Hello, and welcome to the EPR Properties Q3 2026 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications.
Thank you. Thanks for joining us today for our third quarter 2026 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO, Ben Fox, Executive Vice President and CIO, and Mark Peterson, Executive Vice President and CFO. We will start the call by informing you that this call may include forward-looking statements identified in the Private Securities Litigation Reform Act of 1995 by such words as will, be, intend, continue, believe, may, expect, hope, anticipate, or other such comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q.
Additionally, this call will contain certain references to non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental, and earnings call presentation are all available on the investor center page of the company's website, www.eprkc.com. Now I will turn the call over to Greg Silvers.
Thank you, Brian. Good morning, everyone, and welcome to our third quarter 2026 earnings call and webcast. Our focus this year has been on accelerating growth, and our third quarter results demonstrate continued momentum across the business. Revenue increased 12%, while FFO as adjusted per share increased 8.8% compared with the same period in 2025. These results were supported by a strong in-place portfolio and a robust pace of investment activity. Our investment spending remained strong throughout the quarter as we continue to broaden our experiential portfolio and establish important new relationships. We entered the live venue category through a build-to-suit development in Portland, Oregon, with industry leader Live Nation. We have long discussed the strong, sustained demand fundamentals of live performance, and our team worked diligently to identify the right initial opportunity.
We also acquired a Life Time Fitness and Wellness property in Irvine, California, further expanding both the depth and quality of our fitness and wellness portfolio. Our portfolio coverage incrementally increased during the quarter to 2.1x . We are also pleased to see box office running well ahead of last year. The third quarter capped off a record summer, and year-to-date box office was up approximately 20% through September, driven by a broad mix of genres and compelling titles that continue to bring audiences back to theaters. Our results underscore that the consumer continues to demonstrate that they value and prioritize experiential offerings. We continue to draw on multiple sources of capital to fund our growth.
During the quarter, we recycled capital through the sale of a private school property, entered into forward sale agreements under our ATM program, and executed a new credit agreement that includes a $600 million term loan. With our credit facilities and forward equity in place, we have the capacity to fund a strong pipeline of opportunities. Given our capacity and our activity to date, we are pleased to raise our investment spending earnings guidance, which represents an increase of 8% at the midpoint over 2025. As our portfolio expands and diversifies, we remain well-positioned to capitalize on the continued growth of experiential real estate. With that, I will turn the call over to Ben for a closer look at the business and our performance.
Thank you, Greg. As Greg just highlighted, this quarter marks several notable firsts for EPR. Our first investment in a live performance venue with Live Nation and our first acquisition of a fitness facility leased to Life Time. Both transactions highlight not only our continuing investment momentum, but also the accelerating diversification of our portfolio. During the quarter, we invested $172.4 million at an average initial cash yield of approximately 8.3%, bringing our year-to-date investments to $664.5 million. That volume includes a new experiential category, live venues, along with continued additions to our fitness and wellness, eat and play, and experiential lodging portfolios. Two of this quarter's investments stand out for their exceptional A+ real estate. Life Time in Irvine, California, and Onelife Fitness at Tysons Galleria in Virginia both occupy world-class locations that we believe support their long-term success.
In addition to these investments, we expect to invest another $21 million this year in experiential development and redevelopment projects already underway. As we noted last quarter, our theater exposure continues to decline as our experiential investment volume accelerates. Theaters now represent roughly one-third of our portfolio, and we expect that share to continue trending toward our long-term goal of approximately 20%. Given our investment pace and the depth of our pipeline, we are pleased to once again increase our 2026 investment spending guidance to a range of $675 million-$725 million. Two points on our pipeline in the current investment environment. First, the breadth of our pipeline is unparalleled in recent memory, and we look forward to sharing some of the exciting opportunities we are pursuing in the coming quarters. Second, on cost of capital and investment spreads, three factors are working in our favor.
Our transactions generally have rate protection built in prior to closing, which provides a buffer during periods of market volatility. As we've said before, our biggest competition is debt, not net lease. In this market, debt capital has repriced even faster, so our clients are receptive to conversations on pricing. Because our business is relationship driven with a proprietary pipeline, we enjoy higher average entry yields, which give us a natural cushion. Turning to the portfolio. At the end of the third quarter, our portfolio totaled $7.6 billion of gross investment value across 350 properties, which were 99% leased or operated. By ABR, 96% is in our core experiential categories, represented by 296 properties operated by 61 clients, which remain 99% leased or operated. The remaining 4% is our education portfolio, made up of 54 properties leased to four operators, which were 100% leased at quarter end.
