EPR Properties EPR Business Risk Report

I. Market Risks

A. Economic downturn impacting consumer spending on entertainment properties
EPR Properties, specializing in entertainment, recreation, and education real estate investments, is sensitive to economic downturns that impact discretionary spending. A recession or reduction in consumer confidence can lead to decreased attendance at movie theaters and amusement parks, directly affecting EPR’s revenue streams.

B. Increased competition in the entertainment real estate sector
The entertainment real estate market has become increasingly competitive as more players enter the space, offering alternative attractions and venues. This acute competition could pressure EPR Properties to invest in continuous enhancements of their properties to maintain tenant satisfaction and occupancy rates.

II. Regulatory Risks

A. Changes in zoning laws affecting property development
EPR Properties may face challenges related to changes in zoning laws which could impact their ability to develop or enhance properties according to planned timelines and budgets. Such regulatory changes could delay projects, thereby affecting growth strategies.

B. Government regulations impacting lease agreements with tenants
Stringent government regulations can influence the terms and profitability of lease agreements for properties managed by EPR. Changes in regulatory frameworks, such as those involving tenant protections, could restrict EPR’s flexibility in lease management.

III. Financial Risks

A. Interest rate fluctuations affecting cost of debt financing
Given EPR Properties’ utilization of debt financing, fluctuations in interest rates can significantly impact their cost of capital. Rising interest rates would increase borrowing costs and potentially decrease profit margins.

B. Revenue volatility due to lease expirations and tenant vacancies
EPR Properties faces financial risk associated with lease expirations and subsequent tenant vacancies. The timing and economic conditions at points of tenant turnover can lead to revenue gaps that would adversely affect the financial health of the company.

IV. Operational Risks

A. Maintenance and repair costs for properties impacting profitability
The need for frequent maintenance and repairs in EPR’s entertainment-centric properties, such as theaters and amusement parks, could lead to unexpected increases in operational costs, thereby impacting profitability.

B. Natural disasters disrupting operations and property value
EPR Properties’ extensive real estate holdings across various geographical areas expose them to natural disasters such as hurricanes, earthquakes, or floods, which could damage properties and disrupt operations.

V. Reputation Risks

A. Negative publicity impacting tenant retention and property value
Negative publicity, whether due to operational failures, tenant disputes, or other reasons, could harm EPR Properties’ reputation, affecting tenant retention and potentially devaluing property investments.

B. Failure to meet tenant expectations leading to decreased lease renewals
If EPR Properties fails to meet the evolving expectations of their tenants, it could result in decreased satisfaction and loyalty, leading to lower lease renewal rates and negatively impacting revenue continuity.

VI. Legal Risks

A. Lease disputes with tenants affecting financial performance
Disputes over lease terms, payments, or compliance can lead to legal challenges for EPR Properties. Such disputes not only incur legal costs but also detract from the overall financial performance.

B. Litigation related to property ownership and management
EPR could be involved in litigation concerning property ownership rights, management responsibilities, or tenant relations, potentially resulting in significant legal expenses and management distraction.

VII. Cybersecurity Risks

A. Data breaches compromising sensitive tenant information
With substantial tenant and operational data stored digitally, EPR Properties is vulnerable to data breaches which could compromise tenant privacy and lead to trust issues and potential legal consequences.

B. Cyber attacks disrupting property management systems
Cyber-attacks targeting EPR Properties’ management systems could disrupt daily operations and maintenance schedules, leading to operational inefficiency and a potential loss of revenue.

VIII. Mitigation Strategies

A. Diversification of property portfolio to mitigate market risks
EPR Properties actively diversifies its property portfolio by investing in a variety of geographies and markets like education-related properties, which may counterbalance the impact of an entertainment market downturn.

B. Regular compliance monitoring to address regulatory risks
Comprehensive monitoring and compliance checks help EPR Properties stay ahead of regulatory changes, ensuring swift adaptation to new legal demands without significant disruptions.

C. Hedging strategies to manage financial risks
EPR employs financial hedging strategies such as fixed-rate debt financing to mitigate risks associated with interest rate volatility.

D. Robust maintenance and disaster recovery plans to address operational risks
Rigorous maintenance procedures and disaster recovery plans ensure operational continuity and mitigate costs associated with property damage from natural disasters or other disruptive events.

E. Proactive reputation management and tenant communication to mitigate reputation risks
Through proactive public relations strategies and consistent communication with tenants, EPR Properties maintains a strong reputation, enhancing tenant relationships and aiding in retention.

F. Legal review of lease agreements and proactive legal risk management
Regular legal reviews of contracts and proactive dispute resolution strategies minimize litigation risks and maintain stable tenant relationships for EPR Properties.

G. Implementation of cybersecurity measures to protect sensitive data and systems
EPR has put in place robust cybersecurity protocols, including data encryption and comprehensive IT security practices, to safeguard against data breaches and cyber attacks.