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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 September 30, 2021
or
☐ 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 November 3, 2021, there were 74,805,433 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 COVID-19, or the future outbreak of any additional variants of COVID-19 or 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;
i

•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.


ii

TABLE OF CONTENTS
 
    Page
1
Item 1. Financial Statements
1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
34
Item 3. Quantitative and Qualitative Disclosures About Market Risk
51
Item 4. Controls and Procedures
52
52
Item 1. Legal Proceedings
52
Item 1A. Risk Factors
52
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
53
Item 3. Defaults Upon Senior Securities
53
Item 4. Mine Safety Disclosures
53
Item 5. Other Information
53
Item 6. Exhibits
54
iii

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

EPR PROPERTIES
Consolidated Balance Sheets
(Dollars in thousands except share data)
  September 30, 2021 December 31, 2020
(unaudited)
Assets
Real estate investments, net of accumulated depreciation of $1,142,513 and $1,062,087 at September 30, 2021 and December 31, 2020, respectively
$ 4,800,561  $ 4,851,302 
Land held for development 21,875  23,225 
Property under development 20,166  57,630 
Operating lease right-of-use assets 175,987  163,766 
Mortgage notes and related accrued interest receivable 369,134  365,628 
Investment in joint ventures 38,729  28,208 
Cash and cash equivalents 144,433  1,025,577 
Restricted cash 5,142  2,433 
Accounts receivable 80,491  116,193 
Other assets 64,639  70,223 
Total assets $ 5,721,157  $ 6,704,185 
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities $ 87,021  $ 105,379 
Operating lease liabilities 214,065  202,223 
Common dividends payable 18,802  36 
Preferred dividends payable 6,033  6,034 
Unearned rents and interest 79,692  65,485 
Debt 2,684,063  3,694,443 
Total liabilities 3,089,676  4,073,600 
Equity:
Common Shares, $0.01 par value; 100,000,000 shares authorized; and 82,219,663 and 81,917,876 shares issued at September 30, 2021 and December 31, 2020, respectively
822  819 
Preferred Shares, $0.01 par value; 25,000,000 shares authorized:
5,392,916 and 5,394,050 Series C convertible shares issued at September 30, 2021 and December 31, 2020, respectively; liquidation preference of $134,822,900
54  54 
3,447,381 Series E convertible shares issued at September 30, 2021 and December 31, 2020; liquidation preference of $86,184,525
34  34 
6,000,000 Series G shares issued at September 30, 2021 and December 31, 2020; liquidation preference of $150,000,000
60  60 
Additional paid-in-capital 3,872,777  3,857,632 
Treasury shares at cost: 7,413,853 and 7,315,087 common shares at September 30, 2021 and December 31, 2020, respectively
(264,679) (261,238)
Accumulated other comprehensive income 9,625  216 
Distributions in excess of net income (987,212) (966,992)
Total equity $ 2,631,481  $ 2,630,585 
Total liabilities and equity $ 5,721,157  $ 6,704,185 
See accompanying notes to consolidated financial statements.
1

EPR PROPERTIES
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
(Dollars in thousands except per share data)
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Rental revenue $ 123,040  $ 55,591  $ 341,537  $ 288,165 
Other income 8,091  182  9,802  8,171 
Mortgage and other financing income 8,516  8,104  25,435  24,913 
Total revenue 139,647  63,877  376,774  321,249 
Property operating expense 13,815  13,759  43,806  42,181 
Other expense 7,851  2,680  13,428  15,012 
General and administrative expense 11,154  10,034  33,866  31,454 
Costs associated with loan refinancing or payoff 4,741  —  4,982  820 
Interest expense, net 36,584  41,744  114,090  114,837 
Transaction costs 2,132  2,776  3,342  4,622 
Credit loss (benefit) expense (14,096) 5,707  (19,677) 10,383 
Impairment charges 2,711  11,561  2,711  62,825 
Depreciation and amortization 42,612  42,059  123,476  128,319 
Income (loss) before equity in loss from joint ventures and other items 32,143  (66,443) 56,750  (89,204)
Equity in loss from joint ventures (418) (1,044) (3,000) (3,188)
Impairment charges on joint ventures —  —  —  (3,247)
Gain on sale of real estate 787  —  1,499  242 
Income (loss) before income taxes 32,512  (67,487) 55,249  (95,397)
Income tax expense (395) (18,417) (1,200) (16,354)
Net income (loss) 32,117  (85,904) 54,049  (111,751)
Preferred dividend requirements (6,033) (6,034) (18,100) (18,102)
Net income (loss) available to common shareholders of EPR Properties $ 26,084  $ (91,938) $ 35,949  $ (129,853)
Per share data attributable to EPR Properties common shareholders:
Net income (loss) available to common shareholders of EPR Properties per share:
Basic $ 0.35  $ (1.23) $ 0.48  $ (1.70)
Diluted $ 0.35  $ (1.23) $ 0.48  $ (1.70)
Shares used for computation (in thousands):
Basic 74,804  74,613  74,738  76,456 
Diluted 74,911  74,613  74,819  76,456 
Other comprehensive income (loss):
Net income (loss) $ 32,117  $ (85,904) $ 54,049  $ (111,751)
Foreign currency translation adjustment (5,169) 4,148  (195) (5,063)
Change in net unrealized gain (loss) on derivatives 6,280  (1,923) 6,355  (4,318)
Comprehensive income (loss) attributable to EPR Properties $ 33,228  $ (83,679) $ 60,209  $ (121,132)
See accompanying notes to consolidated financial statements.
2