Portfolio health remains sound, with unit-level rent coverage increasing to 2.1x . While data indicate pockets of strain among the lowest income consumers, people's enduring preference for experiences over things continues to support our portfolio. Our portfolio also benefits from diversification across multiple demographic dimensions, with experiences that appeal to many generations and income levels. Theaters are a great example. Not only do they span all of these demographics, but they also have historically proven resilient in economic downturns. Most importantly, as Greg has said many times, content drives performance. People want to see cool stuff. This year's box office, which is up 20% year to date and on track for its best year since 2019, demonstrates exactly that. We've talked about who goes to the movies before, but with the strength we continue to see across our theater portfolio, a few points are worth repeating.
Gen Z accounts for 40% of all moviegoers, and in multiple polls, Gen Alpha has said it prefers the big screen. Format matters. People can't replicate IMAX and other premium large-format screens at home, and the industry has created real urgency around seeing certain films in these formats. Our portfolio over-indexes to exactly those experiences. 71% of our theaters have recliners, 84% offer enhanced food and beverage, and 69% have premium large-format screens. These features help our theaters generate roughly 8% of North American box office gross, with only 3% of screenings. Finally, the industry has coalesced around a 45-day theatrical window, which supports exhibitors and spares studios a second marketing push after films leave theaters. Some films will run longer, including the upcoming Netflix release of "Narnia" with a seven-week window. It's not just the movies.
Young people are lining up for concerts, comedy shows, and other live events. They want to get out of the house, and they are hungry for shared experiences. We're capitalizing on this momentum through partnership with industry leaders like Live Nation, whose venue will host concerts and comedy shows. Turning to other areas of our portfolio, our eat and play segment remains resilient, strengthened by the quality of our locations despite broader industry moderation. Topgolf's positive momentum since the sale continues. Expense reductions and revenue initiatives are delivering results, and our Topgolf portfolio remains very healthy. Attractions performed well in the third quarter, with several parks outperforming. As we saw in ski during the winter, geographic diversification and attractions helped offset isolated summer weather events. Our fitness and wellness portfolio continued with solid performance in the third quarter, with stabilizing trends at several recently renovated and expanded properties.
Finally, our education portfolio continues to face industry-wide headwinds, including higher labor costs, grant funding challenges, and regulatory pressure. Despite this backdrop, this portfolio remains resilient. Moving on to dispositions. Reflecting our commitment to accretive capital recycling, in the third quarter, we completed the sale of the British School of Chicago to a public net lease peer, transacting at a cap rate in the low 7% range. Following this sale, we are updating our 2026 disposition guidance to approximately $86 million, as we do not anticipate any additional dispositions prior to year-end. In summary, our portfolio remains resilient. Our diversification is accelerating, and we are very excited about the investment opportunities in front of us. With that, I'll turn it over to Mark for a review of our financial performance.
Thank you, Ben. Today, I'll discuss our strong financial performance for the third quarter, provide an update on our balance sheet, and close by discussing the increases in our earnings and investment spending guidance for the year. FFO as adjusted for the quarter was $1.49 per share versus $1.37 in the prior year, an increase of 8.8%. AFFO for the quarter was $1.54 per share compared to $1.39 in the prior year, an increase of 10.8%. Please note that this quarter we have revised our definition of AFFO to no longer deduct maintenance capital expenditures. This change was made to be consistent with most other triple net REITs and is immaterial. All prior periods have been recast to reflect this change, and reconciliations from the previous definition to the new definition are included in the supplemental and press release.
Before I walk through the key variances, I want to explain two items excluded from both FFO as adjusted and AFFO. First, during the quarter, we had disposition proceeds of $74 million, which included the sale of a private school property for net proceeds of $68.2 million, and a gain of $30.5 million was recognized. Second, as discussed last quarter, we entered into a new amended and restated $1.6 billion credit agreement, and in connection with this, we recognized $605,000 of costs associated with loan refinancing or payoff. Now, moving to a few key variances. Total revenue for the quarter was $204.1 million, versus $182.3 million in the prior year, an increase of $21.8 million or 12%. This increase was primarily due to the impact of investment spending as well as rent and interest bumps.
