EPR Properties: Navigating Credit Risk and Interest Rate Uncertainty in a Shifting Real Estate Landscape

EPR Properties (EPR) has emerged as a resilient player in the real estate sector, balancing exposure to high-growth experiential assets with the stability of education-focused properties. As of Q2 2025, the company has demonstrated robust financial performance and proactive risk management, positioning it to weather macroeconomic headwinds and interest rate volatility. This analysis evaluates EPR's credit risk profile, sector-specific strengths, and long-term stability in a shifting market.

Credit Risk: A Strong Foundation Amid Rising Rates

EPR's creditworthiness has been reaffirmed by recent performance metrics and strategic debt management. In Q2 2025, the company reported a 78.2% year-over-year surge in net income, driven by a 4.1% increase in Funds From Operations as Adjusted (FFOAA) to $97.321 million. This earnings growth, combined with a disciplined capital recycling strategy—selling $51.6 million in theater properties and recognizing $19.8 million in gains—has bolstered liquidity.

As of June 30, 2025, EPR had $13.0 million in cash on hand and $405.0 million outstanding on its $1.0 billion unsecured revolving credit facility, with no debt maturities in the next 12 months. The company's Net Debt to Gross Assets Ratio of 39% and Net Debt to Adjusted EBITDAre Ratio of 5.1 reflect a conservative capital structure, metrics that align with favorable credit ratings from agencies like S&P Global.

However, EPR's reliance on variable-rate debt—primarily its $1.0 billion credit facility—introduces interest rate risk. While fixed-rate senior notes (e.g., the $300.0 million repaid in April 2025) mitigate some exposure, the absence of detailed hedging disclosures raises questions. A loss of $10.2 million in Accumulated Other Comprehensive Income (AOCI) on interest rate swaps underscores the volatility of hedging strategies in a rising rate environment.

Sector-Specific Performance: Experiential vs. Education

EPR's portfolio is split between 94% experiential assets and 6% education properties. The experiential segment, including theaters, ski resorts, and fitness centers, is 99% leased or operated, with 94% of total investments concentrated here. This sector's performance is tied to consumer discretionary spending, making it cyclical but resilient in a post-pandemic recovery. The company's Q2 capital recycling—selling three theaters for $35.6 million—demonstrates agility in optimizing high-IRR assets.

The education portfolio, though smaller, is 100% leased and offers stable cash flows. With 46 early childhood education centers and nine private schools, this segment is less sensitive to economic downturns, as demand for educational infrastructure remains inelastic. EPR's ability to maintain full occupancy in education properties provides a counterbalance to the more volatile experiential sector.

Interest Rate Sensitivity and Long-Term Stability

EPR's debt maturity profile is a key strength. By repaying $300.0 million in senior notes and extending maturities, the company has avoided near-term refinancing risks. However, its $1.0 billion credit facility remains exposed to variable rates. While the exact proportion of fixed vs. variable debt is unclear, the company's updated 2025 guidance—FFOAA per share of $5.00–$5.16 and disposition proceeds of $130.0 million–$145.0 million—suggests confidence in its ability to manage rate hikes.

The education sector's stability further enhances long-term resilience. With 100% occupancy and minimal vacancy risks, EPR's education assets provide predictable cash flows that can offset potential downturns in experiential sectors. This diversification is critical in a market where rising rates could pressure discretionary spending.

Investment Implications

EPR's credit profile remains strong, supported by liquidity, disciplined debt management, and a conservative leverage ratio. However, investors should monitor its exposure to variable rates and the effectiveness of hedging strategies. The company's focus on capital recycling and high-occupancy education assets offers a buffer against macroeconomic volatility.

For long-term stability, EPR's dual-sector approach—combining high-growth experiential investments with defensive education properties—provides a balanced risk-return profile. The company's updated 2025 guidance and $109.0 million commitment to development and redevelopment projects indicate a growth-oriented strategy that aligns with its credit metrics.

Conclusion

EPR Properties is well-positioned to navigate current real estate market dynamics and interest rate uncertainty. Its strong liquidity, conservative leverage, and diversified portfolio mitigate credit risk while supporting long-term growth. Investors seeking exposure to a real estate operator with a balanced approach to risk and return should consider EPR, particularly as it continues to optimize its capital structure and expand its education-focused assets. However, vigilance is warranted regarding interest rate exposure and the potential impact of economic cycles on discretionary sectors.