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.
3

  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
Continued from previous page.
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 
Cancellations of nonvested shares —  —  —  —  220  (220) —  —  — 
Purchase of common shares for vesting —  —  —  —  —  (23) —  —  (23)
Share-based compensation expense —  —  —  —  3,410  —  —  —  3,410 
Foreign currency translation adjustment —  —  —  —  —  —  4,148  —  4,148 
Change in unrealized loss on derivatives —  —  —  —  —  —  (1,923) —  (1,923)
Net loss —  —  —  —  —  —  —  (85,904) (85,904)
Issuances of common shares 4,544  —  —  —  148  —  —  —  148 
Dividend equivalents accrued on performance shares —  —  —  —  —  —  —  (10) (10)
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 September 30, 2020 81,908,330  $ 819  14,841,431  $ 148  $ 3,852,762  $ (260,594) $ (2,106) $ (940,960) $ 2,650,069 
Continued on next page.

4


  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
Continued from previous page.
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 
Continued on next page.
5

  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
Continued from previous page.
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 
Purchase of common shares for vesting —  —  —  —  —  (19) —  —  (19)
Share-based compensation expense —  —  —  —  3,759  —  —  —  3,759 
Foreign currency translation adjustment —  —  —  —  —  —  (5,169) —  (5,169)
Change in unrealized loss on derivatives —  —  —  —  —  —  6,280  —  6,280 
Loss reclassified from accumulated other comprehensive income into earnings from termination of interest rate swaps —  —  —  —  —  —  3,249  —  3,249 
Net income —  —  —  —  —  —  —  32,117  32,117 
Issuances of common shares 3,051  —  —  —  153  —  —  —  153 
Conversion of Series C Convertible Preferred shares to common shares 138  —  (334) —  —  —  —  —  — 
Dividend equivalents accrued on performance shares —  —  —  —  —  —  —  (47) (47)
Dividends to common shareholders ($0.75 per share)
—  —  —  —  —  —  —  (56,104) (56,104)
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 September 30, 2021 82,219,663  $ 822  14,840,297  $ 148  $ 3,872,777  $ (264,679) $ 9,625  $ (987,212) $ 2,631,481 
See accompanying notes to consolidated financial statements.
6

EPR PROPERTIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
  Nine Months Ended September 30,
  2021 2020
Operating activities:
Net income (loss) $ 54,049  $ (111,751)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment charges 2,711  62,825 
Impairment charges on joint ventures —  3,247 
Gain on sale of real estate (1,499) (242)
Gain on insurance recovery (30) — 
Deferred income tax expense —  15,246 
Costs associated with loan refinancing or payoff 4,982  820 
Equity in loss from joint ventures 3,000  3,188 
Distributions from joint ventures 90  — 
Credit loss (benefit) expense (19,677) 10,383 
Depreciation and amortization 123,476  128,319 
Amortization of deferred financing costs 5,331  4,783 
Amortization of above/below market leases and tenant allowances, net (293) (384)
Share-based compensation expense to management and Trustees 11,218  10,382 
Change in assets and liabilities:
Operating lease assets and liabilities (379) 574 
Mortgage notes accrued interest receivable 11  (4,279)
Accounts receivable 35,644  (42,961)
Other assets (1,924) (3,065)
Accounts payable and accrued liabilities 5,511  (15,724)
Unearned rents and interest 14,203  (1,883)
Net cash provided by operating activities 236,424  59,478 
Investing activities:
Acquisition of and investments in real estate and other assets (33,203) (37,128)
Proceeds from sale of real estate 30,821  3,839 
Investment in unconsolidated joint ventures (13,611) (1,690)
Investment in mortgage notes receivable (7,670) (6,438)
Proceeds from mortgage notes receivable paydowns 8,106  414 
Investment in promissory notes receivable (4,379) — 
Proceeds from promissory note receivable paydowns 7,124  69 
Proceeds from insurance recovery 30  — 
Additions to properties under development (26,695) (29,963)
Net cash used by investing activities (39,477) (70,897)
Financing activities:
Proceeds from debt facilities and senior unsecured notes —  750,000 
Principal payments on debt (1,013,765) — 
Deferred financing fees paid (336) (2,944)
Costs associated with loan refinancing or payoff (cash portion) (3,258) (820)
Net proceeds from issuance of common shares 308  861 
Purchase of common shares for treasury for vesting (2,763) (6,792)
Purchase of common shares under share repurchase program —  (105,994)
Dividends paid to shareholders (55,459) (166,426)
Net cash (used) provided by financing activities (1,075,273) 467,885 
Effect of exchange rate changes on cash (109) (110)
Net change in cash and cash equivalents and restricted cash (878,435) 456,356 
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 $ 149,575  $ 987,796 
Supplemental information continued on next page.