Percentage rents and participating interest for the quarter were $9.8 million, up from $7 million in the prior year, primarily due to higher percentage rent recognized from our attraction and theater properties. Both other income and other expense relate primarily to our consolidated operating properties, including our four operating theaters and the Kartrite Hotel and indoor water park. The increase in other income and other expense versus prior year is due primarily to better performance at our theater properties as a result of strong box office during the quarter. On the expense side, interest expense net increased by $7.1 million due to an increase in average borrowings and the weighted average interest rate on our outstanding debt, as well as a decrease in capitalized interest versus the prior year.
FFO as adjusted for the nine months ended September 30th was $4.16 per share, compared to $3.81 in the prior year, an increase of 9.2%. AFFO for the same period was $4.26 per share, compared to $3.88 in the prior year, an increase of 9.8%. Turning to the next slide, I will review some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong, with fixed charge coverage at 3.5x , and both interest and debt service coverage ratios at 4.0x . Our pro forma net debt to annualized adjusted EBITDAre was 4.9x at quarter end, which is below the low end of our targeted range of 5x to 5.6x . Pro forma net debt is calculated by subtracting the estimated net proceeds from all forward sale agreements under our ATM program from net debt.
Additionally, our pro forma net debt to gross assets was 40% on a book basis at quarter end, and our common dividend continues to be very well-covered with an AFFO payout ratio of 60% for the third quarter. Now, let's move on to debt and capital market activities and our balance sheet, which is in great shape to support our continued growth. At quarter end, we had consolidated debt of $3.3 billion, of which $2.8 billion is fixed-rate debt with an average blended coupon of approximately 4.4%. During the quarter, upon maturity, we repaid in full $179.6 million of senior unsecured notes that were originally issued in a private placement transaction.
As discussed in our last call, on July 17th, we entered into a new amended and restated $1.6 billion credit agreement that, among other things, extended the maturity date and reduced the interest rate on our $1 billion revolving credit facility and established a new $600 million delayed draw term loan facility that was fully drawn at quarter end. The term loan is due in 2032, with interest based on our current credit ratings at SOFR plus 115 basis points. Additionally, during the quarter, we entered into two forward sale agreements under our ATM program for initial gross sales proceeds of $66.6 million, or an average sale price of $60.79 per share. No forward sale agreements were settled during the quarter. As of quarter end, we had total estimated net proceeds from unsettled forward sale agreements of $134.6 million, representing just under 2.3 million common shares.
Our liquidity position remains strong, and we are well-positioned to support our continued growth. In addition to the amount available under forward sale agreements that I just discussed, at quarter end, we had $52.4 million of cash on hand and no balance on our $1 billion revolver. As far as upcoming debt maturities, we have $450 million of debt coming due in December, and then nothing comes due until June of next year. Turning to guidance, we are increasing our 2026 FFO as adjusted per share guidance to a range of $5.49- $5.57, from a range of $5.41- $5.57, representing an increase versus the prior year of 8% at the midpoint. We expect a slightly higher percentage increase in AFFO per share.
We are also increasing our 2026 guidance for investment spending to a range of $675 million-$725 million from a range of $600 million-$700 million. We are revising disposition proceeds to $86 million for the year from a range of $50 million-$100 million. We are increasing our percentage rent and participating interest income guidance to a range of $21.5 million-$24.5 million from a range of $18.5 million-$22.5 million, primarily due to higher amounts expected related to our theater and attraction properties. Please note that the midpoint of this range implies that fourth quarter percentage rent and participating interest income will be approximately $6 million.
This is lower than the prior year's fourth quarter amount of nearly $8 million, due to the recognition of a part of one tenant's percentage rent in the third quarter of this year versus the fourth quarter in the prior year. We are revising our G&A expense guidance to a range of $57 million-$59 million from a range of $56 million-$59 million, due primarily to an increase in expected non-cash share-based compensation expense. Finally, our guidance for other income and other expense has been updated to a range of $44 million-$50 million, and a range of $43 million-$49 million respectively. The net increase in this guidance of $1 million reflects the additional contribution expected from our operating theaters given the strong box office performance, as well as additional gains anticipated related to our Canadian FX hedges, which is booked to other income.
