6,033)		(6,034)		(12,067)		(12,068)

Net income (loss) available to common shareholders of EPR Properties	$	12,519	$	(68,999)	$	9,865	$	(37,915)

Net income (loss) available to common shareholders of EPR Properties per share:


Basic	$	0.17	$	(0.90)	$	0.13	$	(0.49)




Diluted	$	0.17	$	(0.90)	$	0.13	$	(0.49)
Shares used for computation (in thousands):
Basic	74,781		76,310		74,704		77,388
Diluted	74,870		76,310		74,772		77,388

Other comprehensive income (loss):
Net income (loss)	$	18,552	$	(62,965)	$	21,932	$	(25,847)

Foreign currency translation adjustment	2,674		7,284		4,974		(9,211)
Change in net unrealized (loss) gain on derivatives	(387)		(6,326)		75		(2,395)
Comprehensive income (loss) attributable to EPR Properties	$	20,839	$	(62,007)	$	26,981	$	(37,453)

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Consolidated Statements of Changes in Equity

(Unaudited)

(Dollars in thousands except per share data)


	EPR Properties Shareholders’ Equity
	Common Stock			Preferred Stock			Additional paid-in capital		Treasury shares		Accumulated other comprehensive income (loss)		Distributions in excess of net income		Total
	Shares	Par		Shares	Par
Balance at December 31, 2019	81,588,489	$	816	14,841,431	$	148	$	3,834,858	$	(147,435)	$	7,275	$	(689,857)	$	3,005,805
Credit loss expense for implementation of Current Expected Credit Loss standard	—	—		—	—		—		—		—		(2,163)		(2,163)

Issuance of nonvested shares and performance shares, net of cancellations	211,549	2		—	—		6,221		(90)		—		—		6,133
Purchase of common shares for vesting	—	—		—	—		—		(6,769)		—		—		(6,769)
Share-based compensation expense	—	—		—	—		3,509		—		—		—		3,509

Foreign currency translation adjustment	—	—		—	—		—		—		(16,495)		—		(16,495)

Change in unrealized gain on derivatives	—	—		—	—		—		—		3,931		—		3,931

Net income	—	—		—	—		—		—		—		37,118		37,118
Issuances of common shares	10,368	—		—	—		442		—		—		—		442




Stock option exercises, net	1,410	—		—	—		63		(63)		—		—		—
Dividends to common shareholders ($1.1325 per share)	—	—		—	—		—		—		—		(88,996)		(88,996)
Dividends to Series C preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series E preferred shareholders ($0.5625 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series G preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(2,156)		(2,156)

Balance at March 31, 2020	81,811,816	$	818	14,841,431	$	148	$	3,845,093	$	(154,357)	$	(5,289)	$	(749,932)	$	2,936,481

Restricted share units issued to Trustees	74,767	1		—	—		—		—		—		—		1


Share-based compensation expense	—	—		—	—		3,463		—		—		—		3,463

Foreign currency translation adjustment	—	—		—	—		—		—		7,284		—		7,284

Change in unrealized loss on derivatives	—	—		—	—		—		—		(6,326)		—		(6,326)

Net loss	—	—		—	—		—		—		—		(62,965)		(62,965)
Issuances of common shares	17,203	—		—	—		428		—		—		—		428
Repurchase of common shares	—	—		—	—		—		(105,994)		—		—		(105,994)





Dividend equivalents accrued on performance shares	—	—		—	—		—		—		—		(19)		(19)
Dividends to common shareholders ($0.3825 per share)	—	—		—	—		—		—		—		(30,062)		(30,062)
Dividends to Series C preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series E preferred shareholders ($0.5625 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series G preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(2,156)		(2,156)

Balance at June 30, 2020	81,903,786	$	819	14,841,431	$	148	$	3,848,984	$	(260,351)	$	(4,331)	$	(849,012)	$	2,736,257


























Continued on next page.


	EPR Properties Shareholders’ Equity
	Common Stock			Preferred Stock			Additional paid-in capital		Treasury shares		Accumulated other comprehensive income (loss)		Distributions in excess of net income		Total
Continued from previous page.	Shares	Par		Shares	Par

Balance at December 31, 2020	81,917,876	$	819	14,841,431	$	148	$	3,857,632	$	(261,238)	$	216	$	(966,992)	$	2,630,585

Issuance of nonvested shares and performance shares, net of cancellations	246,562	2		—	—		2,899		—		—		—		2,901
Purchase of common shares for vesting	—	—		—	—		—		(2,744)		—		—		(2,744)
Share-based compensation expense	—	—		—	—		3,784		—		—		—		3,784

Foreign currency translation adjustment	—	—		—	—		—		—		2,300		—		2,300

Change in unrealized gain on derivatives	—	—		—	—		—		—		462		—		462

Net income	—	—		—	—		—		—		—		3,380		3,380
Issuances of common shares	2,509	—		—	—		107		—		—		—		107





Dividend equivalents accrued on performance shares	—	—		—	—		—		—		—		(8)		(8)

Dividends to Series C preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series E preferred shareholders ($0.5625 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series G preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(2,156)		(2,156)
Balance at March 31, 2021	82,166,947	$	821	14,841,431	$	148	$	3,864,422	$	(263,982)	$	2,978	$	(969,654)	$	2,634,733

Restricted share units issued to Trustees	43,306	1		—	—		—		—		—		—		1
Cancellations of nonvested shares	—	—		—	—		484		(484)		—		—		—

Share-based compensation expense	—	—		—	—		3,675		—		—		—		3,675

Foreign currency translation adjustment	—	—		—	—		—		—		2,674		—		2,674

Change in unrealized loss on derivatives	—	—		—	—		—		—		(387)		—		(387)

Net income	—	—		—	—		—		—		—		18,552		18,552
Issuances of common shares	1,826	—		—	—		90		—		—		—		90

Conversion of Series C Convertible Preferred shares to common shares	330	—		(800)	—		—		—		—		—		—



Stock option exercises, net	4,065	—		—	—		194		(194)		—		—		—
Dividend equivalents accrued on performance shares	—	—		—	—		—		—		—		(10)		(10)

Dividends to Series C preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(1,938)		(1,938)
Dividends to Series E preferred shareholders ($0.5625 per share)	—	—		—	—		—		—		—		(1,939)		(1,939)
Dividends to Series G preferred shareholders ($0.359375 per share)	—	—		—	—		—		—		—		(2,156)		(2,156)
Balance at June 30, 2021	82,216,474	$	822	14,840,631	$	148	$	3,868,865	$	(264,660)	$	5,265	$	(957,145)	$	2,653,295

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Six Months Ended June 30,
	2021		2020
Operating activities:
Net income (loss)	$	21,932	$	(25,847)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Impairment charges	—		51,264
Impairment charges on joint ventures	—		3,247


Gain on sale of real estate	(712)		(242)
Gain on insurance recovery	(30)		—
Deferred income tax benefit	—		(2,789)

Costs associated with loan refinancing or payoff	241		820
Equity in loss from joint ventures	2,582		2,144
Distributions from joint ventures	90		—
Credit loss (benefit) expense	(5,581)		4,676
Depreciation and amortization	80,864		86,260
Amortization of deferred financing costs	3,121		3,285
Amortization of above/below market leases and tenant allowances, net	(195)		(260)
Share-based compensation expense to management and Trustees	7,459		6,972

Change in assets and liabilities:
Operating lease assets and liabilities	(233)		560
Mortgage notes accrued interest receivable	(143)		(3,125)
Accounts receivable	24,952		(48,014)

Other assets	(6,320)		(5,273)
Accounts payable and accrued liabilities	(1,719)		(20,072)
Unearned rents and interest	14,492		3,807


Net cash provided by operating activities	140,800		57,413
Investing activities:
Acquisition of and investments in real estate and other assets	(29,702)		(28,585)
Proceeds from sale of real estate	28,635		3,839
Investment in unconsolidated joint ventures	(1,940)		—

Investment in mortgage notes receivable	(4,588)		(3,667)
Proceeds from mortgage notes receivable paydowns	7,982		94
Investment in promissory notes receivable	(4,379)		—
Proceeds from promissory note receivable paydowns	1,708		69

Proceeds from insurance recovery	30		—


Additions to properties under development	(24,512)		(24,728)



Net cash used by investing activities	(26,766)		(52,978)
Financing activities:
Proceeds from debt facilities and senior unsecured notes	—		750,000
Principal payments on debt	(613,765)		—
Deferred financing fees paid	(251)		(2,859)
Costs associated with loan refinancing or payoff (cash portion)	—		(820)
Net proceeds from issuance of common shares	198		713



Purchase of common shares for treasury for vesting	(2,744)		(6,769)
Purchase of common shares under share repurchase program	—		(105,994)

Dividends paid to shareholders	(12,068)		(160,392)


Net cash (used) provided by financing activities	(628,630)		473,879
Effect of exchange rate changes on cash	(8)		(158)
Net change in cash and cash equivalents and restricted cash	(514,604)		478,156
Cash and cash equivalents and restricted cash at beginning of the period	1,028,010		531,440
Cash and cash equivalents and restricted cash at end of the period	$	513,406	$	1,009,596
Supplemental information continued on next page.

EPR PROPERTIES

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


Continued from previous page
	Six Months Ended June 30,
	2021		2020
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of the period	$	1,025,577	$	528,763
Restricted cash at beginning of the period	2,433		2,677
Cash and cash equivalents and restricted cash at beginning of the period	$	1,028,010	$	531,440

Cash and cash equivalents at end of the period	$	509,836	$	1,006,981
Restricted cash at end of the period	3,570		2,615
Cash and cash equivalents and restricted cash at end of the period	$	513,406	$	1,009,596

Supplemental schedule of non-cash activity:
Transfer of property under development to real estate investments	$	70,784	$	20,089


Issuance of nonvested shares and restricted share units at fair value, including nonvested shares issued for payment of bonuses	$	21,921	$	19,956





Credit loss expense related to adoption of ASC Topic 326	$	—	$	2,163
Operating lease right-of-use asset and related operating lease liability recorded for new ground lease	$	22,126	$	—







Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	77,012	$	72,096
Cash paid during the period for income taxes	$	921	$	497
Interest cost capitalized	$	1,109	$	504
Change in accrued capital expenditures	$	8,017	$	(9,576)

See accompanying notes to consolidated financial statements.

EPR PROPERTIES

Notes to Consolidated Financial Statements (Unaudited)

1. Organization

Description of Business

EPR Properties (the Company) was formed on August 22, 1997 as a Maryland real estate investment trust (REIT), and an initial public offering of the Company's common shares of beneficial interest (common shares) was completed on November 18, 1997. Since that time, the Company has been a leading Experiential net lease REIT specializing in select enduring experiential properties. The Company's underwriting is centered on key industry and property cash flow criteria, as well as the credit metrics of the Company's tenants and customers. The Company’s properties are located in the United States and Canada.

2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) 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. GAAP 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 six month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Amounts as of December 31, 2020 have been derived from the audited Consolidated Financial Statements as of that date and should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (SEC) on February 25, 2021.

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 in accordance with the consolidation guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in the FASB ASC Topic on Consolidation (Topic 810) but can exercise influence over the entity with respect to its operations and major decisions.

The Company’s variable interests 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. The primary beneficiary generally is defined as the party with the controlling financial interest. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. As of June 30, 2021 and December 31, 2020, the Company does not have any investments in consolidated VIEs.

Risks and Uncertainties

The Company continues to be subject to risks and uncertainties resulting from the COVID-19 pandemic. The COVID-19 pandemic severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. In response to the COVID-19 pandemic, many jurisdictions within the United States and abroad instituted health and safety measures, including quarantines, mandated business and school closures and travel restrictions. As a result, the COVID-19 pandemic severely impacted experiential real estate properties, given that such properties involve congregate social activity and discretionary consumer spending. Although many of these health and safety measures have been lifted, the extent of the impact of the COVID-19 pandemic on the Company's business still remains highly uncertain and difficult to predict.

As of June 30, 2021, approximately 99% of the Company's theatre locations and 98% of the Company's non-theatre locations were open for business, excluding normal seasonal closings. The continuing impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the scope, severity and duration of any resurgence of the pandemic (including COVID-19 variants), the actions taken to contain the outbreak or any resurgence or mitigate their impacts, the distribution of vaccines and the efficacy of those vaccines, the ability of communities to achieve herd immunity, the public’s confidence in the health and safety measures implemented by the Company's tenants and borrowers, the continuing direct and indirect economic effects of the outbreak and containment measures, and the ability of the Company's tenants and borrowers to recover from the negative economic impacts of the pandemic as it subsides, and in many cases, service elevated levels of debt resulting from the pandemic, all of which are uncertain and cannot be predicted. During 2020 and the six months ended June 30, 2021, the COVID-19 pandemic negatively affected the Company's business, and could continue to have material adverse effects on the Company's financial condition, results of operations and cash flows.

The Company’s consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. The Company considered the continuing impact of the COVID-19 pandemic on the assumptions and estimates used in determining the Company’s financial condition and results of operations for the six months ended June 30, 2021. The following were impacts to the Company's financial statements and business during the six months ended June 30, 2021 arising out of or relating to the COVID-19 pandemic:

•The Company continued to recognize revenue on a cash basis for certain tenants including American-Multi Cinema, Inc. (AMC) and Regal, a subsidiary of Cineworld Group.

•The Company reduced rental revenue by $7.2 million due to rent abatements.

•The Company has deferred approximately $50.0 million of amounts due from tenants and $1.9 million due from borrowers that were booked as receivables as of June 30, 2021. Additionally, the Company has amounts due from tenants that were not booked as receivables because the full amounts were not deemed probable of collection as a result of the COVID-19 pandemic. The amounts not booked as receivables remain obligations of the tenants and will be recognized as revenue when received. During the six months ended June 30, 2021, the Company collected $2.4 million in deferred rent from cash basis tenants and from tenants for which the deferred payments were not previously recognized as revenue. In addition, the Company collected $45.9 million of deferred rent and interest from accrual basis tenants and borrowers that reduced related accounts and interest receivable. The repayment terms for all of these deferments vary by tenant or borrowers.

•As of June 30, 2021, the Company continued to be in the Covenant Relief Period under the agreement that governs its unsecured revolving credit facility and its unsecured term loan facility (Consolidated Credit Agreement) and the agreement that governs its private placement notes (Note Purchase Agreement). During the Covenant Relief Period, the Company's obligation to comply with certain covenants under these agreements was waived in light of the uncertainty related to impacts of the COVID-19 pandemic on the Company and its tenants and borrowers. The Company paid higher interest costs during the Covenant Relief Period. The Consolidated Credit Agreement and Note Purchase Agreement also imposed additional restrictions on the Company during the Covenant Relief Period, including limitations on making investments, incurring indebtedness, making capital expenditures, paying dividends or making other distributions, repurchasing the Company's shares, voluntarily prepaying certain indebtedness, encumbering certain assets and maintaining a minimum liquidity amount, in each case subject to certain exceptions. The term "Covenant Relief Period," as used in this Quarterly Report on Form 10-Q, generally means the period of time beginning on June 29, 2020 and ending on (i) December 31, 2021, in the case of the Company's Consolidated Credit Agreement, or (ii) October 1, 2021 (subject to extension to January 1, 2022 at the Company's election, subject to certain conditions), in the case of the Company's Note Purchase Agreement governing its private placement notes. The Company had the right under certain circumstances to terminate the Covenant Relief Period earlier, which it exercised subsequent to June 30, 2021 as discussed below.