7

EPR PROPERTIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Continued from previous page
  Nine Months Ended September 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 $ 144,433  $ 985,372 
Restricted cash at end of the period 5,142  2,424 
Cash and cash equivalents and restricted cash at end of the period $ 149,575  $ 987,796 
Supplemental schedule of non-cash activity:
Transfer of property under development to real estate investments $ 87,620  $ 20,547 
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 $ 107,456  $ 105,141 
Cash paid during the period for income taxes $ 1,193  $ 995 
Interest cost capitalized $ 1,341  $ 829 
Change in accrued capital expenditures $ 2,172  $ (12,232)
See accompanying notes to consolidated financial statements.
8


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 diversified 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 nine month period ended September 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 September 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.

9

As of September 30, 2021, the Company had no properties closed due to COVID-19 restrictions. 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 nine months ended September 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, and recovery from, the COVID-19 pandemic on the assumptions and estimates used in determining the Company’s financial condition and results of operations for the nine months ended September 30, 2021. The following were impacts to the Company's financial statements and business during the nine months ended September 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 Cinemas (Regal), a subsidiary of Cineworld Group.
•The Company reduced rental revenue by $9.1 million due to rent abatements.
•As of September 30, 2021, the Company has deferred amounts due from tenants of approximately $39.2 million and amounts due from borrowers of $1.7 million that are booked as receivables. 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 nine months ended September 30, 2021, the Company collected $6.0 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 $53.5 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.
•Through July 12, 2021, the Company remained 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 on July 12, 2021.
•On July 12, 2021, the Company provided notice of its election to terminate the Covenant Relief Period early. The Company’s election to terminate the Covenant Relief Period early meant that, effective July 13, 2021, the interest rates on the debt governed by these agreements returned to the previous levels defined in
10

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.
•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. During the three months ended September 30, 2021, the Company received an investment grade rating from S&P Global Ratings on its unsecured debt. As a result, the subsidiary guarantors were released from their guarantees under these debt agreements in accordance with the terms of such agreements. Additionally, during October of 2021, Moody's revised its outlook on the Company's investment grade rating on its unsecured debt from negative to stable.
•During the nine months ended September 30, 2021, the Company decreased its expected credit losses by $19.7 million due to cash collections from a borrower on a previously fully reserved note and the release of its commitment to fund additional amounts to the borrower as well as a change in the expectation in the credit loss model of the timing of the economic recovery from the impacts of the COVID-19 pandemic.

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 resumed regular monthly cash dividends to common shareholders. During the three months ended September 30, 2021, the Company declared cash dividends totaling $0.75 per common share.

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 15 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
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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 $32.2 million and $35.6 million as of September 30, 2021 and December 31, 2020, respectively, are shown as a reduction of debt. The deferred financing costs of $1.7 million and $4.8 million as of September 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 nine months ended September 30, 2021, the Company recognized straight-line write-offs totaling $0.2 million. Straight-line rental revenue, net of write-offs, was $3.7 million for the nine months ended September 30, 2021. For the nine months ended September 30, 2020, the Company recognized straight-line write-offs totaling $36.9 million, which were comprised of $25.4 million of straight-line accounts receivable and $11.5 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 $25.4 million for the nine months ended September 30, 2020.

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
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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 nine months ended September 30, 2021 and 2020, the Company recognized $2.8 million and $1.4 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 nine months ended September 30, 2021 and 2020, the non-lease components included in rental revenue totaled $11.2 million and $8.9 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 $7.2 million and $5.5 million for the nine months ended September 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 $11.3 million for the nine months ended September 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).

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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 September 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 September 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 nine months ended September 30, 2021 and 2020.