Guidance details can be found on page 23 of our supplemental. Now with that, I'll turn it back over to Greg for his closing remarks.
Thank you, Mark. As you've heard today, the experience economy continues to demonstrate strength and resilience, and EPR is uniquely positioned to take advantage of this trend as it is the only diversified REIT that focuses solely on the experiential economy. So far this year, we've delivered post-COVID highs in investments and sector-leading FFO as adjusted per share growth. During the quarter, we utilized multiple tools in our tool shed, including opportunistically raising equity through our ATM program, recycling capital through dispositions, and thoughtfully refinancing our debt with a new term loan execution. Our focus remains on prudently deploying capital to acquire high-quality properties that are valued by the consumer and deliver accretive earnings growth to our shareholders. With that, why don't I open it up for questions? Operator?
Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. If you are on a mobile device using the app, simply tap into the three dots or More button to find the Raise Hand feature. Lastly, if you are calling in today, star nine will activate the raise hand, and use star six to mute and unmute. We will wait just one moment to allow the queue to form. We will take our first question from Anthony Paolone with JP Morgan. Please unmute your line and ask your question.
Great. Thanks, and good morning.
Morning, Tony.
My first question relates to what you described as an unparalleled pipeline of deals. Can you talk a bit more about just what is in that, how much is maybe acquisition opportunities versus build to suits, portfolios, areas that you would invest in, et cetera?
Sure, Tony. Good morning. By breadth, we really are talking about all those things that you have mentioned. It is that the diversity of opportunities we are seeing is really exciting. We have talked about fitness and wellness before, and even within that category, we are really seeing opportunities that stretch all the way from things that we have talked about from golf to fitness facilities and everything in between. Beyond that, we are seeing opportunities in a lot of our other verticals with eat and play, attractions, live entertainment. All of them have activity, and the conversations have just been very engaging and encouraging.
Tony, I would add, I think part of what, again, that is going on right now is we are seeing a really
continued focus on people, even in these categories, continuing to focus on spending money on these experiential properties. The consumers continues to be highly supportive of this. Our operators and our tenants are continuing to invest and grow their businesses. That is creating opportunities even in the face of some of the challenges that are generally going in the economy.
On the point of development versus acquisitions, we are seeing a split and consistent with this year, there are a number of acquisitions that we can expect for the coming year. Development, there is always a high hurdle, and in the current rate environment, that hurdle is probably even a little bit higher. We are exploring those opportunities and as discussed on the call, have a pipeline of those already in place.
Okay. Thanks for that. My second one is as it relates to your more recent theme park acquisitions this year, how did they do this summer? How are they performing? Also your appetite to do more in that space.
Again, Tony, I will let Ben chime in. I think again, as we anticipated, this was a transitory year, so we consistent with that. I think we think these are performing in line with where we anticipated. Doesn't mean we anticipated some degree of challenges as you change the operator and things. I think as we move into this coming year, you'll see a ramp up. Remember, we committed to additional capital going into those properties, and I think that will do. Likewise, again, the overall attractions industry has been incredibly resilient over time and continues to demonstrate that. We've had certain events toward the end of the season this year that have brought attention to that.
I think everyone in the industry, any sort of event that occurs is like that we've seen is tragic, and all of our operators are very much in the focus of that. Safety is of utmost importance to them, and they have demonstrated programs of inspection and safety. Literally, if you look over the billions of people that have ridden rides and things of like, they have a great overall track record of safety. So we'll have to see if that impacts our belief on what we would do in the future. But right now, everything's playing out the way I think we thought it would be. We'll see about opportunities as we go forward. But Ben, I don't know if you had anything to add to that.
I think that covers it very well. That's exactly what we're seeing.
Great. Thank you.
Thank you, Tony.
Our next question comes from James Feldman with Wells Fargo. You may now unmute your line and ask your question.
Hi, thank you. You've got Connor here on with Jamie. Given your first investment in Live Nation for a performance venue this quarter, can you talk through what makes performance venues attractive from both a credit and real estate perspective? Can you describe what your runway to grow exposure here looks like?