•In connection with amending the Company's Consolidated Credit Agreement and Note Purchase Agreement to provide for the Covenant Relief Period discussed above, certain of the Company's key subsidiaries guaranteed the Company's obligations based on the Company's unsecured debt ratings. If the

Company's unsecured debt rating had been further downgraded by Moody's during the Covenant Relief Period, the Company would have been required to pledge the equity interests in certain subsidiary guarantors to secure its obligations under its unsecured credit facilities and private placement notes. Effective July 13, 2021, upon termination of the Covenant Relief Period as discussed below, the Company was released from this obligation to pledge such equity interests.

•Due to improved financial performance during the three months ended June 30, 2021, on July 12, 2021, the Company provided notice of its election to terminate the Covenant Relief Period early and submitted compliance certificates for the quarter ended June 30, 2021 for its Consolidated Credit Agreement and Note Purchase Agreement. The certificates provided that the Company was in compliance with all of its financial and other covenants, and would have been even if the Covenant Relief Period had not been in effect during the quarter ended June 30, 2021. The Company’s election to terminate the Covenant Relief Period early means that, effective July 13, 2021, the interest rates on the debt governed by these agreements returned to the previous levels defined in the agreements, in each case based on the Company's unsecured debt ratings. By terminating the Covenant Relief Period, the Company was also released from certain restrictions under these agreements, including restrictions on investments, capital expenditures, incurrences of indebtedness and payment of dividends. See Note 7 for additional information on interest rates during and after the Covenant Relief Period.

The monthly cash dividends to common shareholders were temporarily suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. On July 13, 2021, following termination of the Covenant Relief Period, the Company declared a monthly cash dividend of $0.25 per common share payable on August 16, 2021 to shareholders of record on July 30, 2021.

Reportable Segments

The Company has two reportable operating segments: Experiential and Education. The Experiential segment includes the following property types: theatres, eat & play (including seven theatres located in entertainment districts), attractions, ski, experiential lodging, gaming, cultural and fitness & wellness. The Education segment includes the following property types: early childhood education centers and private schools. See Note 14 for financial information related to these reportable segments.

Real Estate Investments

Real estate investments are carried at initial recorded value 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 years to 40 years for buildings, three years to 25 years for furniture, fixtures and equipment and 10 years to 20 years for site improvements. Tenant improvements, including allowances, are depreciated over the shorter of the lease term or the estimated useful life and leasehold interests are depreciated over the useful life of the underlying ground lease.

Management reviews the Company's real estate investments, including operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable, which 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 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 and are generally classified as held for sale once management has initiated an active program to market them for sale and it is probable the assets will be sold within one year. On occasion, the Company will receive unsolicited offers from third parties to buy individual Company owned 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.

Real Estate Acquisitions

Upon acquisition of real estate properties, the Company evaluates the acquisition to determine if it is a business combination or an asset acquisition. If the acquisition is determined to be an asset acquisition, the Company records the purchase price and other related costs incurred to the acquired tangible assets and identified intangible assets and liabilities on a relative fair value basis. In addition, costs incurred for asset acquisitions, including transaction costs, are capitalized.

If the acquisition is determined to be a business combination, the Company records the fair value of acquired tangible assets and identified intangible assets and liabilities as well as any noncontrolling interest. Acquisition-related costs in connection with business combinations are expensed as incurred and included in "Transaction costs" in the accompanying consolidated statements of income (loss) and comprehensive income (loss).

For real estate acquisitions (asset acquisitions or business combinations), the fair value (or relative fair value in an asset acquisition) of the tangible assets is determined by valuing the property using recent independent appraisals or methods similar to those used by independent appraisers. Land is valued using the sales comparison approach which uses available market data from recent comparable land sales as an input to estimate the fair value. Site improvements and tenant improvements are valued using the cost approach which uses replacement cost data obtained from industry recognized guides less depreciation as an input to estimate the fair value. The building is valued either using the cost approach described above or a combination of the cost and the income approach. The income approach uses market leasing assumptions to estimate the fair value of the property as if vacant. The cost and income approaches are reconciled to arrive at an estimated building fair value.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations or mortgage note receivable as applicable. Deferred financing costs of $34.7 million and $35.6 million as of June 30, 2021 and December 31, 2020, respectively, are shown as a reduction of debt. The deferred financing costs of $2.7 million and $4.8 million as of June 30, 2021 and December 31, 2020, respectively, related to the unsecured revolving credit facility are included in "Other assets" in the accompanying consolidated balance sheets.

Rental Revenue

The Company leases real estate to its tenants under leases that are classified as operating leases. The Company's leases generally provide for rent escalations throughout the lease terms. Rents that are fixed are recognized on a straight-line basis over the lease term. Base rent escalations that include a variable component are recognized upon the occurrence of the specified event as defined in the Company's lease agreements. Many of the Company's leasing arrangements include options to extend the lease, which are not included in the minimum lease terms unless it is reasonably certain to be exercised. Straight-line rental revenue is subject to an evaluation for collectibility, and the Company records a direct write-off against rental revenue if collectibility of these future rents is not probable. For the six months ended June 30, 2021, the Company recognized $2.7 million of straight-line rental revenue. For the six months ended June 30, 2020, the Company recognized straight-line write-offs totaling $13.0 million, which were comprised of $5.0 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable. Straight-line rental revenue, net of write-offs, was a reduction to total rental revenue of $7.5 million for the six months ended June 30, 2020. There were no straight-line write-offs for the six months ended June 30, 2021.

The Company has agreed to defer rent for a substantial portion of its customers in response to the impact of the COVID-19 pandemic on their operations. On April 10, 2020, the FASB issued a Staff Q&A on Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. In reliance upon the FASB Staff Q&A, the Company has not treated qualifying deferrals or rent concessions during the period affected by the COVID-19 pandemic as lease modifications. While deferments for this and future periods delay rent payments, these deferments generally do not release customers from the obligation to pay the deferred amounts in the future. Deferred rent amounts are reflected in the Company's financial statements as accounts receivable if collection is determined to be probable or recognized when received as variable lease payments if collection is determined to not be probable. Certain agreements with tenants where remaining lease terms are extended, or other changes are made that do not qualify for the treatment in the FASB Staff Q&A, are treated as lease modifications. In

these circumstances, upon an executed lease modification, if the tenant is not being recognized on a cash basis, the contractual rent reflected in accounts receivable and straight-line rent receivable will be amortized over the remaining term of the lease against rental revenue. In limited cases, customers may be entitled to the abatement of rent during governmentally imposed prohibitions on business operations which is recognized in the period to which the abatement relates, or the Company may provide rent concessions to tenants. In cases where the Company provides concessions to tenants to which they are not otherwise entitled, those amounts will be recognized in the period in which the concession is granted unless the changes are accounted for as lease modifications.

Most of the Company’s lease contracts are triple-net leases, which require the tenants to make payments to third parties for lessor costs (such as property taxes and insurance) associated with the properties. In accordance with Topic 842, the Company does not include these lessee payments to third parties in rental revenue or property operating expenses. In certain situations, the Company pays these lessor costs directly to third parties and the tenants reimburse the Company. In accordance with Topic 842, these payments are presented on a gross basis in rental revenue and property operating expense. During the six months ended June 30, 2021 and 2020, the Company recognized $1.9 million and $0.9 million, respectively, in tenant reimbursements related to the gross up of these reimbursed expenses which are included in rental revenue.

Certain of the Company's leases, particularly at its entertainment districts, require the tenants to make payments to the Company for property-related expenses such as common area maintenance. The Company has elected to combine these non-lease components with the lease components in rental revenue. For the six months ended June 30, 2021 and 2020, the non-lease components included in rental revenue totaled $7.9 million and $7.0 million, respectively.

In addition, most of the Company's tenants are subject to additional rents (above base rents) if gross revenues of the properties exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents are recognized at the time when specific triggering events occur as provided by the lease agreement. Rental revenue included percentage rents of $4.0 million and $4.2 million for the six months ended June 30, 2021 and 2020, respectively. Furthermore, due to the impact of the COVID-19 pandemic, certain of the Company's tenants paid a portion of base rent in 2021 based on a percentage of gross revenue. This variable rent totaled $1.1 million for the six months ended June 30, 2021.

The Company regularly evaluates the collectibility of its receivables on a lease-by-lease basis. The evaluation primarily consists of reviewing past due account balances and considering such factors as the credit quality of the Company's tenants, historical trends of the tenant, current economic conditions and changes in customer payment terms. When the collectibility of lease receivables or future lease payments are no longer probable, the Company records a direct write-off of the receivable to rental revenue and recognizes future rental revenue on a cash basis.

Property Sales

Sales of real estate properties are recognized when a contract exists and the purchaser has obtained control of the property. Gains on sales of properties are recognized in full in a partial sale of nonfinancial assets, to the extent control is not retained. Any noncontrolling interest retained by the seller would, accordingly, be measured at fair value.

The Company evaluates each sale or disposal transaction to determine if it meets the criteria to qualify as discontinued operations. A discontinued operation is a component of an entity or group of components that have been disposed of or are classified as held for sale and represent a strategic shift that has or will have a major effect on the Company's operations and financial results. If the sale or disposal transaction does not meet the criteria, the operations and related gain or loss on sale is included in income from continuing operations.

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 less allowance for credit loss.

Interest income is recognized using the effective interest method over the estimated life of the note. Interest income includes both the stated interest and the amortization or accretion of premiums or discounts (if any).

In accordance with ASC Topic 326, Measurement of Credit Losses on Financial Instruments, the Company records allowance for credit loss to reflect that all mortgage notes and notes receivable have some inherent risk of loss regardless of credit quality, collateral, or other mitigating factors. While Topic 326 does not require any particular method for determining the reserves, it does specify that it should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, as well as reasonable and supportable forecasts for the term of each mortgage note or note receivable. The Company uses a forward looking commercial real estate forecasting tool to estimate its current expected credit losses (CECL) for each of its mortgage notes and notes receivable on a loan by loan basis. The CECL allowance required by Topic 326 is a valuation account that is deducted from the related mortgage note or note receivable.

Certain of the Company’s mortgage notes and notes receivable include commitments to fund incremental amounts to its borrowers. These future funding commitments are also subject to the CECL model. The allowance related to future funding is recorded as a liability and is included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheet.

As permitted under Topic 326, the Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables related to its mortgage notes and notes receivable. Accordingly, if accrued interest receivable is deemed to be uncollectible, the Company will record any necessary write-offs as a reversal of interest income. As of June 30, 2021, the Company believes that all outstanding accrued interest is collectible.

In the event the Company has a past due mortgage note or note receivable and the Company determines it is collateral dependent, the Company measures expected credit losses based on the fair value of the collateral. The Company evaluates the collectability of both interest and principal for each of its mortgage notes and notes receivable on a quarterly basis to determine if foreclosure is probable. As of June 30, 2021, the Company does not have any mortgage notes or notes receivable with past due principal balances.

Mortgage and Other Financing Income

Certain of the Company's borrowers are subject to additional interest based on certain thresholds defined in the mortgage agreements (participating interest). Participating interest income is recognized at the time when specific parameters have been met as provided by the mortgage agreement. There was no participating interest income for the six months ended June 30, 2021 and 2020.

Concentrations of Risk

AMC, Topgolf USA (Topgolf) and Regal represented a significant portion of the Company's total revenue for the six months ended June 30, 2021 and 2020. The Company began recognizing revenue on a cash basis for AMC at the end of the first quarter of 2020 and for Regal at the end of the third quarter of 2020 and cash payments have been reduced due to the impact of the COVID-19 pandemic. The following is a summary of the Company's total revenue derived from rental or interest payments from AMC, Topgolf and Regal (dollars in thousands):


	Six Months Ended June 30,
	2021				2020
	Total Revenue		% of Company's Total Revenue		Total Revenue		% of Company's Total Revenue
AMC	$	47,625	20.1	%	$	22,144	8.6	%
Topgolf	41,896		17.7	%	40,129		15.6	%
Regal	11,762		5.0	%	39,099		15.2	%

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 and share-based compensation to non-employee Trustees of the Company is granted pursuant to the Company's Trustee compensation program.

Share-based compensation expense consists of share option expense and amortization of non-vested share grants issued to employees, and amortization of share units issued to non-employee Trustees for payment of their annual retainers. Share-based compensation is included in "General and administrative expense" in the accompanying consolidated statements of income (loss) and comprehensive income (loss).

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 (loss) and comprehensive income (loss) was $9 thousand and $6 thousand for the six months ended June 30, 2021 and 2020, respectively.

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 years or four years). Expense recognized related to nonvested shares and included in "General and administrative expense" in the accompanying consolidated statements of income (loss) and comprehensive income (loss) was $4.4 million and $5.4 million for the six months ended June 30, 2021 and 2020, respectively.

Nonvested Performance Shares Issued to Employees

The Company awards performance shares to the Company's executive officers pursuant to the Long-Term Incentive Plan. The performance shares contain both a market condition and a performance condition. The Company amortizes the expense related to the performance shares over the future vesting period of three years. Expense recognized related to performance shares and included in "General and administrative expense" in the accompanying consolidated statements of income (loss) and comprehensive income (loss) was $1.9 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.

Restricted Share Units Issued to Non-Employee Trustees

The Company issues restricted share units to non-employee Trustees for payment of their annual retainers under the Company's Trustee compensation program. 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 and included in "General and administrative expense" in the accompanying consolidated statements of income (loss) and comprehensive income (loss) was $1.2 million and $1.0 million for the six months ended June 30, 2021 and 2020, respectively.

Derivative Instruments

The Company uses derivative instruments to reduce exposure to fluctuations in foreign currency exchange rates and variable interest rates.

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 foreign currency risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. 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 hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. For its net investment hedges that hedge the foreign currency exposure of its Canadian investments, the Company has elected to assess hedge effectiveness using a method based on changes in spot exchange rates and record the changes in the fair value amounts excluded from the assessment of effectiveness into earnings on a systematic and rational basis. 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. If hedge accounting is not applied, realized and unrealized gains or losses are reported in earnings.

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.

Impact of Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. On March 5, 2021, the Financial Conduct Authority ("FCA") announced that the USD LIBOR will no longer be published after June 30, 2023. At June 30, 2021, the Company had 11 agreements (including debt, derivative, mortgage note and lease agreements) that are indexed to LIBOR, of which five mature prior to June 30, 2023. The Company is monitoring and evaluating the related risks with transitioning these contracts to a replacement index.

3. Real Estate Investments

The following table summarizes the carrying amounts of real estate investments as of June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Buildings and improvements	$	4,574,556	$	4,526,342
Furniture, fixtures & equipment	119,567		118,334
Land	1,244,221		1,242,663
Leasehold interests	26,717		26,050
	5,965,061		5,913,389
Accumulated depreciation	(1,130,409)		(1,062,087)
Total	$	4,834,652	$	4,851,302

Depreciation expense on real estate investments was $78.0 million and $81.6 million for the six months ended June 30, 2021 and 2020, respectively.

4. Investments and Dispositions

The Company's investment spending during the six months ended June 30, 2021 totaled $68.6 million, and included the acquisition of one eat and play property for approximately $26.7 million as well as spending on build-to-suit development and redevelopment projects.

During the six months ended June 30, 2021, the Company completed the sale of two theatre properties and one outparcel for net proceeds totaling $28.6 million and recognized a combined gain on sale of $0.7 million.