Again, I will let Ben give more details, but I think Connor, first of all, again, if you just look about the resilience of it, live performance has been incredible as far as its strength in the underlying experiential economy. I think the model for how musicians make their money has substantially changed to where they are all out and supported on that road. Let us be candid, Live Nation is the 800-pound gorilla in that market. I think they have announced a multi-billion dollar expansion program that they are looking for to increase the depth and breadth of their venues. That does not mean we are going to be able to do all of those, but I think we are excited about the underlying dynamics of demand compared with the ability to partner with a world-class operator. I think that just opens up a whole another opportunity for growth for us. Ben.
Yeah. That is exactly what we are seeing. What is very exciting is you look at the growth that Live Nation, some of the other operators are having. There is a void still of mid-size venues. If you think about 4,000 seat, right? You have the larger amphitheater, and then there is smaller local. That mid-size still is an underserved market, and it is really a sweet spot in that it is the perfect size that attracts headline performances, and you can command very attractive pricing, and there is just a lot of unmet demand. That gives us a lot of encouragement about the pipeline and the future opportunity in this sector.
Just to note, when we say very attractive pricing, we think that is very attractive pricing for ourselves. The cost of the tickets, I know everyone is complaining about the cost of tickets, but very attractive pricing is relative to which side of the equation you are sitting on. We think it is very attractive from our perspective.
You also mentioned credit. We have Live Nation credit, so that is important to point out as well.
Thank you. Really appreciate the insight. Maybe given the tick up in rent coverage in the portfolio to 2.1x this quarter, can you walk us through what you're seeing that's driving this increase, and are there any specific sectors or types of tenants driving that?
I think overall, clearly, there's no doubt that the overall rent coverage is being helped by the theater, and the performance of that. I think overall in experiential, I think there's some really good data points. I'd reference you guys to McKinsey's report on the state of the consumer in 2026, where they wrote that the experience economy has become one of the structural forces reshaping global consumer markets. Rather than viewing experiences as discretionary indulgences, consumers are increasingly treating them as an important part of how they choose to spend both their time and money. What we're seeing is
People are choosing experiences over stuff, and they're continuing to demonstrate that with their spending patterns. Whether you look at credit card data or spending data from the various banks, we're continuing to see experiential spending up and to the right. We think we're in the right categories, and we think we're the only REIT that offers that level of exposure. We feel really well with how we're positioned.
Thank you. Really appreciate it.
Our next question comes from Rob Stevenson with Huntington. Please unmute your line and ask your question.
Good morning, guys. Greg or Ben, the new Live Nation asset press reports have that opening next summer. Is that still accurate? Can you talk about how big of an investment that is, and if there is a period of free rent or that starts to get rent to you guys next summer?
That timeline is still accurate. In line with our other practice, we are not going to disclose the specific transaction economics, but that timeline for opening is consistent.
Okay. Mark, you have roughly $50 million in cash and $135 million available under the ATM. How much additional debt can you issue from here and still stay in your targeted leverage range? Just curious as to how much dry powder, so to speak, you have to deploy here without having to go back to the market to issue more equity.
Yeah. Let's just roll forward where we are at. As you mentioned, $50 million of cash, so $35 million of excess. As we roll forward to the rest of the year, that should cover our investment spending, which remaining is about $35 million. So we finish the year. That is covered. We have zero on our line today. We do have $450 million of debt due in December. We can take that down with our line since we have zero on it. Or, of course, we have those proceeds from the forwards. We probably do not need the forward equity till next year, so we can have that in the tank for next year's spending. As that line gets to about that mid fours, you start to look at potentially a bond transaction that would pay down that line.
Typically, when that gets to 450, 500, we look to the market to pay down the line. In terms of leverage, we finished the quarter here, third quarter, at 4.9x pro forma. Just even with the refinancing of the debt in fourth quarter, should that happen, we finish the year around five times. That is without taking down any forward equity. So we are in great shape going into next year when our leverage range is five to 5.6, and being at the lower end of the range. I think we have plenty of capacity to support the growth.
Okay. Thanks, guys. Appreciate the time.
Our next question comes from Upal Rana with KeyBanc Capital Markets. Please unmute your line and ask your question.
Greg, good morning. Thank you for taking my question. Ben, you touched on this briefly. But given the increase in cost of capital, how much have investments yields moved on a like for like basis? You mentioned sellers are open to pricing adjustments. But are you getting enough to preserve your targeted spreads?