5. Investment in Mortgage Notes and Notes Receivable

The Company measures expected credit losses on its mortgage notes and notes receivable on an individual basis over the related contractual term as its financial instruments do not have similar risk characteristics. The Company has not experienced historical losses on its mortgage note portfolio; therefore, the Company uses a forward looking commercial real estate loss forecasting tool to estimate its expected credit losses. The loss forecasting tool is comprised of a probability of default model and a loss given default model that utilizes the Company’s loan specific inputs as well as selected forward looking macroeconomic variables and mean loss rates. Based on certain inputs, such as origination year, balance, interest rate as well as collateral value and borrower operating income, the model produces life of loan expected losses on a loan by loan basis. As of June 30, 2021, the Company did not anticipate any prepayments therefore the contractual term of its mortgage notes was used for the calculation of the expected credit losses. The Company updates the model inputs at each reporting period to reflect, if applicable, any newly originated loans, changes to loan specific information on existing loans and current macroeconomic conditions.

Investment in mortgage notes, including related accrued interest receivable, at June 30, 2021 and December 31, 2020 consists of the following (in thousands):


					Outstanding principal amount of mortgage		Carrying amount as of				Unfunded commitments
Description	Year of Origination	Interest Rate		Maturity Date			June 30, 2021		December 31, 2020		June 30, 2021
Private school property Mableton, Georgia (1)	2017	9.02	%	Prepaid in full	$	—	$	—	$	5,278	$	—
Attraction property Powells Point, North Carolina	2019	7.75	%	6/30/2025	28,349		27,699		27,045		—
Fitness & wellness property Omaha, Nebraska	2017	7.85	%	1/3/2027	10,905		11,272		11,225		—
Fitness & wellness property Merriam, Kansas	2019	7.55	%	7/31/2029	9,090		9,387		9,355		—
Ski property Girdwood, Alaska	2019	8.23	%	12/31/2029	41,852		42,018		40,680		15,148
Fitness & wellness property Omaha, Nebraska	2016	7.85	%	6/30/2030	10,210		10,462		8,630		708
Experiential lodging property Nashville, Tennessee	2019	7.01	%	9/30/2031	71,223		70,181		67,235		—
Eat & play property Austin, Texas	2012	11.31	%	6/1/2033	11,039		11,235		11,929		—
Ski property West Dover and Wilmington, Vermont	2007	11.96	%	12/1/2034	51,050		51,044		51,031		—
Four ski properties Ohio and Pennsylvania	2007	10.91	%	12/1/2034	37,562		37,491		37,413		—
Ski property Chesterland, Ohio	2012	11.38	%	12/1/2034	4,550		4,500		4,396		—
Ski property Hunter, New York	2016	8.72	%	1/5/2036	21,000		21,000		21,000		—
Eat & play property Midvale, Utah	2015	10.25	%	5/31/2036	17,505		17,781		18,289		—
Eat & play property West Chester, Ohio	2015	9.75	%	8/1/2036	18,068		18,335		18,830		—
Fitness & wellness property Fort Collins, Colorado	2018	7.85	%	1/31/2038	10,292		10,538		10,408		—
Early childhood education center Lake Mary, Florida	2019	7.98	%	5/9/2039	4,200		4,326		4,348		—
Eat & play property Eugene, Oregon	2019	8.13	%	6/17/2039	14,700		14,799		14,799		—
Early childhood education center Lithia, Florida	2017	8.42	%	10/31/2039	3,959		3,996		3,737		—
					$	365,554	$	366,064	$	365,628	$	15,856

(1) On March 22, 2021, the Company received $5.1 million in proceeds representing prepayment in full on a mortgage note receivable that was secured by a private school property in Mableton, Georgia. No prepayment fee was received in connection with this note payoff.

Investment in notes receivable, including related accrued interest receivable, was $7.3 million at both June 30, 2021 and December 31, 2020, and is included in "Other assets" in the accompanying consolidated balance sheets.

During the year ended December 31, 2020, the Company entered into an amended and restated loan and security agreement with one of its notes receivable borrowers in response to the impacts of the COVID-19 pandemic. Although the borrower was not in default, nor has the borrower declared bankruptcy, the Company determined these modifications resulted in a troubled debt restructuring. At June 30, 2021, these note receivables are considered collateral dependent and expected credit losses are based on the fair value of the underlying collateral at the reporting date. The notes are secured by the working capital and non-real estate assets of the borrower. The Company assessed the fair value of the collateral as of June 30, 2021 and the notes remain fully reserved with an allowance for credit loss totaling $24.0 million, which consists of the outstanding principal balance of $15.5 million and the $8.5 million unfunded commitment on the term loan and line of credit as of June 30, 2021. Income for this borrower is recognized on a cash basis.

The following summarizes the activity within the allowance for credit losses related to mortgage notes, unfunded commitments and notes receivable for the six months ended June 30, 2021 (in thousands):


	Mortgage notes receivable		Unfunded commitments		Notes receivable		Unfunded commitments - notes receivable		Total
Allowance for credit losses at December 31, 2020	$	7,000	$	138	$	12,854	$	12,866	$	32,858
Credit loss (benefit) expense	(3,886)		(48)		2,732		(4,379)		(5,581)
Charge-offs	—		—		—		—		—
Recoveries	—		—		—		—		—
Allowance for credit losses at June 30, 2021	$	3,114	$	90	$	15,586	$	8,487	$	27,277

6. Accounts Receivable

The following table summarizes the carrying amounts of accounts receivable as of June 30, 2021 and December 31, 2020 (in thousands):


	June 30, 2021		December 31, 2020
Receivable from tenants	$	53,984	$	81,120
Receivable from non-tenants	510		505



Straight-line rent receivable	36,825		34,568

Total	$	91,319	$	116,193

As of June 30, 2021, receivable from tenants includes rent payments of approximately $50.0 million that were deferred due to the COVID-19 pandemic and determined to be collectible. Additionally, the Company has amounts due from tenants that were not booked as receivables as the full amounts were not deemed probable of collection as a result of COVID-19 pandemic. While deferments for this and future periods delay rent payments, these deferments do not release tenants from the obligation to pay the deferred amounts in the future. During the six months ended June 30, 2021, the Company collected $2.4 million in deferred rent from cash basis tenants and from tenants for which the deferred payments were not previously recognized as revenue. In addition, during the six months ended June 30, 2021, the Company collected $45.9 million of deferred rent and interest from accrual basis tenants and borrowers that reduced related accounts and interest receivable. The repayment terms for these deferments vary by tenant.

7. Capital Markets and Dividends

During the three and six months ended June 30, 2021, the Board declared cash dividends of $0.359375 and $0.71875 per share, respectively, on both its 5.75% Series C cumulative convertible preferred shares and its 5.75% Series G cumulative redeemable preferred shares and $0.5625 and $1.125 per share, respectively, on its 9.00% Series E cumulative convertible preferred shares.

The monthly cash dividend to common shareholders was temporarily suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. On July 13, 2021, following termination of the Covenant Relief Period, the Company declared a monthly cash dividend of $0.25 per common share payable on August 16, 2021 to shareholders of record on July 30, 2021.

During the year ended December 31, 2020, the Company amended the Consolidated Credit Agreement and the Note Purchase Agreement to modify certain provisions and waive its obligations to comply with certain covenants under these agreements. During the Covenant Relief Period, the Company's obligation to comply with certain covenants under these agreements was waived in light of the uncertainty related to impacts of the COVID-19 pandemic on the Company and its tenants and borrowers. The Company paid higher interest costs during the Covenant Relief Period and the interest rates on the revolving credit facility and term loan facilities both during and after the Covenant Relief Period are dependent on the Company's unsecured debt ratings. At June 30, 2021, the revolving credit facility had interest at a floating rate of LIBOR plus 1.625% (with a LIBOR floor of 0.50%), which was 2.125% with a facility fee of 0.375% and the unsecured term loan facility had interest at a floating rate of LIBOR plus 2.00% (with a LIBOR floor of 0.50%), which was 2.50%. Additionally at June 30, 2021, the interest rates for the private placement notes were 5.60% and 5.81% for the Series A notes due 2024 and the Series B notes due 2026, respectively.

The amendments to the Consolidated Credit Agreement and Note Purchase Agreement also imposed additional restrictions on the Company during the Covenant Relief Period, including limitations on making investments, incurring indebtedness, making capital expenditures, paying dividends or making other distributions, repurchasing the Company's shares, voluntarily prepaying certain indebtedness, encumbering certain assets and maintaining a minimum liquidity amount, in each case subject to certain exceptions. The Company had the right under certain circumstances to terminate the Covenant Relief Period earlier, which it exercised subsequent to June 30, 2021 as discussed below. Effective July 13, 2021, upon termination of the Covenant Relief Period as discussed below, the Company was released from these restrictions. In connection with the loan amendments discussed above, certain of the Company's key subsidiaries guaranteed the Company's obligations based on the Company's unsecured debt ratings. If the Company's unsecured debt rating had been further downgraded by Moody's during the Covenant Relief Period, the Company would have been required to pledge the equity interests in certain subsidiary guarantors to secure its obligations under its unsecured credit facilities and private placement notes. Effective July 13, 2021, upon termination of the Covenant Relief Period as discussed below, the Company was released from this obligation to pledge such equity interests.

On July 12, 2021, the Company provided notice of its election to terminate the Covenant Relief Period early and submitted compliance certificates for the quarter ended June 30, 2021 for its Consolidated Credit Agreement and Note Purchase Agreement. The certificates provided that the Company was in compliance with all of its financial and other covenants, and would have been if the Covenant Relief Period had not been in effect during the quarter ended June 30, 2021. As a result of this election, effective July 13, 2021, the interest rates for the revolving credit and term loan facilities, based on the Company's unsecured debt ratings, returned to LIBOR plus 1.20% and LIBOR plus 1.35%, respectively, (both with a LIBOR floor of zero) and the facility fee on the revolving credit facility was reduced to 0.25%. Additionally, the interest rates for the private placement notes returned to 4.35% and 4.56% for the Series A notes and the Series B notes, respectively.

During the six months ended June 30, 2021, the Company paid off the balance of $590.0 million on its unsecured revolving credit facility. In addition, the Company paid down principal of approximately $23.8 million on its private placement notes resulting from the sale of assets in accordance with the amendments.

8. Unconsolidated Real Estate Joint Ventures

As of June 30, 2021 and December 31, 2020, the Company had a 65% investment interest in two unconsolidated real estate joint ventures related to two experiential lodging properties located in St. Petersburg Beach, Florida. The Company's partner, Gencom Acquisition, LLC and its affiliates, own the remaining 35% interest in the joint ventures. There are two separate joint ventures, one that holds the investment in the real estate of the experiential lodging properties and the other that holds lodging operations, which are facilitated by a management agreement with an eligible independent contractor. The Company's investment in the operating entity is held in a taxable REIT subsidiary (TRS). The Company accounts for its investment in these joint ventures under the equity method of accounting. As of June 30, 2021 and December 31, 2020, the Company had equity investments of $26.8 million and $27.4 million, respectively, in these joint ventures.

The joint venture that holds the real property has a secured mortgage loan of $85.0 million at June 30, 2021, that is due April 1, 2022. The note can be extended for two additional one-year periods upon the satisfaction of certain conditions. Additionally, the Company has guaranteed the completion of the renovations in the amount of approximately $34.8 million, with $10.3 million remaining to fund at June 30, 2021. The mortgage loan bears interest at an annual rate equal to the greater of 6.00% or LIBOR plus 3.75%. Interest is payable monthly beginning on May 1, 2019 until the stated maturity date of April 1, 2022, which can be extended to April 1, 2023. The joint venture has an interest rate cap agreement to limit the variable portion of the interest rate (LIBOR) on this note to 3.0% from March 28, 2019 to April 1, 2023.

The Company recognized losses of $2.6 million and $1.6 million during the six months ended June 30, 2021 and 2020, respectively, and received no distributions during the six months ended June 30, 2021 and 2020 related to the equity investments in these joint ventures.

As of June 30, 2021 and December 31, 2020, the Company's investments in these joint ventures were considered to be variable interests and the underlying entities are VIEs. The Company is not the primary beneficiary of the VIEs as the Company does not individually have the power to direct the activities that are most important to the joint ventures and accordingly these investments are not consolidated. The Company's maximum exposure to loss at June 30, 2021, is its investment in the joint ventures of $26.8 million as well as the Company's guarantee of the estimated costs to complete renovations of approximately $10.3 million.

In addition, as of June 30, 2021 and December 31, 2020, the Company had equity investments of $0.7 million and $0.8 million, respectively, in unconsolidated joint ventures for three theatre projects located in China. During the six months ended June 30, 2020, the Company recognized $3.2 million in other-than-temporary impairment charges on these equity investments. The Company determined the estimated fair value of these investments using Level 3 inputs, based primarily on discounted cash flow projections. The Company recognized income of $10 thousand and losses of $590 thousand during the six months ended June 30, 2021 and 2020, respectively, and received distributions of $90 thousand from its investment in these joint ventures for the six months ended June 30, 2021. No distributions were received during the six months ended June 30, 2020.

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 has elected not to offset its derivative position for purposes of balance sheet presentation and disclosure. The Company had no derivative assets at June 30, 2021 and December 31, 2020. The Company had derivative liabilities of $13.9 million and $14.0 million at June 30, 2021 and December 31, 2020, respectively. The Company has not posted or received collateral with its derivative counterparties as of June 30, 2021 or December 31, 2020. See Note 10 for disclosures relating to the fair value of the derivative instruments.

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 on foreign currency transactions 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 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 uses interest rate swaps as its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt or payment of variable-rate amounts from a counterparty which results in the Company recording net interest expense that is fixed over the life of the agreements without exchange of the underlying notional amount.

As of June 30, 2021, the Company had four interest rate swap agreements designated as cash flow hedges of interest rate risk related to its variable rate unsecured term loan facility totaling $400.0 million. Additionally, at June 30, 2021, the Company had an interest rate swap agreement designated as a cash flow hedge of interest rate risk related to its variable rate secured bonds totaling $25.0 million. Interest rate swap agreements outstanding as of June 30, 2021 are summarized below:


Fixed rate		Notional Amount (in millions)		Index	Maturity
4.3950%	(1)	$	116.7	USD LIBOR	February 7, 2022
4.4075%	(1)	116.7		USD LIBOR	February 7, 2022
4.4080%	(1)	116.6		USD LIBOR	February 7, 2022
4.5950%	(1)	50.0		USD LIBOR	February 7, 2022
Total		$	400.0

1.3925%		25.0		USD LIBOR	September 30, 2024
Total		$	25.0

(1) On June 29, 2020 and November 3, 2020, the Company amended its Consolidated Credit Agreement. The above fixed rates reflect a 1.00% increase during the Covenant Relief Period, which includes the impact of a 0.50% LIBOR floor that was established, plus another 0.25% increase as a result of the Company's unsecured debt ratings being downgraded. On July 12, 2021, the Company delivered notice under its Consolidated Credit Agreement and Note Purchase Agreement of its election to terminate the Covenant Relief Period early. Effective July 13, 2021, the rates above returned to previous levels as defined in the agreements, subject to the Company's unsecured debt ratings.

The change 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 within the same income statement line item as the earnings effect of the hedged transaction.

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 June 30, 2021, the Company estimates that during the twelve months ending June 30, 2022, $5.2 million of losses 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 CAD denominated cash flow from its four Canadian properties. The Company uses cross-currency swaps to mitigate its exposure to fluctuations in the USD-CAD exchange rate on cash inflows associated with these properties which should hedge a significant portion of the Company's expected CAD denominated cash flows.

The Company entered into three USD-CAD cross-currency swaps that were effective July 1, 2020 with a fixed original notional value of $100.0 million CAD and $76.6 million USD. The net effect of these swaps is to lock in an

exchange rate of $1.31 CAD per USD on approximately $7.2 million annual CAD denominated cash flows through June 2022.