It's a good question, Upal. We are very comfortable with maintaining our spreads. Like we talked about, our average entry yield is already very attractive. Conversations are probably in the neighborhood, though, in terms of movement these days of 25 basis points, give or take. We're also seeing movement on escalators in that we're able to drive more attractive lease increases in a lot of our conversations.
Yeah, Upal, I think these conversations are dynamic. A lot of the deals that we closed this year were based upon the cost of capital that we had done previous to the year. As we move forward, I think over the years, we've demonstrated our commitment to accretive growth, and therefore, if we're able to either expand or contract that to hit that. I think the good thing is what I talked about earlier, we're in markets that are demonstrating growth and fundamental consumer support. So our operators are looking to deploy capital, and there is a cost of capital to do that if they want to grow.
I think as Ben said, they're more receptive to at least continuing their growth and for us to be there's a cost for us doing that, and we've had these discussions, and we'll have more of them.
Ultimately, as Greg highlighted, we're going to remain disciplined in our deployment, and we're not going to sacrifice spread for volume.
Okay, great. That was helpful. Then maybe last quarter, you mentioned some of the percentage rent strength was timing related rather than an incremental full year upside. With the percentage rent guidance raise this quarter, what changed relative to those assumptions, and was that really The Odyssey and Spider-Man or any kind of other experiential categories?
Yeah, you're right about the little bit of timing between Q3 and Q4, but overall, the overall increase of $2.5 million is really a combination of theater performance, particularly the Regal percentage rents and a couple other smaller amounts. We also saw strength overall in the attraction space, particularly with our Canadian assets. So those are really the two primary areas that drove the increase for the year of $2.5 million at the midpoint.
Okay, great. Thank you.
Sure.
Our next question comes from Smedes Rose with Citigroup. Please unmute your line and ask your question.
Hi, can you hear me?
Yes.
Okay, great. Sorry. I wanted to ask just a little bit about maybe just the Life Time acquisition. I think you said it is at Tysons Corner. We clearly see a lot of other REITs that have, frankly, a better cost of capital relative to you buying those assets. I am just wondering, could you talk a little bit about the pricing on that specific opportunity and kind of maybe how it came to you and maybe the competitive landscape when it comes to those kinds of facilities?
Smedes, first of all, let us be clear that the Tysons Galleria asset was not. That Life Time was in Irvine, California.
Oh, sorry. Okay.
That's quite all right. I just want to make sure that we get that. Second of all, I think, as we've talked about, all of ours are relationship driven. I think, for us, without displaying any sort of particular that our, we said our cap rates were average in the eights, and these were consistent with that. I think our ability to source those deals is really a long time, kind of us working with people, and Ben's relationships and other people's relationships here. I think we are, like I said, uniquely positioned to kind of take advantage of some of that. We continue to be, I think, fluid and be able to kind of respond very quickly in timely manners. So it positions us to kind of take advantage of some of these deals.
Like Ben talked about, we probably have, again, you talk about that cap rate with probably, again, I don't know if they report, but maybe the best Life Time performance west of the Mississippi. I think we feel pretty good about our ability to continue to consistently do things that, as you say, others should be able to beat us, but they don't.
Okay. It's not a criticism. It was just observation. I wanted to ask you, also on the build-to-suit opportunities, you mentioned that it's sort of a higher bar, but I guess just in general, what sort of spread to your typical going and cap rates would you look for on development opportunities?
Yeah, Smedes. The higher bar is really that development projects always multiple factors come into play, and it's not just for us, but it's for the operators as well. When they're looking at projects, the cost of capital and their cost to build, so construction costs, everything comes into play. That's really what we're talking about with the higher bar. In terms of spreads, it's very consistent with where we always target in the kind of 50-75 basis point premium to in place.
The other thing I would point out is, again, they're all, and add on to what Ben said, like I said, there are challenges. Like I said even with, like we talked about with the live performance. Again, the credit quality of tenant, where are the escalators at? It's a combination of what Ben and his team put together to what we think is the overall risk-reward of that. But as he said, the bar is a little higher on an unproven asset. So we kind of get some level of support to rationalize where that is.
Thank you. Appreciate it.
Thank you.
Our next question comes from Mitch Germain with Citizens Bank. Please unmute your line and ask your question.