The change 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 within the same income statement line item as the earnings effect of the hedged transaction. As of June 30, 2021, the Company estimates that during the twelve months ending June 30, 2022, $0.3 million of losses will be reclassified from AOCI to other expense.

Net Investment Hedges

The Company is exposed to fluctuations in the USD-CAD exchange rate on its net investments in Canada. As such, the Company uses either currency forward agreements or cross-currency swaps to manage its exposure to changes in foreign exchange rates on certain of its foreign net investments. As of June 30, 2021, the Company had the following cross-currency swaps designated as net investment hedges:

Fixed rate

Notional Amount (in millions, CAD)

Maturity

$1.32 CAD per USD

100.0

July 1, 2023

$1.32 CAD per USD

100.0

July 1, 2023

Total

200.0

The cross-currency swaps also have a monthly settlement feature locked in at an exchange rate of $1.32 CAD per USD on $4.5 million of CAD annual cash flows, the net effect of which is an excluded component from the effectiveness testing of this hedge.

For qualifying foreign currency derivatives designated as net investment hedges, the change in the fair value of the derivatives are reported in AOCI as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company's accounting policy election. The earnings recognition of excluded components are presented in other income.

Below is a summary of the effect of derivative instruments on the consolidated statements of changes in equity and income for the three and six months ended June 30, 2021 and 2020.

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020

(Dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
Description	2021		2020		2021		2020
Cash Flow Hedges
Interest Rate Swaps
Amount of (Loss) Gain Recognized in AOCI on Derivative	$	(130)	$	(1,031)	$	129	$	(11,673)
Amount of Expense Reclassified from AOCI into Earnings (1)	(2,079)		(1,601)		(4,112)		(2,066)
Cross-Currency Swaps
Amount of (Loss) Gain Recognized in AOCI on Derivative	(121)		(472)		(214)		667
Amount of (Expense) Income Reclassified from AOCI into Earnings (2)	(99)		236		(148)		442

Net Investment Hedges
Cross-Currency Swaps
Amount of (Loss) Gain Recognized in AOCI on Derivative	(2,314)		(6,188)		(4,100)		6,987
Amount of Income Recognized in Earnings (2) (3)	71		172		173		334




Total
Amount of Loss Recognized in AOCI on Derivatives	$	(2,565)	$	(7,691)	$	(4,185)	$	(4,019)
Amount of Expense Reclassified from AOCI into Earnings	(2,178)		(1,365)		(4,260)		(1,624)
Amount of Income Recognized in Earnings	71		172		173		334

Interest expense, net in accompanying consolidated statements of income (loss) and comprehensive income (loss)	$	38,312	$	38,340	$	77,506	$	73,093
Other income in accompanying consolidated statements of income (loss) and comprehensive income (loss)	$	1,033	$	416	$	1,711	$	7,989

(1) Included in "Interest expense, net" in the accompanying consolidated statements of income (loss) and comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020.

(2) Included in "Other income" in the accompanying consolidated statements of income (loss) and comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020.

(3) Amounts represent derivative gains excluded from the effectiveness testing.

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 $50.0 million and such default is not waived or cured within a specified period of time, including default where repayment of the 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 June 30, 2021, the fair value of the Company's derivatives in a liability position related to these agreements was $13.9 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 $14.7 million. As of June 30, 2021, the Company had not posted any collateral related to these agreements and was not in breach of any provisions in these agreements.

10. Fair Value Disclosures

The Company has certain financial instruments that are required to be measured under the FASB’s Fair Value Measurement 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 Measurement 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 value of interest rate swaps is 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 June 30, 2021, 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 liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 aggregated by the level in the fair value hierarchy within which those measurements are classified and by derivative type.

Liabilities Measured at Fair Value on a Recurring Basis at

June 30, 2021 and December 31, 2020

(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)		Balance at end of period
June 30, 2021

Cross-Currency Swaps*	$	—	$	(8,437)	$	—	$	(8,437)


Interest Rate Swap Agreements*	—		(5,482)		—		(5,482)
December 31, 2020

Cross-Currency Swaps*	—		(4,271)		—		(4,271)


Interest Rate Swap Agreements*	—		(9,723)		—		(9,723)

* Included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheets.

Non-recurring fair value measurements

There were no assets measured at fair value on a non-recurring basis as of June 30, 2021. The table below presents the Company's assets measured at fair value on a non-recurring basis as of December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets Measured at Fair Value on a Non-Recurring Basis at December 31, 2020

(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)		Balance at end of period
December 31, 2020:
Real estate investments, net	$	—	$	29,684	$	9,860	$	39,544
Operating lease right-of-use assets	—		—		12,953		12,953
Investment in joint ventures	—		—		771		771
Other assets (1)	—		—		—		—

(1) Includes collateral dependent notes receivable, which are presented within "Other assets" in the accompanying consolidated balance sheet.

During the year ended December 31, 2020, the Company recorded impairment charges related to real estate investments, net and operating lease right-of-use assets. Management estimated the fair value of these investments taking into account various factors including purchase offers, independent appraisals, shortened hold periods and market conditions. The Company determined, based on the inputs, that its valuation of six of its properties with purchase offers were classified within Level 2 of the fair value hierarchy and were measured at fair value. Three properties, two of which included operating lease right-of-use assets, were measured at fair value using independent appraisals which used discounted cash flow models. These measurements were classified within Level 3 of the fair value hierarchy as many of the assumptions were not observable.

During the year ended December 31, 2020, the Company recorded impairment charges related to its investment in joint ventures. Management estimated the fair value of these investments, taking into account various factors including implied asset value changes based on discounted cash flow projections and current market conditions. The Company determined, based on the inputs, that its valuation of investment in joint ventures was classified within Level 3 of the fair value hierarchy as many of the assumptions are not observable.

During the year ended December 31, 2020, the Company recorded expected credit loss expense related to notes receivable from one borrower to fully reserve the outstanding principal balance and unfunded commitment, as a result of changes in the borrower's financial status due to the impact of the COVID-19 pandemic. Management

valued the loan based on the fair value of the underlying collateral which was based on review of the financial statements of the borrower, and was classified within Level 2 of the fair value hierarchy.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company to estimate the fair value of each class of financial instruments at June 30, 2021 and December 31, 2020:

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 June 30, 2021, the Company had a carrying value of $366.1 million in fixed rate mortgage notes receivable outstanding, including related accrued interest and allowance for credit losses, with a weighted average interest rate of approximately 9.03%. The fixed rate mortgage notes bear interest at rates of 7.01% to 11.96%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of 7.50% to 9.25%, management estimates the fair value of the fixed rate mortgage notes receivable to be approximately $396.6 million with an estimated weighted average market rate of 8.03% at June 30, 2021.

At December 31, 2020, the Company had a carrying value of $365.6 million in fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately 9.03%. The fixed rate mortgage notes bear interest at rates of 7.01% to 11.78%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of 7.50% to 10.00%, management estimates the fair value of the fixed rate mortgage notes receivable to be $394.0 million with an estimated weighted average market rate of 8.11% at December 31, 2020.

Derivative instruments:

Derivative instruments are carried at their fair value.

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 June 30, 2021, the Company had a carrying value of $425.0 million in variable rate debt outstanding with a weighted average interest rate of approximately 2.36%. The carrying value of the variable rate debt outstanding approximated the fair value at June 30, 2021.

At December 31, 2020, the Company had a carrying value of $1.0 billion in variable rate debt outstanding with a weighted average interest rate of approximately 2.23%. The carrying value of the variable rate debt outstanding approximated the fair value at December 31, 2020.

At June 30, 2021 and December 31, 2020, $425.0 million of the Company's variable rate debt, discussed above, had been effectively converted to a fixed rate by interest rate swap agreements. See Note 9 for additional information related to the Company's interest rate swap agreements.

At June 30, 2021, the Company had a carrying value of $2.69 billion in fixed rate long-term debt outstanding with a weighted average interest rate of approximately 4.69%. Discounting the future cash flows for fixed rate debt using June 30, 2021 market rates of 2.24% to 5.81%, management estimates the fair value of the fixed rate debt to be approximately $2.82 billion with an estimated weighted average market rate of 3.49% at June 30, 2021.

At December 31, 2020, the Company had a carrying value of $2.72 billion in fixed rate long-term debt outstanding with an average weighted interest rate of approximately 4.70%. Discounting the future cash flows for fixed rate debt using December 31, 2020 market rates of 4.09% to 5.81%, management estimates the fair value of the fixed rate debt to be approximately $2.69 billion with an estimated weighted average market rate of 4.70% at December 31, 2020.

11. Earnings Per Share

The following table summarizes the Company’s computation of basic and diluted earnings per share (EPS) for the three and six months ended June 30, 2021 and 2020 (amounts in thousands except per share information):


	Three Months Ended June 30, 2021					Six Months Ended June 30, 2021
	Income (numerator)		Shares (denominator)	Per Share Amount		Income (numerator)		Shares (denominator)	Per Share Amount
Basic EPS:
Net income	$	18,552				$	21,932
Less: preferred dividend requirements	(6,033)					(12,067)



Net income available to common shareholders	$	12,519	74,781	$	0.17	$	9,865	74,704	$	0.13
Diluted EPS:
Net income available to common shareholders	$	12,519	74,781			$	9,865	74,704
Effect of dilutive securities:
Share options and performance shares	—		89			—		68


Net income available to common shareholders	$	12,519	74,870	$	0.17	$	9,865	74,772	$	0.13


	Three Months Ended June 30, 2020					Six Months Ended June 30, 2020
	Income (numerator)		Shares (denominator)	Per Share Amount		Income (numerator)		Shares (denominator)	Per Share Amount
Basic EPS:
Net loss	$	(62,965)				$	(25,847)
Less: preferred dividend requirements	(6,034)					(12,068)



Net loss available to common shareholders	$	(68,999)	76,310	$	(0.90)	$	(37,915)	77,388	$	(0.49)
Diluted EPS:
Net loss available to common shareholders	$	(68,999)	76,310			$	(37,915)	77,388
Effect of dilutive securities:
Share options and performance shares	—		—			—		—


Net loss available to common shareholders	$	(68,999)	76,310	$	(0.90)	$	(37,915)	77,388	$	(0.49)

The effect of the potential common shares from the conversion of the Company’s convertible preferred shares and from the exercise of share options are included in diluted earnings per share if the effect is dilutive. Potential common shares from the performance shares are included in diluted earnings per share upon the satisfaction of certain performance and market conditions. These conditions are evaluated at each reporting period and if the conditions have been satisfied during the reporting period, the number of contingently issuable shares are included in the computation of diluted earnings per share.

The following shares have an anti-dilutive effect and are therefore excluded from the calculation of diluted earnings per share:

•The additional 2.2 million common shares that would result from the conversion of the Company’s 5.75% Series C cumulative convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares for both the three and six months ended June 30, 2021 and 2020.

•The additional 1.7 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 for both the three and six months ended June 30, 2021 and 2020.

•Outstanding options to purchase 90 thousand and 106 thousand common shares at per share prices ranging from $44.44 to $76.63 for the three and six months ended June 30, 2021, respectively.

•Outstanding options to purchase 117 thousand common shares at per share prices ranging from $44.62 to $76.63 for both the three and six months ended June 30, 2020.

•The effect of 56 thousand contingently issuable performance shares granted during 2020 for both the three and six months ended June 30, 2021 and 2020 as performance and market conditions were not met.

12. Equity Incentive Plan

All grants of common shares and options to purchase common shares were issued under the Company's 2007 Equity Incentive Plan prior to May 12, 2016 and under the 2016 Equity Incentive Plan on and after May 12, 2016. Under the 2016 Equity Incentive Plan, an aggregate of 1,950,000 common shares, options to purchase common shares and restricted share units, subject to adjustment in the event of certain capital events, may be granted. The 2016 Equity Incentive Plan was amended by shareholders at the May 28, 2021 annual shareholder meeting. The amendment increased the number of authorized shares issuable under the plan from 1,950,000 shares to 3,950,000 shares. Additionally, the 2020 Long Term Incentive Plan (2020 LTIP) is a sub-plan under the Company's 2016 Equity Incentive Plan. Under the 2020 LTIP, the Company awards performance shares and restricted shares to the Company's executive officers. At June 30, 2021, there were 2,362,709 shares available for grant under the 2016 Equity Incentive Plan.

Share Options

Share options 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. 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:


	Number of options	Option price per share					Weighted avg. exercise price
Outstanding at December 31, 2020	116,690	$	44.62	—	$	76.63	$	56.36
Exercised	(4,065)	47.77		—	47.77		47.77
Granted	1,838	44.44		—	44.44		44.44
Forfeited/Expired	(4,278)	45.20		—	61.79		50.14
Outstanding at June 30, 2021	110,185	$	44.44	—	$	76.63	$	56.71

The weighted average fair value of options granted was $20.34 and $3.73 during the six months ended June 30, 2021 and 2020, respectively. The intrinsic value of share options exercised was $7 thousand and $22 thousand for the six months ended June 30, 2021 and 2020, respectively.

The following table summarizes outstanding and exercisable options at June 30, 2021:


	Options outstanding						Options exercisable
Exercise price range	Options outstanding	Weighted avg. life remaining	Weighted avg. exercise price		Aggregate intrinsic value (in thousands)		Options outstanding	Weighted avg. life remaining	Weighted avg. exercise price		Aggregate intrinsic value (in thousands)



$44.44 - 49.99	22,295	3.4					20,457	1.1
50.00 - 59.99	31,008	3.0					30,050	2.9
60.00 - 69.99	52,726	5.0					50,559	3.9
70.00 - 76.63	4,156	6.6					3,186	6.3
	110,185	4.2	$	56.71	$	168	104,252	3.2	$	56.51	$	152

Nonvested Shares

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


	Number of shares	Weighted avg. grant date fair value		Weighted avg. life remaining
Outstanding at December 31, 2020	445,402	$	68.47
Granted	246,562	44.44
Vested	(200,319)	67.93
Forfeited	(10,025)	59.75
Outstanding at June 30, 2021	481,620	$	56.58	1.35

The holders of nonvested shares have voting rights and receive dividends from the date of grant. The fair value of the nonvested shares that vested was $6.5 million and $16.0 million for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021, unamortized share-based compensation expense related to nonvested shares was $15.0 million.

Nonvested Performance Shares

A summary of the Company's nonvested performance share activity and related information is as follows:


			Target Number of Performance Shares
Outstanding at December 31, 2020			56,338
Granted			102,438


Outstanding at June 30, 2021			158,776

The number of common shares issuable upon settlement of the performance shares granted during the six months ended June 30, 2021 and 2020, will be based upon the Company's achievement level relative to the following performance measures at December 31, 2022 and 2023: 50% based upon the Company's Total Shareholder Return (TSR) relative to the TSRs of the Company's peer group companies, 25% based upon the Company's TSR relative to the TSRs of companies in the MSCI US REIT Index and 25% based upon the Company's Average Annual Growth in AFFO per share over the three-year performance period. The Company's achievement level relative to the performance measures is assigned a specific payout percentage which is multiplied by a target number of performance shares.

The performance shares based on relative TSR performance have market conditions and are valued using a Monte Carlo simulation model on the grant date, which resulted in a grant date fair value of approximately $6.6 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively. The estimated fair value is amortized to expense over the three-year vesting period, which ends on December 31, 2022 and 2023. The following assumptions were used in the Monte Carlo simulation for computing the grant date fair value of the performance shares with a market condition for the six months ended June 30, 2021: risk-free interest rate of 0.2%, volatility factors in the expected market price of the Company's common shares of 69% and an expected life of approximately three years.

The performance shares based on growth in AFFO have a performance condition. The probability of achieving the performance condition is assessed at each reporting period. If it is deemed probable that the performance condition will be met, compensation cost will be recognized based on the closing price per share of the Company's common stock on the date of the grant multiplied by the number of awards expected to be earned. If it is deemed that it is not probable that the performance condition will be met, the Company will discontinue the recognition of compensation cost and any compensation cost previously recorded will be reversed. At June 30, 2021, achievement of the performance condition was deemed probable for the performance shares granted during the six months ended June 30, 2021, with an expected payout percentage of 200%, which resulted in a grant date fair value of approximately $2.3 million. Achievement of the performance condition for the performance shares granted during the six months ended June 30, 2020 was deemed not probable at June 30, 2021.

At June 30, 2021, unamortized share-based compensation expense related to nonvested performance shares was $8.7 million.

The performance shares accrue dividend equivalents which are paid only if common shares are issued upon settlement of the performance shares. During the six months ended June 30, 2021 and 2020, the Company accrued dividend equivalents expected to be paid on earned awards of $18 thousand and $19 thousand, respectively.

Restricted Share Units

A summary of the Company’s restricted share unit activity and related information is as follows:


	Number of shares	Weighted avg. grant date fair value		Weighted avg. life remaining
Outstanding at December 31, 2020	74,767	$	31.57
Granted	43,306	49.15
Vested	(74,767)	31.57
Outstanding at June 30, 2021	43,306	$	49.15	0.92

The holders of restricted share units receive dividend equivalents from the date of grant. At June 30, 2021, unamortized share-based compensation expense related to restricted share units was $2.0 million.

13. Operating Leases

The Company’s real estate investments are leased under operating leases. The Company adopted Topic 842 on January 1, 2019 and elected to not reassess its prior conclusions about lease classification. Accordingly, these lease arrangements continue to be classified as operating leases. In addition to its lessor arrangements on its real estate investments, as of June 30, 2021 and December 31, 2020, the Company was lessee in 54 and 53 operating ground leases, respectively. The Company's tenants, who are generally sub-tenants under these ground leases, are responsible for paying the rent under these ground leases. As of June 30, 2021, rental revenue from several of the Company's tenants, who are also sub-tenants under the ground leases, is being recognized on a cash basis. In most cases, the ground lease sub-tenants have continued to pay the rent under these ground leases. In addition, two of these properties are vacant. In the event the tenant fails to pay the ground lease rent or if the property is vacant, the Company is primarily responsible for the payment, assuming the Company does not sell or re-tenant the property. The Company is also the lessee in an operating lease of its executive office.

The following table summarizes rental revenue, including sublease arrangements and lease costs, for the three and six months ended June 30, 2021 and 2020 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,
	Classification	2021		2020		2021		2020

Operating leases (1)	Rental revenue	$	110,349	$	92,017	$	208,021	$	229,106
Sublease income - operating ground leases (2)	Rental revenue	$	5,534	$	5,514	$	10,476	$	3,468

Lease costs
Operating ground lease cost	Property operating expense	$	5,811	$	6,283	$	11,224	$	12,500
Operating office lease cost	General and administrative expense	$	226	$	226	$	452	$	452
Operating lease right-of-use asset impairment charges (3)	Impairment charges	$	—	$	15,009	$	—	$	15,009

(1) During the three and six months ended June 30, 2020, the Company wrote-off straight-line rent receivables of $0.5 million and $5.0 million, respectively, to straight-line rental revenue classified in "Rental revenue" in the accompanying consolidated statements of income (loss) and comprehensive income (loss).

(2) During the six months ended June 30, 2020, the Company wrote-off sub-lessor ground lease straight-line rent receivables totaling $8.0 million, to straight-line rental revenue classified in "Rental revenue" in the accompanying consolidated statements of income (loss) and comprehensive income (loss).

(3) During the three and six months ended June 30, 2020, the Company recognized impairment charges of $15.0 million related to the operating lease right-of-use assets at two of its properties.

14. Segment Information

The Company groups its investments into two reportable operating segments: Experiential and Education.

The financial information summarized below is presented by reportable operating segment (in thousands):


Balance Sheet Data:
	As of June 30, 2021
	Experiential		Education		Corporate/Unallocated		Consolidated
Total Assets	$	5,105,698	$	516,685	$	519,829	$	6,142,212

	As of December 31, 2020
	Experiential		Education		Corporate/Unallocated		Consolidated
Total Assets	$	5,133,486	$	529,755	$	1,040,944	$	6,704,185


Operating Data:
	Three Months Ended June 30, 2021
	Experiential		Education		Corporate/Unallocated		Consolidated
Rental revenue	$	106,559	$	9,324	$	—	$	115,883
Other income	1,061		—		(28)		1,033
Mortgage and other financing income	8,239		207		—		8,446
Total revenue	115,859		9,531		(28)		125,362

Property operating expense	14,421		15		242		14,678
Other expense	3,025		—		—		3,025
Total investment expenses	17,446		15		242		17,703
Net operating income - before unallocated items	98,413		9,516		(270)		107,659

Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense							(11,376)




Interest expense, net							(38,312)
Transaction costs							(662)
Credit loss benefit							2,819

Depreciation and amortization							(40,538)
Equity in loss from joint ventures							(1,151)

Gain on sale of real estate							511

Income tax expense							(398)




Net income							18,552

Preferred dividend requirements							(6,033)
Net income available to common shareholders of EPR Properties							$	12,519


Operating Data:
	Three Months Ended June 30, 2020
	Experiential		Education		Corporate/Unallocated		Consolidated
Rental revenue	$	84,204	$	13,327	$	—	$	97,531
Other income	8		—		408		416
Mortgage and other financing income	8,108		305		—		8,413
Total revenue	92,320		13,632		408		106,360

Property operating expense	14,514		628		187		15,329
Other expense	2,798		—		—		2,798
Total investment expenses	17,312		628		187		18,127
Net operating income - before unallocated items	75,008		13,004		221		88,233

Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense							(10,432)


Costs associated with loan refinancing or payoff							(820)

Interest expense, net							(38,340)
Transaction costs							(771)
Credit loss expense							(3,484)
Impairment charges							(51,264)
Depreciation and amortization							(42,450)
Equity in loss from joint ventures							(1,724)
Impairment charges on joint ventures							(3,247)
Gain on sale of real estate							22

Income tax benefit							1,312



Net loss							(62,965)
Preferred dividend requirements							(6,034)
Net loss available to common shareholders of EPR Properties							$	(68,999)


Operating Data:
	Six Months Ended June 30, 2021
	Experiential		Education		Corporate/Unallocated		Consolidated
Rental revenue	$	199,835	$	18,662	$	—	$	218,497
Other income	1,390		—		321		1,711
Mortgage and other financing income	16,380		539		—		16,919
Total revenue	217,605		19,201		321		237,127

Property operating expense	29,413		97		481		29,991
Other expense	5,577		—		—		5,577
Total investment expenses	34,990		97		481		35,568
Net operating income - before unallocated items	182,615		19,104		(160)		201,559

Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense							(22,712)

Costs associated with loan refinancing or payoff							(241)

Interest expense, net							(77,506)
Transaction costs							(1,210)
Credit loss benefit							5,581

Depreciation and amortization							(80,864)
Equity in loss from joint ventures							(2,582)

Gain on sale of real estate							712

Income tax expense							(805)




Net income							21,932

Preferred dividend requirements							(12,067)
Net income available to common shareholders of EPR Properties							$	9,865


Operating Data:
	Six Months Ended June 30, 2020
	Experiential		Education		Corporate/Unallocated		Consolidated
Rental revenue	$	202,864	$	29,710	$	—	$	232,574
Other income	7,213		—		776		7,989
Mortgage and other financing income	16,152		657		—		16,809
Total revenue	226,229		30,367		776		257,372

Property operating expense	26,843		1,169		410		28,422
Other expense	12,332		—		—		12,332
Total investment expenses	39,175		1,169		410		40,754
Net operating income - before unallocated items	187,054		29,198		366		216,618

Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense							(21,420)

Costs associated with loan refinancing or payoff							(820)

Interest expense, net							(73,093)
Transaction costs							(1,846)
Credit loss expense							(4,676)
Impairment charges							(51,264)
Depreciation and amortization							(86,260)
Equity in loss from joint ventures							(2,144)
Impairment charges on joint ventures							(3,247)
Gain on sale of real estate							242

Income tax benefit							2,063




Net loss							(25,847)

Preferred dividend requirements							(12,068)
Net loss available to common shareholders of EPR Properties							$	(37,915)

15. Supplemental Guarantor Financial Information

As of June 30, 2021, the Company had outstanding $2.4 billion in aggregate principal amount of unsecured senior notes (excluding the Company's private placement notes), which were registered under the Securities Act of 1933, as amended (the Registered Notes). All of the Registered Notes were issued by the Company and are guaranteed on a joint and several basis by all of the Company's domestic subsidiaries that guarantee the Company's indebtedness under its combined unsecured revolving credit facility and term loan facility and private placement notes (the Guarantor Subsidiaries). The Company owns, directly or indirectly, 100% of the Guarantor Subsidiaries. The guarantees are senior unsecured obligations of each Guarantor Subsidiary, have equal rank with all existing and future senior debt of each such Guarantor Subsidiary, and are senior to all subordinated debt of such Guarantor Subsidiary. The guarantees are effectively subordinated to any secured debt of each such Guarantor Subsidiary to the extent of the assets securing such debt. Each guarantee is limited so that it does not constitute a fraudulent conveyance under applicable law, which may reduce the Guarantor Subsidiaries' obligations under the guarantees. The guarantees are subject to customary release provisions, including a release upon a sale or other disposition of all the capital stock or all or substantially all of the assets of a Guarantor Subsidiary, the designation of a Guarantor Subsidiary as an unrestricted subsidiary in accordance with the applicable indenture governing the Registered Notes or the release of a Guarantor Subsidiary's guarantee under the Company's combined unsecured revolving credit facility and term loan facility (or replacement thereof), private placement notes and the other then outstanding Registered Notes.

The following tables present summarized financial information for the Company and Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated and excludes investments in and equity earnings in the Company's subsidiaries that do not guarantee the Registered Notes (the Non-Guarantor Subsidiaries).

Summarized Financial Information:


Summarized Balance Sheet
(Dollars in thousands)
	June 30, 2021		December 31, 2020
	(unaudited)
Real estate investments, net of accumulated depreciation of $1,042,345 and $979,269 at June 30, 2021 and December 31, 2020, respectively	$	4,648,835	$	4,666,835
Total assets	5,920,911		6,488,007
Total liabilities	3,452,575		4,038,101

Excluded from total assets in the table above is $173.7 million of intercompany notes receivable due to the Company and the Guarantor Subsidiaries from the Non-Guarantor Subsidiaries as of both June 30, 2021 and December 31, 2020.


Summarized Statement of Income
Three and Six Months Ended June 30, 2021
(Unaudited)
(Dollars in thousands)
	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Total revenue	$	119,206	$	224,675



Net income	21,365		27,532
Net income available to common shareholders of EPR Properties	15,332		15,465

Excluded from total revenue in the table above is $0.8 million and $1.6 million in intercompany fee income and $2.6 million and $5.0 million in intercompany interest income due to the Company and the Guarantor Subsidiaries from the Non-Guarantor Subsidiaries for the three and six months ended June 30, 2021, respectively.

16. Other Commitments and Contingencies

As of June 30, 2021, the Company had 17 development projects with commitments to fund an aggregate of approximately $78.6 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.

The Company has certain commitments related to its mortgage notes and notes receivable 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 June 30, 2021, the Company had two mortgage notes and one note receivable with commitments totaling approximately $24.3 million. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

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 June 30, 2021, the Company had four surety bonds outstanding totaling $33.3 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q of EPR Properties (the “Company”, “EPR”, “we” or “us”). The forward-looking statements included in this discussion and elsewhere in this Quarterly Report on Form 10-Q involve risks and uncertainties, including anticipated financial performance, anticipated liquidity and capital resources, business prospects, industry trends, shareholder returns, performance of leases by tenants, performance on loans to customers and other matters, which reflect management's best judgment based on factors currently known. See “Cautionary Statement Concerning Forward-Looking Statements” which is incorporated herein by reference. Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in Item 1A - "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.

Overview

Business

Our principal business objective is to enhance shareholder value by achieving predictable and increasing Funds From Operations As Adjusted ("FFOAA") and dividends per share. Our strategy is to focus on long-term investments in the Experiential sector which benefit from our depth of knowledge and relationships, and which we believe offer sustained performance throughout most economic cycles.

Our investment portfolio includes ownership of and long-term mortgages on Experiential and Education properties. Substantially all of our owned single-tenant properties are leased pursuant to long-term, triple-net leases, under which the tenants typically pay all operating expenses of the property. Tenants at our owned multi-tenant properties are typically required to pay common area maintenance charges to reimburse us for their pro-rata portion of these costs. We also own certain experiential lodging assets structured using traditional REIT lodging structures.

It has been our strategy to structure leases and financings to ensure a positive spread between our cost of capital and the rentals or interest paid by our tenants. We have primarily acquired or developed new properties that are pre-leased to a single tenant or multi-tenant properties that have a high occupancy rate. We have also entered into certain joint ventures and we have provided mortgage note financing. We intend to continue entering into some or all of these types of arrangements in the foreseeable future.

Historically, our primary challenges had been locating suitable properties, negotiating favorable lease or financing terms (on new or existing properties), and managing our portfolio as we have continued to grow. We believe our management’s knowledge and industry relationships have facilitated opportunities for us to acquire, finance and lease properties. The current economic situation created by the COVID-19 pandemic has impeded our growth in the near term while our focus has been addressing challenges brought on by the pandemic, including monitoring customer status and working with customers to help ensure long-term stability as well as assisting them in reopening plans. Following our election to terminate the Covenant Relief Period early and recent improvements in the business operations of our customers, we expect our focus to return to the growth of the Company. See more discussion on the impact of the pandemic on our business and the early termination of the Covenant Relief Period below. Our business is subject to a number of risks and uncertainties, including those described in Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.

As of June 30, 2021, our total assets were approximately $6.1 billion (after accumulated depreciation of approximately $1.1 billion) with properties located in 44 states and Ontario, Canada. Our total investments (a non-GAAP financial measure) were approximately $6.5 billion at June 30, 2021. See "Non-GAAP Financial Measures" for the calculation of total investments and reconciliation of total investments to "Total assets" in the consolidated balance sheet at June 30, 2021 and December 31, 2020. We group our investments into two reportable segments, Experiential and Education. As of June 30, 2021, our Experiential investments comprised $5.9 billion, or 91%, and our Education investments comprised $0.6 billion, or 9%, of our total investments.

As of June 30, 2021, our Experiential segment (excluding property under development and undeveloped land inventory) consisted of the following property types (owned or financed):

•177 theatre properties;

•57 eat & play properties (including seven theatres located in entertainment districts);

•18 attraction properties;

•13 ski properties;

•seven experiential lodging properties;

•one gaming property;

•three cultural properties; and

•seven fitness & wellness properties.

As of June 30, 2021, our owned Experiential real estate portfolio consisted of approximately 19.3 million square feet, which was 95.0% leased and included $35.1 million in property under development and $20.2 million in undeveloped land inventory.