Thank you very much. I know you guys talked about declining theater exposure, and I am curious if there is a thought around maybe capitalizing on some of the momentum and pursuing asset sales on some of your portfolio, or is that decline just going to be through your deployment into other sectors?
Again, I think, Mitch, it is a good question. I think it would be open to both. From a data standpoint, I think there are some things that are very positive going on. In the last quarter, we got messaging of one of our net lease peers has bought a theater in the, a build-to-suit theater for Cinemark below eight cap. That is an encouraging data point. And to see other net lease peers starting to tip their toe back into the water, that is exciting. So that may create an opportunity for us. As we have talked about, in that space, we have two large master leases, with Regal and AMC, which means we would not want to break those, but to do that, it would have to be a rather large transaction. But we are not opposed to selling theaters. We would actively look at it. We would need to get value for what we thought.
Like I said, when we are starting to see eight or below eights, it is beginning to get quite interesting in how we can redeploy capital. But we will just have to see how that plays out.
That is helpful. And maybe just one last one from Mark. Obviously, you guys increased your percentage rent in Regal in the most recent guidance. I am just curious, without asking for specific commentary on the forward outlook, is there anything that you would consider to be somewhat one time in nature that is in that number that we need to consider thinking about 2027?
Not really. There was one time in 2025, but not really in 2026. And we do expect box office to be higher next year than this year, so we would expect Regal percentage rents to go up next year. So without getting too specific, we do expect an increase in percentage rents in 2027.
Thank you.
Thank you, Mitch.
Our next question comes from Michael Goldsmith with UBS. Please unmute your line and ask your question.
Hi, good morning. This is Anna on for Michael. Just wondering, I was wondering if you could help us understand how much of the guidance increase was driven by Q3 outperformance, and then I guess sort of relatedly, maybe the variables that would push you towards the low end versus the high end of the updated guidance. Thanks.
Yeah. This quarter was a little bit higher, some of which was timing, some of which was performance. It is probably easier to look at what drives the full year guidance than trying to identify the quarter. If you look at full year guidance, we are up $0.04. A little over $0.03 of that is percentage rents. As you saw, we increased our other income and other expense, and that net is $1 million higher than it used to be, primarily driven by theater performance on the operating side. Then going the other way, G&A guidance was up a half a million, so call that a half a penny. That is really the drivers of the $0.04 increase for the year. Like I said, some of that is outperformance from Q3, but some of that was that timing of percentage rents Q3 to Q4.
I think it is really better to look at full year is a lot easier to understand.
Our last question comes from Jana Galan with Bank of America Securities. Please unmute your line and ask your question.
Thank you. Good morning, and congrats on a great quarter.
Thanks, Jana.
Mark, thank you for highlighting the maintenance CapEx change in AFFO. I believe in the sup you also changed the top tenant contributions from percent of revenue to percent of ABR. I am just wondering if there is anything to highlight on ground leases there, or if this was just to be more comparable with peers who report on ABR, and if there is any other kind of changes you made in terms of the sup presentation.
Really, you are right. We switched from total revenue to ABR. Total revenue has straight line rent and so forth, and we thought a much better representation of cash rents was to use ABR, and that is more consistent with what peers show. So you are right, we did make that change. It did not significantly change the lineup in terms of percentages and so forth, but that was a change we made, in terms of the sup. And we have kind of moved to more of an ABR than a GAAP revenue type presentation. With respect to AFFO, we did some work looking at peers, and noted that most of our peers, the vast majority do not subtract maintenance CapEx from AFFO. So we made that change and then to make sure everyone understood, recast prior periods and so forth. It did not really have a whole lot of impact on growth.
It is fairly immaterial. But we do think to be more consistent with the peer group, that made a lot of sense. It does reduce our payout ratio a little bit. But that is the right way to look at it on a comparative basis to our peer set. And it mildly increases AFFO, as I mentioned, sort of on a near material basis. But those were the two changes we thought were good changes that we made this quarter.
Thank you.
Sure.
There are no more questions, so I will now turn the call back over to Greg Silvers, Chairman and CEO, for any closing remarks.
I just want to say thank you to everyone. Hope everyone has a great balance of the year, and we will look forward to talking to you in the new year. Thanks, everyone.
Thank you for joining EPR Properties Q3 2026 earnings call. This concludes today's call. You may now disconnect.