As of June 30, 2021, our Education segment (excluding undeveloped land inventory) consisted of the following property types (owned or financed):

•65 early childhood education center properties; and

•nine private school properties.

As of June 30, 2021, our owned Education real estate portfolio consisted of approximately 1.4 million square feet, which was 100% leased and included $3.0 million in undeveloped land inventory.

The combined owned portfolio consisted of 20.7 million square feet and was 95.4% leased.

COVID-19 Update

We continue to be subject to risks and uncertainties resulting from the COVID-19 pandemic. The COVID-19 pandemic severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. In response to the COVID-19 pandemic, many jurisdictions within the United States and abroad instituted health and safety measures, including quarantines, mandated business and school closures and travel restrictions. As a result, the COVID-19 pandemic severely impacted experiential real estate properties, given that such properties involve congregate social activity and discretionary consumer spending. Although many of these health and safety measures have been lifted, the extent of the impact of the COVID-19 pandemic on our business still remains highly uncertain and difficult to predict.

As of June 30, 2021, approximately 99% of our theatre locations and 98% of our non-theatre locations were open for business, excluding normal seasonal closings. The continuing impact of the COVID-19 pandemic on our business will depend on several factors, including, but not limited to, the scope, severity and duration or any resurgence of the pandemic (including COVID-19 variants), the actions taken to contain the outbreak or any resurgence or mitigate their impacts, the distribution of vaccines and the efficacy of those vaccines, the ability of communities to achieve herd immunity, the public’s confidence in the health and safety measures implemented by our tenants and borrowers, and the continuing direct and indirect economic effects of the outbreak and containment measures, and the ability of our tenants and borrowers to recover from the negative economic impacts of the pandemic as it subsides and, in many cases, service elevated levels of debt resulting from the pandemic, all of which are uncertain and cannot be predicted. During 2020 and the six months ended June 30, 2021, the COVID-19 pandemic negatively affected our business, and could continue to have material adverse effects on our financial condition, results of operations and cash flows.

Our consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods

presented. We considered the continuing impact of the COVID-19 pandemic on the assumptions and estimates used in determining our financial condition and results of operations for the six months ended June 30, 2021. The following were impacts to our financial statements during the six months ended June 30, 2021 arising out of or relating to the COVID-19 pandemic:

•We continued to recognize revenue on a cash basis for certain tenants including American-Multi Cinema, Inc. ("AMC") and Regal, a subsidiary of Cineworld Group.

•We reduced rental revenue by $7.2 million due to rent abatements.

•We have deferred approximately $50.0 million of amounts due from tenants and $1.9 million due from borrowers that were booked as receivables as of June 30, 2021. Additionally, we have amounts due from tenants that were not booked as receivables because the full amounts were not deemed probable of collection as a result of the COVID-19 pandemic. The amounts not booked as receivables remain obligations of the tenants and will be recognized as revenue when received. The repayment terms for all of these deferments vary by tenant or borrowers.

•As of June 30, 2021, we continued to be in the Covenant Relief Period under the agreement that governs our unsecured revolving credit facility and our unsecured term loan facility ("Consolidated Credit Agreement") and the agreement that governs our private placement notes ("Note Purchase Agreement"). During the Covenant Relief Period, our obligation to comply with certain covenants under these agreements was waived in light of the uncertainty related to impacts of the COVID-19 pandemic on us and our tenants and borrowers. We paid higher interest costs during the Covenant Relief Period. The Consolidated Credit Agreement and Note Purchase Agreement also imposed additional restrictions on us during the Covenant Relief Period, including limitations on making investments, incurring indebtedness, making capital expenditures, paying dividends or making other distributions, repurchasing our shares, voluntarily prepaying certain indebtedness, encumbering certain assets and maintaining a minimum liquidity amount, in each case subject to certain exceptions. The term "Covenant Relief Period," as used in this Quarterly Report on Form 10-Q, generally means the period of time beginning on June 29, 2020 and ending on (i) December 31, 2021, in the case of our Consolidated Credit Agreement, or (ii) October 1, 2021 (subject to extension to January 1, 2022 at our election, subject to certain conditions), in the case of our Note Purchase Agreement governing our private placement notes. We had the right under certain circumstances to terminate the Covenant Relief Period earlier, which we exercised subsequent to June 30, 2021 as discussed below.

•In connection with amending our Consolidated Credit Agreement and Note Purchase Agreement to provide for the Covenant Relief Period discussed above, certain of our key subsidiaries guaranteed our obligations based on our unsecured debt ratings. If our unsecured debt rating had been further downgraded by Moody's during the Covenant Relief Period, we would have been required to pledge the equity interests in certain subsidiary guarantors to secure our obligations under our unsecured credit facilities and private placement notes; however, upon termination of the Covenant Relief Period as discussed above, we were released from this obligation.

•Due to improved financial performance, on July 12, 2021, we provided notice of our election to terminate the Covenant Relief Period early and submitted compliance certificates for the quarter ended June 30, 2021 for our Consolidated Credit Agreement and Note Purchase Agreement. The certificates provided that we were in compliance with all of our financial and other covenants, and would have been even if the Covenant Relief Period had not been in effect during the quarter ended June 30, 2021. Our election to terminate the Covenant Relief Period early means that, effective July 13, 2021, the interest rates on the debt governed by these agreements returned to the previous levels defined in the agreements, in each case based on our unsecured debt ratings. By terminating the Covenant Relief Period, we were also released from certain restrictions under these agreements, including restrictions on investments, capital expenditures, incurrences of indebtedness and payment of dividends. See Note 7 for additional information on interest rates during and after the Covenant Relief Period.

The monthly cash dividends to common shareholders were temporarily suspended following the common share dividend paid on May 15, 2020 to shareholders of record as of April 30, 2020. On July 13, 2021, following termination of the Covenant Relief Period, we declared a monthly cash dividend payable on August 16, 2021 to shareholders of record on July 30, 2021.

Collections of rent and interest were impacted during the quarter by the COVID-19 pandemic. For the six months ended June 30, 2021, tenants and borrowers paid approximately 85% contractual cash revenue (including approximately $2.4 million in deferred rent from cash basis tenants and from tenants for which the deferred payments were not previously recognized as revenue). In addition, during the six months ended June 30, 2021, we collected $45.9 million of deferred rent and interest from accrual basis tenants and borrowers that reduced related accounts and interest receivable. Contractual cash revenue is an operational measure and represents aggregate cash payments for which we are entitled under existing contracts, excluding the impact of any temporary abatements or deferrals, percentage rent (rents received over base amounts), non-cash revenue and revenue from taxable REIT subsidiaries ("TRSs"). While deferments for this and future periods delay rent or mortgage payments, these deferments generally do not release customers from the obligation to pay the deferred amounts in the future. Deferred rent amounts are reflected in our financial statements as accounts receivable if collection is determined to be probable or will be recognized when received as variable lease payments if collection is determined to not be probable, while deferred mortgage payments are reflected as mortgage notes and related accrued interest receivable, less any allowance for credit loss. Certain agreements with tenants where remaining lease terms are extended, or other changes are made that do not qualify for the treatment in the Financial Accounting Standards Board ("FASB") Staff Q&A on Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, are treated as lease modifications. In these circumstances upon an executed lease modification, if the tenant is not being recognized on a cash basis, the contractual rent reflected in accounts receivable and the straight-line rent receivable will be amortized over the remaining term of the lease against rental revenue. In limited cases, tenants may be entitled to the abatement of rent during governmentally imposed prohibitions on business operations which is recognized in the period to which it relates, or we may provide rent concessions to tenants. In cases where we provide concessions to tenants to which they are not otherwise entitled, those amounts are recognized in the period in which the concession is granted unless the changes are accounted for as lease modifications.

Operating Results

Our total revenue, net income (loss) available to common shareholders per diluted share and Funds From Operations As Adjusted ("FFOAA") per diluted share (a non-GAAP financial measure) are detailed below for the three and six months ended June 30, 2021 and 2020 (in millions, except per share information):


	Three Months Ended June 30,						Six Months Ended June 30,
	2021		2020		Change		2021		2020		Change
Total revenue	$	125.4	$	106.4	18	%	$	237.1	$	257.4	(8)	%
Net income (loss) available to common shareholders per diluted share	$	0.17	$	(0.90)	119	%	$	0.13	$	(0.49)	127	%
FFOAA per diluted share	$	0.68	$	0.41	66	%	$	1.15	$	1.39	(17)	%

The major factors impacting our results for the three and six months ended June 30, 2021, as compared to the three and six months ended June 30, 2020 were as follows:

•The effects of the COVID-19 pandemic as described above;

•The effect of write-offs of straight-line receivables of approximately $13.0 million recognized during the six months ended June 30, 2020;

•The effect of property acquisitions as well as dispositions and mortgage note payoffs that occurred in 2021 and 2020;

•The decrease in other income and other expenses primarily due to the government-required closure of the Kartrite Resort and Indoor Waterpark in Sullivan County, New York due to the COVID-19 pandemic in mid-March of 2020;

•The decrease in impairment charges;

•The decrease in credit loss (benefit) expense; and

•The decrease in common shares outstanding.

For further detail on items impacting our operating results, see the section below titled "Results of Operations". FFOAA is a non-GAAP financial measure. For the definitions and further details on the calculations of FFOAA and certain other non-GAAP financial measures, see the section below titled "Non-GAAP Financial Measures."

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, management has made its best estimates and assumptions that affect the reported assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of real estate, accounting for real estate acquisitions, assessing the collectibility of receivables and the credit loss related to mortgage and other notes receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. A summary of critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2020. For the six months ended June 30, 2021, there were no changes to critical accounting policies.

Recent Developments

Investment Spending

Our investment spending during the six months ended June 30, 2021 and 2020 totaled $68.6 million and $53.6 million, respectively, and is detailed below (in thousands):


Six Months Ended June 30, 2021
Operating Segment	Total Investment Spending		New Development		Re-development		Asset Acquisition		Mortgage Notes or Notes Receivable		Investment in Joint Ventures
Experiential:
Theatres	$	3,049	$	2,940	$	109	$	—	$	—	$	—
Eat & Play	34,918		7,855		311		26,752		—		—
Attractions	29		—		29		—		—		—
Ski	2,793		—		—		—		2,793		—
Experiential Lodging	21,684		13,922		5,822		—		—		1,940

Cultural	4,389		—		10		—		4,379		—
Fitness & Wellness	1,795		—		—		—		1,795		—
Total Experiential	68,657		24,717		6,281		26,752		8,967		1,940

Education:


Total Education	—		—		—		—		—		—

Total Investment Spending	$	68,657	$	24,717	$	6,281	$	26,752	$	8,967	$	1,940


Six Months Ended June 30, 2020
Operating Segment	Total Investment Spending		New Development		Re-development		Asset Acquisition		Mortgage Notes or Notes Receivable		Investment in Joint Ventures
Experiential:
Theatres	$	26,118	$	700	$	3,310	$	22,108	$	—	$	—
Eat & Play	12,791		12,013		778		—		—		—
Attractions	970		—		970		—		—		—

Experiential Lodging	11,106		10,708		398		—		—		—

Cultural	152		—		152		—		—		—
Fitness & Wellness	2,441		—		—		—		2,441		—
Total Experiential	53,578		23,421		5,608		22,108		2,441		—

Education:
Early Childhood Education Centers	3		—		—		—		3		—


Total Education	3		—		—		—		3		—

Total Investment Spending	$	53,581	$	23,421	$	5,608	$	22,108	$	2,444	$	—

The above amounts include $1.1 million and $0.5 million in capitalized interest for the six months ended June 30, 2021 and 2020, respectively, and $0.2 million in capitalized other general and administrative direct project costs for both the six months ended June 30, 2021 and 2020. Excluded from the table above is approximately $2.2 million of maintenance capital expenditures and other spending for both the six months ended June 30, 2021 and 2020.

We limited our investment spending during the three and six months ended June 30, 2021 to enhance our liquidity position in light of the negative impact of the COVID-19 pandemic. As discussed in more detail in Note 7, on July 12, 2021, we provided notice of our election to terminate the Covenant Relief Period early. Effective July 13, 2021, we were released from certain restrictions under the credit facilities and private placement notes that limited our investments and capital expenditures.

Dispositions

During the six months ended June 30, 2021, we completed the sale of two theatre properties and one outparcel for net proceeds totaling $28.6 million. In connection with these sales, we recognized a combined gain on sale of $0.7 million.

On March 22, 2021, we received $5.1 million in proceeds representing prepayment in full on a mortgage note receivable that was secured by a private school property. No prepayment fee was received in connection with this note payoff.

Results of Operations

Three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

Analysis of Revenue

The following table summarizes our total revenue (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2021		2020		Change		2021		2020		Change
Minimum rent (1)	$	107,100	$	89,589	$	17,511	$	201,290	$	227,808	$	(26,518)
Percentage rent	2,016		1,454		562		4,046		4,211		(165)
Straight-line rent (2)	1,420		2,229		(809)		2,709		(7,479)		10,188
Tenant reimbursements	5,000		4,169		831		9,822		7,867		1,955
Other rental revenue	347		90		257		630		167		463
Total Rental Revenue	$	115,883	$	97,531	$	18,352	$	218,497	$	232,574	$	(14,077)

Other income (3)	1,033		416		617		1,711		7,989		(6,278)
Mortgage and other financing income	8,446		8,413		33		16,919		16,809		110
Total revenue	$	125,362	$	106,360	$	19,002	$	237,127	$	257,372	$	(20,245)

(1) For the three months ended June 30, 2021 compared to the three months ended June 30, 2020, the increase in minimum rent resulted primarily from an increase of $21.6 million related to rental revenue on existing properties including improved collections in rent being recognized on a cash basis as well as scheduled rent increases. In addition, there was an increase in minimum rent of $1.8 million related to property acquisitions and developments completed in 2021 and 2020. This was partially offset by a decrease in rental revenue of $5.0 million from property dispositions and $0.9 million due to vacant properties.

For the six months ended June 30, 2021 compared to the six months ended June 30, 2020, the decrease in minimum rent resulted primarily from the impact of the COVID-19 pandemic, with a decrease of $12.8 million on existing properties mostly due to restructured agreements, rent recognized on a cash basis, deferred rent not recognized because collection was determined not probable and rent abatements. In addition, there was a decrease in rental revenue of $11.0 million from property dispositions and $5.4 million due to vacant properties. This was partially offset by an increase in minimum rent of $2.7 million related to property acquisitions and developments completed in 2021 and 2020 as well as scheduled rent increases.

During the three and six months ended June 30, 2021, we renewed seven lease agreements on approximately 394 thousand square feet. We experienced an increase of 9.5% in rental rates and paid no leasing commissions with respect to these lease renewals.

(2) The increase in straight-line rent for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to write-offs totaling $13.0 million recognized during the six months ended June 30, 2020, which was comprised of $5.0 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable due to the COVD-19 pandemic. This increase was partially offset by a reduction in straight-line rental revenue due to revenue from several tenants being recognized on a cash basis.

(3) The decrease in other income for the six months ended June 30, 2021 related primarily to a decrease in operating income as a result of the closure of the Kartrite Resort due to the COVID-19 pandemic.

Analysis of Expenses and Other Line Items

The following table summarizes our expenses and other line items (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2021		2020		Change		2021		2020		Change
Property operating expense	$	14,678	$	15,329	$	(651)	$	29,991	$	28,422	$	1,569
Other expense (1)	3,025		2,798		227		5,577		12,332		(6,755)
General and administrative expense	11,376		10,432		944		22,712		21,420		1,292


Costs associated with loan refinancing or payoff	—		820		(820)		241		820		(579)
Interest expense, net (2)	38,312		38,340		(28)		77,506		73,093		4,413
Transaction costs	662		771		(109)		1,210		1,846		(636)
Credit loss (benefit) expense (3)	(2,819)		3,484		(6,303)		(5,581)		4,676		(10,257)
Impairment charges (4)	—		51,264		(51,264)		—		51,264		(51,264)
Depreciation and amortization (5)	40,538		42,450		(1,912)		80,864		86,260		(5,396)
Equity in loss from joint ventures	(1,151)		(1,724)		573		(2,582)		(2,144)		(438)
Impairment charges on joint ventures (6)	—		(3,247)		3,247		—		(3,247)		3,247
Gain on sale of real estate	511		22		489		712		242		470

Income tax (expense) benefit	(398)		1,312		(1,710)		(805)		2,063		(2,868)


Preferred dividend requirements	(6,033)		(6,034)		1		(12,067)		(12,068)		1

(1) The decrease in other expenses for the six months ended June 30, 2021 related primarily to a decrease in operating expenses as a result of the closure of the Kartrite Resort due to the COVID-19 pandemic.

(2) The increase in interest expense, net for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, resulted primarily from an increase in the weighted average interest rate on outstanding debt and a decrease in interest income from short-term investments related to cash on hand. This was partially offset by an increase in interest cost capitalized on development projects.

(3) The change in the credit loss (benefit) expense for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 was primarily due to the expectation in the credit loss model of the timing of the economic recovery from the impacts of the COVID-19 pandemic as well as a $1.5 million partial repayment by a borrower on a fully reserved note receivable.

(4) Impairment charges recognized during the three and six months ended June 30, 2020 related to six properties with revised estimated undiscounted cash flows and shorter hold periods as a result of the COVID-19 pandemic and was comprised of $36.3 million of impairments of real estate investments, and $15.0 million of impairments of operating lease right-of-use assets.

(5) The decrease in depreciation and amortization expense resulted primarily from property dispositions that occurred during 2020 and 2021 as well as property impairments that occurred during 2020. This decrease was partially offset by acquisitions and developments completed in 2020 and 2021.

(6) Impairment charges on joint ventures for the three and six months ended June 30, 2020 related to other-than-temporary impairment charges on three theatre projects located in China.

Liquidity and Capital Resources

Cash and cash equivalents were $509.8 million at June 30, 2021. In addition, we had restricted cash of $3.6 million at June 30, 2021. Of the restricted cash at June 30, 2021, $2.4 million related to cash held for our tenants' off-season rent reserves and $1.2 million related primarily to escrow deposits required for property management agreements or held for potential acquisitions and redevelopments.

Mortgage Debt, Senior Notes, Unsecured Revolving Credit Facility and Unsecured Term Loan Facility

At June 30, 2021, we had total debt outstanding of $3.1 billion of which 99% was unsecured.

At June 30, 2021, we had outstanding $2.4 billion in aggregate principal amount of unsecured senior notes (excluding the private placement notes discussed below) ranging in interest rates from 3.75% to 5.25%. The notes contain various covenants, including: (i) a limitation on incurrence of any debt that would cause the ratio of our debt to adjusted total assets to exceed 60%; (ii) a limitation on incurrence of any secured debt that would cause the ratio of secured debt to adjusted total assets to exceed 40%; (iii) a limitation on incurrence of any debt that would cause our debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of our total unencumbered assets such that they are not less than 150% of our outstanding unsecured debt.

In light of the financial and operational impacts of the COVID-19 pandemic on us, our tenants and borrowers, during the year ended December 31, 2020, we amended our Consolidated Credit Agreement, which governs our unsecured revolving credit facility and our unsecured term loan facility. The amendments modified certain provisions and waived our obligation to comply with certain covenants under this debt agreement during the Covenant Relief Period. Additionally, during the year ended December 31, 2020, we further amended our Note Purchase Agreement, which governs our private placement notes. The amendments modified certain provisions and waived our obligation to comply with certain covenants under this debt agreement during the Covenant Relief Period. We had the right under certain circumstances to terminate the Covenant Relief Period earlier.

Due to improved financial performance, on July 12, 2021, we provided notice of our election to terminate the Covenant Relief Period early and submitted compliance certificates for the quarter ended June 30, 2021 for our Consolidated Credit Agreement and Note Purchase Agreement. The certificates provided that we are in compliance with all of our financial and other covenants, and would have been even if the Covenant Relief Period had not been in effect during the quarter ended June 30, 2021. Our election to terminate the Covenant Relief Period early means that, effective July 13, 2021, the interest rates on the debt governed by these agreements returned to the previous levels defined in the agreements, in each case based on our unsecured debt ratings. By terminating the Covenant Relief Period, we were also released from certain restrictions under these agreements, including restrictions on investments, capital expenditures, incurrences of indebtedness and payment of dividends.

At June 30, 2021, we had no outstanding balance under our $1.0 billion unsecured revolving credit facility. The unsecured revolving credit facility bears interest at a floating rate of LIBOR plus 1.625% (with a LIBOR floor of 0.50%), which was 2.125%, with a facility fee of 0.375%. Effective July 13, 2021, after we terminated the Covenant Relief Period, the interest rate, based on our unsecured debt ratings, returned to LIBOR plus 1.20% (with a LIBOR floor of zero) and the facility fee was reduced to 0.25%.

At June 30, 2021, the unsecured term loan facility had a balance of $400.0 million with interest at a floating rate of LIBOR plus 2.00% (with a LIBOR floor of 0.50%), which was 2.50%. Effective, July 13, 2021, after we terminated the Covenant Relief Period, the interest rate, based on our unsecured debt ratings, returned to LIBOR plus 1.35% (with a LIBOR floor of zero). As of June 30, 2021, all of this LIBOR-based debt was fixed with interest rate swaps from April 5, 2019 to February 7, 2022. During the Covenant Relief Period and based on our unsecured debt ratings, the interest rate swaps were fixed at 4.40% for $350.0 million of borrowings and 4.60% for the remaining $50.0 million of borrowings, and effective July 13, 2021, after the Covenant Relief Period were 3.40% for $350.0 million of borrowings and 3.60% for the remaining $50.0 million of borrowings, however these rates are subject to change based on the Company’s unsecured debt ratings.

At June 30, 2021, we had outstanding $316.2 million of senior unsecured notes that were issued in a private placement transaction. The private placement notes were issued in two tranches with $148.0 million due August 22,

2024, and $192.0 million due August 22, 2026. At June 30, 2021, the interest rates for the private placement notes were 5.60% and 5.81% for the Series A notes due 2024 and the Series B notes due 2026, respectively. Effective July 13, 2021, after we terminated the Covenant Relief Period, the interest rates for the private placement notes returned to 4.35% and 4.56% for the Series A notes and the Series B notes, respectively. During the six months ended June 30, 2021, we used a portion of our cash proceeds from property sales to reduce the principal of our private placement notes by $23.8 million in accordance with the above amendments to the Note Purchase Agreement.

Our unsecured credit facilities and the private placement notes contain financial covenants or restrictions that limit our levels of consolidated debt, secured debt, investments outside certain categories, stock repurchases and dividend distributions and require us to maintain a minimum consolidated tangible net worth and meet certain coverage levels for fixed charges and debt service. The amendments to these debt agreements imposed a new minimum liquidity financial covenant during the Covenant Relief Period, provided relief from compliance with certain other financial covenants during the Covenant Relief Period and permanently modified certain other financial covenants. The amendments also imposed additional restrictions on us during the Covenant Relief Period, including limitations on making investments, incurring indebtedness, making capital expenditures and paying dividends and making other distributions, repurchasing our shares, voluntarily prepaying certain indebtedness, encumbering certain assets and maintaining a minimum liquidity amount, in each case subject to certain exceptions. In addition, we had to cause certain of our key subsidiaries to guarantee our obligations based on our unsecured debt ratings, and we would have been required to pledge the equity interests of such subsidiary guarantors if certain subsequent events occurred during the Covenant Relief Period; however, the requirement to pledge such equity interest ended when the Covenant Relief Period ended. As discussed above, we terminated the Covenant Relief Period early and as a result were released from the additional restrictions discussed above related to the amendments.

Additionally, these debt instruments contain cross-default provisions if we default under other indebtedness exceeding certain amounts. Those cross-default thresholds vary from $50.0 million to $75.0 million, depending upon the debt instrument. We were in compliance with all financial and other covenants under our debt instruments at June 30, 2021.

Our principal investing activities are acquiring, developing and financing Experiential and Education properties. These investing activities have generally been financed with senior unsecured notes, as well as the proceeds from equity offerings. Our unsecured revolving credit facility is also used to finance the acquisition or development of properties, and to provide mortgage financing. We have and expect to continue to issue debt securities in public or private offerings. We have and may in the future assume mortgage debt in connection with property acquisitions or incur new mortgage debt on existing properties. We may also issue equity securities in connection with acquisitions. Continued growth of our real estate investments and mortgage financing portfolios will depend in part on our continued ability to access funds through additional borrowings and securities offerings and, to a lesser extent, our ability to assume debt in connection with property acquisitions. We may also fund investments with the proceeds from asset dispositions.

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring corporate operating expenses, debt service requirements and distributions to shareholders. We have historically met these requirements primarily through cash provided by operating activities. The table below summarizes our cash flows (dollars in thousands):


	Six Months Ended June 30,
	2021		2020
Net cash provided by operating activities	$	140,800	$	57,413
Net cash used by investing activities	(26,766)		(52,978)
Net cash (used) provided by financing activities	(628,630)		473,879

We currently anticipate that our cash on hand, cash from operations, funds available under our unsecured revolving credit facility and proceeds from asset dispositions will provide adequate liquidity to meet our financial commitments for the next 12 months, including to fund our operations, make interest and principal payments on our debt, and allow distributions to our shareholders and avoid corporate level federal income or excise tax in accordance with REIT Internal Revenue Code requirements.

As discussed above, we have agreed to rent and mortgage payment deferral arrangements with most of our customers as a result of the COVID-19 pandemic. Under these deferral arrangements, our customers are required to resume rent and mortgage payments at negotiated times, and begin repaying deferred amount under negotiated schedules, which will begin at various times in the future. In addition, the continuing impact of the COVID-19 pandemic may result in further extensions or adjustments for our customers, which we cannot predict at this time. In the near term, we believe we can fund our short-term liquidity requirements primarily with cash on hand and funds borrowed under our unsecured revolving credit facility.

Commitments

As of June 30, 2021, we had 17 development projects with commitments to fund an aggregate of approximately $78.6 million, of which approximately $11.2 million is expected to be funded in 2021. Development costs are advanced by us in periodic draws. If we determine that construction is not being completed in accordance with the terms of the development agreement, we can discontinue funding construction draws. We have agreed to lease the properties to the operators at pre-determined rates upon completion of construction.

We have certain commitments related to our mortgage notes and notes receivable investments that we may be required to fund in the future. We are generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of our direct control. As of June 30, 2021, we had two mortgage notes and one note receivable with commitments totaling approximately $24.3 million of which approximately $3.6 million is expected to be funded in 2021. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

In connection with construction of our development projects and related infrastructure, certain public agencies require posting of surety bonds to guarantee that our obligations are satisfied. These bonds expire upon the completion of the improvements or infrastructure. As of June 30, 2021, we had four surety bonds outstanding totaling $33.3 million.

Liquidity Analysis

As noted above, during the six months ended June 30, 2021, we paid off the balance of $590.0 million on our unsecured revolving credit facility. In analyzing our liquidity, we expect that our cash provided by operating activities will meet our normal recurring operating expenses, recurring debt service requirements and dividends to shareholders.

We have no scheduled debt payments due until 2023. We currently believe that we will be able to repay, extend, refinance or otherwise settle our debt maturities as the debt comes due and that we will be able to fund our remaining commitments, as necessary. However, there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or advantageous to us, particularly in light of the continuing economic uncertainty caused by the COVID-19 pandemic.

Our primary use of cash after paying operating expenses, debt service, distributions to shareholders, funding share repurchases and funding existing commitments is in growing our investment portfolio through the acquisition, development and financing of additional properties. We expect to finance these investments with borrowings under our unsecured revolving credit facility as well as debt and equity financing alternatives or proceeds from asset dispositions. The availability and terms of any such financing or sales will depend upon market and other conditions, which have been negatively impacted by the COVID-19 pandemic. If we borrow the maximum amount available under our unsecured revolving credit facility, there can be no assurance that we will be able to obtain additional or substitute investment financing. We may also assume mortgage debt in connection with property acquisitions.

Our investment spending and uses of cash during the Covenant Relief Period were subject to limitations under the amendments to the agreements governing our Consolidated Credit Agreement and Note Purchase Agreement as discussed above. In addition, in certain circumstances, we were required to apply 100% of the proceeds, net of certain costs, received during the Covenant Relief Period from certain sales and dispositions, debt issuances or equity issuances, in each case, subject to certain exceptions, to repay amounts outstanding under our Consolidated Credit Agreement (as applicable) and Note Purchase Agreement. As discussed above, we terminated the Covenant Relief Period early and were released from these restrictions under the credit facilities.

Capital Structure

We believe that our shareholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet as measured primarily by our net debt to adjusted EBITDAre ratio (see "Non-GAAP Financial Measures" for definitions). We also seek to maintain conservative interest, fixed charge, debt service coverage and net debt to gross asset ratios.

Our net debt to adjusted EBITDAre ratio was not meaningful at June 30, 2021 given the temporary disruption caused by the COVID-19 pandemic and the associated accounting for tenant rent deferrals and other lease modifications. Our net debt to gross assets ratio was 39% as of June 30, 2021 (see "Non-GAAP Financial Measures" for calculation).

Non-GAAP Financial Measures

Funds From Operations (FFO), Funds From Operations As Adjusted (FFOAA) and Adjusted Funds From Operations (AFFO)

The National Association of Real Estate Investment Trusts (“NAREIT”) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. Pursuant to the definition of FFO by the Board of Governors of NAREIT, we calculate FFO as net income (loss) available to common shareholders, computed in accordance with GAAP, excluding gains and losses from disposition of real estate and impairment losses on real estate, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships, joint ventures and other affiliates. Adjustments for unconsolidated partnerships, joint ventures and other affiliates are calculated to reflect FFO on the same basis. We have calculated FFO for all periods presented in accordance with this definition.

In addition to FFO, we present FFOAA and AFFO. FFOAA is presented by adding to FFO costs associated with loan refinancing or payoff, transaction costs, severance expense, preferred share redemption costs, impairment of operating lease right-of-use assets and credit loss (benefit) expense and subtracting gain on insurance recovery and deferred income tax (benefit) expense. AFFO is presented by adding to FFOAA non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense to management and Trustees and amortization of above and below market leases, net and tenant allowances; and subtracting maintenance capital expenditures (including second generation tenant improvements and leasing commissions), straight-lined rental revenue (removing the impact of straight-line ground sublease expense), and the non-cash portion of mortgage and other financing income.

FFO, FFOAA and AFFO are widely used measures of the operating performance of real estate companies and are provided here as supplemental measures to GAAP net income (loss) available to common shareholders and earnings per share, and management provides FFO, FFOAA and AFFO herein because it believes this information is useful to investors in this regard. FFO, FFOAA and AFFO are non-GAAP financial measures. FFO, FFOAA and AFFO do not represent cash flows from operations as defined by GAAP and are not indicative that cash flows are adequate to fund all cash needs and are not to be considered alternatives to net income or any other GAAP measure as a measurement of the results of our operations or our cash flows or liquidity as defined by GAAP. It should also be noted that not all REITs calculate FFO, FFOAA and AFFO the same way so comparisons with other REITs may not be meaningful.

The following table summarizes our FFO, FFOAA and AFFO including per share amounts for FFO and FFOAA, for the three and six months ended June 30, 2021 and 2020 and reconciles such measures to net income (loss) available to common shareholders, the most directly comparable GAAP measure (unaudited, in thousands, except per share information):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
FFO:
Net income (loss) available to common shareholders of EPR Properties	$	12,519	$	(68,999)	$	9,865	$	(37,915)
Gain on sale of real estate	(511)		(22)		(712)		(242)

Impairment of real estate investments, net (1)	—		36,255		—		36,255

Real estate depreciation and amortization	40,332		42,151		80,441		85,676
Allocated share of joint venture depreciation	459		378		813		761
Impairment charges on joint ventures	—		3,247		—		3,247
FFO available to common shareholders of EPR Properties	$	52,799	$	13,010	$	90,407	$	87,782






FFOAA:
FFO available to common shareholders of EPR Properties	$	52,799	$	13,010	$	90,407	$	87,782
Costs associated with loan refinancing or payoff	—		820		241		820
Transaction costs	662		771		1,210		1,846



Impairment of operating lease right-of-use assets (1)	—		15,009		—		15,009

Credit loss (benefit) expense	(2,819)		3,484		(5,581)		4,676


Gain on insurance recovery (included in other income)	—		—		(30)		—
Deferred income tax benefit	—		(1,676)		—		(2,789)

FFOAA available to common shareholders of EPR Properties	$	50,642	$	31,418	$	86,247	$	107,344






AFFO:
FFOAA available to common shareholders of EPR Properties	$	50,642	$	31,418	$	86,247	$	107,344
Non-real estate depreciation and amortization	206		299		423		584
Deferred financing fees amortization	1,574		1,651		3,121		3,285
Share-based compensation expense to management and trustees	3,675		3,463		7,459		6,972
Amortization of above and below market leases, net and tenant allowances	(99)		(108)		(195)		(260)
Maintenance capital expenditures (2)	(1,467)		(1,291)		(2,223)		(2,219)
Straight-lined rental revenue	(1,420)		(2,229)		(2,708)		7,479
Straight-lined ground sublease expense	111		207		195		383
Non-cash portion of mortgage and other financing income	(216)		(97)		(387)		(188)
AFFO available to common shareholders of EPR Properties	$	53,006	$	33,313	$	91,932	$	123,380


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
FFO per common share:
Basic	$	0.71	$	0.17	$	1.21	$	1.13
Diluted	0.71		0.17		1.21		1.13
FFOAA per common share:
Basic	$	0.68	$	0.41	$	1.15	$	1.39
Diluted	0.68		0.41		1.15		1.39
Shares used for computation (in thousands):
Basic	74,781		76,310		74,704		77,388
Diluted	74,870		76,310		74,772		77,388






Other financial information:
Dividends per common share	$	—	$	0.3825	$	—	$	1.5150

(1) Impairment charges recognized during both the three and six months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets.

(2) Includes maintenance capital expenditures and certain second-generation tenant improvements and leasing commissions.

The effect of the conversion of our convertible preferred shares is calculated using the if-converted method and the conversion which results in the most dilution is included in the computation of per share amounts. The additional common shares that would result from the conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares for each of the three and six months ended June 30, 2021 and 2020, and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted FFO and FFOAA per share because the effect is anti-dilutive.

Net Debt

Net Debt represents debt (reported in accordance with GAAP) adjusted to exclude deferred financing costs, net and reduced for cash and cash equivalents. By excluding deferred financing costs, net and reducing debt for cash and cash equivalents on hand, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition. Our method of calculating Net Debt may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

Gross Assets

Gross Assets represents total assets (reported in accordance with GAAP) adjusted to exclude accumulated depreciation and reduced for cash and cash equivalents. By excluding accumulated depreciation and reducing cash and cash equivalents, the result provides an estimate of the investment made by us. We believe that investors commonly use versions of this calculation in a similar manner. Our method of calculating Gross Assets may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

Net Debt to Gross Assets

Net Debt to Gross Assets is a supplemental measure derived from non-GAAP financial measures that we use to evaluate capital structure and the magnitude of debt to gross assets. We believe that investors commonly use versions of this ratio in a similar manner. Our method of calculating Net Debt to Gross Assets may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

EBITDAre

NAREIT developed EBITDAre as a relative non-GAAP financial measure of REITs, independent of a company's capital structure, to provide a uniform basis to measure the enterprise value of a company. Pursuant to the definition of EBITDAre by the Board of Governors of NAREIT, we calculate EBITDAre as net income (loss), computed in accordance with GAAP, excluding interest expense (net), income tax (benefit) expense, depreciation and amortization, gains and losses from disposition of real estate, impairment losses on real estate, costs associated with loan refinancing or payoff and adjustments for unconsolidated partnerships, joint ventures and other affiliates.

Management provides EBITDAre herein because it believes this information is useful to investors as a supplemental performance measure as it can help facilitate comparisons of operating performance between periods and with other REITs. Our method of calculating EBITDAre may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. EBITDAre is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered an alternative to net income or any other GAAP measure as a measurement of the results of our operations or cash flows or liquidity as defined by GAAP.

Adjusted EBITDAre

Management uses Adjusted EBITDAre in its analysis of the performance of the business and operations of the Company. Management believes Adjusted EBITDAre is useful to investors because it excludes various items that management believes are not indicative of operating performance, and that it is an informative measure to use in computing various financial ratios to evaluate the Company. We define Adjusted EBITDAre as EBITDAre (defined above) for the quarter excluding gain on insurance recovery, severance expense, credit loss (benefit) expense, transaction costs, impairment losses on operating lease right-of-use assets and prepayment fees.

Our method of calculating Adjusted EBITDAre may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Adjusted EBITDAre is not a measure of performance under GAAP, does not represent cash generated from operations as defined by GAAP and is not indicative of cash available to fund all cash needs, including distributions. This measure should not be considered as an alternative to net income or any other GAAP measure as a measurement of the results of our operations or cash flows or liquidity as defined by GAAP.

Reconciliations of debt, total assets and net income (loss) (all reported in accordance with GAAP) to Net Debt, Gross Assets, Net Debt to Gross Assets, EBITDAre and Adjusted EBITDAre (each of which is a non-GAAP financial measure), as applicable, are included in the following tables (unaudited, in thousands):


	June 30,
	2021			2020
Net Debt:
Debt	$	3,081,485		$	3,854,088
Deferred financing costs, net	34,744			35,907
Cash and cash equivalents	(509,836)			(1,006,981)
Net Debt	$	2,606,393		$	2,883,014
Gross Assets:
Total Assets	$	6,142,212		$	7,002,978
Accumulated depreciation	1,130,409			1,034,771
Cash and cash equivalents	(509,836)			(1,006,981)
Gross Assets	$	6,762,785		$	7,030,768

Net Debt to Gross Assets	39		%	41		%

	Three Months Ended June 30,
	2021			2020
EBITDAre and Adjusted EBITDAre:
Net income (loss)	$	18,552		$	(62,965)
Interest expense, net	38,312			38,340
Income tax expense (benefit)	398			(1,312)
Depreciation and amortization	40,538			42,450
Gain on sale of real estate	(511)			(22)

Impairment of real estate investments, net (1)	—			36,255

Costs associated with loan refinancing or payoff	—			820

Allocated share of joint venture depreciation	459			378
Allocated share of joint venture interest expense	846			736
Impairment charges on joint ventures	—			3,247
EBITDAre	$	98,594		$	57,927




Transaction costs	662			771

Credit loss (benefit) expense	(2,819)			3,484


Impairment of operating lease right-of-use assets (1)	—			15,009

Adjusted EBITDAre	$	96,437		$	77,191





(1) Impairment charges recognized during both the three and six months ended June 30, 2020 totaled $51.3 million, which was comprised of $36.3 million of impairments of real estate investments and $15.0 million of impairments of operating lease right-of-use assets.

Total Investments

Total investments is a non-GAAP financial measure defined as the sum of the carrying values of real estate investments (before accumulated depreciation), land held for development, property under development, mortgage notes receivable (including related accrued interest receivable), investment in joint ventures, intangible assets, gross (before accumulated amortization and included in other assets) and notes receivable and related accrued interest receivable, net (included in other assets). Total investments is a useful measure for management and investors as it illustrates across which asset categories the Company's funds have been invested. Our method of calculating total investments may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. A reconciliation of total investments to total assets (computed in accordance with GAAP) is included in the following table (unaudited, in thousands):


	June 30, 2021		December 31, 2020
Total Investments:
Real estate investments, net of accumulated depreciation	$	4,834,652	$	4,851,302
Add back accumulated depreciation on real estate investments	1,130,409		1,062,087
Land held for development	23,225		23,225
Property under development	35,082		57,630
Mortgage notes and related accrued interest receivable	366,064		365,628

Investment in joint ventures	27,476		28,208
Intangible assets, gross (1)	57,962		57,962
Notes receivable and related accrued interest receivable, net (1)	7,344		7,300
Total investments	$	6,482,214	$	6,453,342

Total investments	$	6,482,214	$	6,453,342
Operating lease right-of-use assets	179,354		163,766
Cash and cash equivalents	509,836		1,025,577
Restricted cash	3,570		2,433
Accounts receivable	91,319		116,193
Less: accumulated depreciation on real estate investments	(1,130,409)		(1,062,087)
Less: accumulated amortization on intangible assets (1)	(18,420)		(16,330)
Prepaid expenses and other current assets (1)	24,748		21,291
Total assets	$	6,142,212	$	6,704,185

(1) Included in "Other assets" in the accompanying consolidated balance sheet. Other assets include the following:

	June 30, 2021		December 31, 2020
Intangible assets, gross	$	57,962	$	57,962
Less: accumulated amortization on intangible assets	(18,420)		(16,330)
Notes receivable and related accrued interest receivable, net	7,344		7,300
Prepaid expenses and other current assets	24,748		21,291
Total other assets	$	71,634	$	70,223

Impact of Recently Issued Accounting Standards

See Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on the impact of recently issued accounting standards on our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, primarily relating to potential losses due to changes in interest rates and foreign currency exchange rates. We seek to mitigate the effects of fluctuations in interest rates by matching the term of new investments with new long-term fixed rate borrowings whenever possible. As of June 30, 2021, we had a $1.0 billion unsecured revolving credit facility with no outstanding balance. We also had a $400.0 million unsecured term loan facility and a $25.0 million bond that bear interest at a floating rate but have been fixed through interest rate swap agreements.

As of June 30, 2021, we had a 65% investment interest in two unconsolidated real estate joint ventures related to two experiential lodging properties located in St. Petersburg Beach, Florida. At June 30, 2021, the joint venture had a secured mortgage loan with an outstanding balance of $85.0 million. The mortgage loan bears interest at an annual rate equal to the greater of 6.00% or LIBOR plus 3.75%. The joint venture has an interest rate cap agreement to limit the variable portion of the interest rate (LIBOR) on this note to 3.0% from March 28, 2019 to April 1, 2023.

We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of such refinancing may not be as favorable as the terms of current indebtedness, particularly in light of the current economic uncertainty caused by the COVID-19 pandemic. The majority of our borrowings are subject to contractual agreements or mortgages which limit the amount of indebtedness we may incur. Accordingly, if we are unable to raise additional equity or borrow money due to these limitations, our ability to make additional real estate investments may be limited.

We are exposed to foreign currency risk against our functional currency, the U.S. dollar, on our four Canadian properties and the rents received from tenants of the properties are payable in CAD. In order to hedge our net investment in our four Canadian properties, we entered into two fixed-to-fixed cross-currency swaps, with a fixed notional value of $200.0 million CAD. These investments became effective on July 1, 2018, mature on July 1, 2023 and are designated as net investment hedges of our Canadian net investments. The net effect of this hedge is to lock in an exchange rate of $1.32 CAD per U.S. dollar on $200.0 million CAD of our foreign net investments. The cross-currency swaps also have a monthly settlement feature locked in at an exchange rate of $1.32 CAD per USD on $4.5 million of CAD annual cash flows, the net effect of which is an excluded component from the effectiveness testing of this hedge.

In order to also hedge our net investment on the four Canadian properties, we entered into three USD-CAD cross-currency swaps that were effective July 1, 2020 with a total fixed original notional value of $100.0 million CAD and $76.6 million USD. The net effect of these swaps is to lock in an exchange rate of $1.31 CAD per USD on approximately $7.2 million annual CAD denominated cash flows through June 2022.

For foreign currency derivatives designated as net investment hedges, the change in the fair value of the derivatives are reported in AOCI as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.

See Note 9 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on our derivative financial instruments and hedging activities.

Item 4. Controls and Procedures

Evaluation of disclosures controls and procedures

As of June 30, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Limitations on the effectiveness of controls

Our disclosure controls were designed to provide reasonable assurance that the controls and procedures would meet their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective, maturing control system, misstatements due to error or fraud may occur and not be detected.

Change in internal controls

There have not been any changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to certain claims and lawsuits in the ordinary course of business, the outcome of which cannot be determined at this time. In the opinion of management, any liability we might incur upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our consolidated financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes to the risk factors associated with our business previously disclosed in Item 1A - "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

There were no reportable events during the quarter ended June 30, 2021.

Dividends

As discussed above under "Management's Discussion and Analysis of Financial Condition and Results of Operations," on June 29, 2020 and November 3, 2020, we amended our Consolidated Credit Agreement, which governs our unsecured revolving credit facility and our unsecured term loan facility, and on June 29, 2020 and December 24, 2020, we also amended the Note Purchase Agreement which governs our private placement notes. The amendments modified certain provisions and waived our obligation to comply with certain covenants under these debt agreements in light of the continuing financial and operational impacts of the COVID-19 pandemic on us and our tenants and borrowers. The amendments also imposed certain restrictions including our ability to pay common dividends during the Covenant Relief Period, subject to certain exceptions. Accordingly, in connection with these amendments, we temporarily suspended our monthly cash dividend to common shareholders after the common share dividend payable May 15, 2020 (except as may be necessary to maintain REIT status and to not owe income tax). On July 12, 2021, we delivered notice under our Consolidated Credit Agreement and Note Purchase Agreement of our election to terminate the Covenant Relief Period early and, on July 13, 2021, we declared a monthly cash dividend payable on August 16, 2021 to shareholders of record on July 30, 2021.

Item 3. Defaults Upon Senior Securities

There were no reportable events during the quarter ended June 30, 2021.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

There were no reportable events during the quarter ended June 30, 2021.

Item 6. Exhibits


10.1			EPR Properties 2016 Equity Incentive Plan (as amended and restated effective May 28, 2021), which is attached as Exhibit 10.1 to the Company's Form 8-K (Commission File No. 001-13561) filed on June 1, 2021, is hereby incorporated by reference as Exhibit 10.1.
31.1*			Certification of Gregory K. Silvers pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 31.1.
31.2*			Certification of Mark A. Peterson pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 31.2.
32.1**			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32.1.
32.2**			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32.2.
101.INS*			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema
101.CAL*			Inline XBRL Extension Calculation Linkbase
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase
104*			Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EPR Properties

Dated:

July 28, 2021

/s/ Gregory K. Silvers

Gregory K. Silvers, President and Chief Executive
Officer (Principal Executive Officer)

Dated:

July 28, 2021

/s/ Tonya L. Mater

Tonya L. Mater, Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)