Concentrations of Risk
AMC and Topgolf USA (Topgolf) represented a significant portion of the Company's total revenue for the nine months ended September 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 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 and Topgolf (dollars in thousands):
Nine Months Ended September 30,
2021 2020
Total Revenue % of Company's Total Revenue Total Revenue % of Company's Total Revenue
AMC $ 71,000  18.8  % $ 26,226  8.2  %
Topgolf 63,445  16.8  % 60,330  18.8  %

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
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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 $13 thousand and $9 thousand for the nine months ended September 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 $6.6 million and $8.0 million for the nine months ended September 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 $2.9 million and $0.7 million for the nine months ended September 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 $1.7 million and $1.6 million for the nine months ended September 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
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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 September 30, 2021, the Company had 10 agreements (including debt, derivative, mortgage note and lease agreements) that are indexed to LIBOR, of which three 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 September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021 December 31, 2020
Buildings and improvements $ 4,557,213  $ 4,526,342 
Furniture, fixtures & equipment 117,978  118,334 
Land 1,241,166  1,242,663 
Leasehold interests 26,717  26,050 
5,943,074  5,913,389 
Accumulated depreciation (1,142,513) (1,062,087)
Total $ 4,800,561  $ 4,851,302 
Depreciation expense on real estate investments was $119.2 million and $122.1 million for the nine months ended September 30, 2021 and 2020, respectively.

4. Impairment Charges

The Company reviews its properties for changes in circumstances that indicate that the carrying value of a property may not be recoverable based on an estimate of undiscounted future cash flows. During the nine months ended September 30, 2021, the Company received various offers to sell two of its vacant properties. As a result, the Company reassessed the expected holding periods of such properties, and determined that the estimated cash flows were not sufficient to recover the carrying values of these properties. The Company estimated the fair value of these properties by taking into account these purchase offers. The Company reduced the carrying value of the real estate investments, net to $7.0 million. The Company recognized impairment charges of $2.7 million on the real estate investments, which is the amount that the carrying value of the assets exceeded the estimated fair value.

5. Investments and Dispositions

The Company's investment spending during the nine months ended September 30, 2021 totaled $107.9 million, and included the acquisition of one eat and play property for approximately $26.7 million, spending on build-to-suit development, redevelopment projects and the acquisition of interests in two joint ventures described in Note 9.

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During the nine months ended September 30, 2021, the Company completed the sale of two theatre properties, two land parcels and one outparcel for net proceeds totaling $30.8 million and recognized a combined gain on sale of $1.5 million. Subsequent to September 30, 2021, the Company completed the sale of two ski properties for net proceeds of $48.0 million and recognized a gain on sale of approximately $15.4 million.

6. 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 September 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 September 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 September 30, 2021 December 31, 2020 September 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 28,521  27,908  27,045  — 
Fitness & wellness property Omaha, Nebraska 2017 7.85  % 1/3/2027 10,905  11,278  11,225  — 
Fitness & wellness property Merriam, Kansas 2019 7.55  % 7/31/2029 9,090  9,398  9,355  — 
Ski property Girdwood, Alaska 2019 8.21  % 12/31/2029 44,605  44,537  40,680  12,395 
Fitness & wellness property Omaha, Nebraska 2016 7.85  % 6/30/2030 10,539  10,797  8,630  379 
Experiential lodging property Nashville, Tennessee 2019 7.01  % 9/30/2031 71,223  70,422  67,235  — 
Eat & play property Austin, Texas 2012 11.31  % 6/1/2033 10,915  11,073  11,929  — 
Ski property West Dover and Wilmington, Vermont 2007 11.96  % 12/1/2034 51,050  51,045  51,031  — 
Four ski properties Ohio and Pennsylvania 2007 10.91  % 12/1/2034 37,562  37,506  37,413  — 
Ski property Chesterland, Ohio 2012 11.38  % 12/1/2034 4,550  4,509  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  17,729  18,289  — 
Eat & play property West Chester, Ohio 2015 9.75  % 8/1/2036 18,068  18,285  18,830  — 
Fitness & wellness property Fort Collins, Colorado 2018 7.85  % 1/31/2038 10,292  10,568  10,408  — 
Early childhood education center Lake Mary, Florida 2019 7.98  % 5/9/2039 4,200  4,321  4,348  — 
Eat & play property Eugene, Oregon 2019 8.13  % 6/17/2039 14,700  14,759  14,799  — 
Early childhood education center Lithia, Florida 2017 8.42  % 10/31/2039 3,959  3,999  3,737  — 
$ 368,684  $ 369,134  $ 365,628  $ 12,774 
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(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 September 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 September 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 September 30, 2021 and the notes remain fully reserved with an allowance for credit loss totaling $10.2 million, which represents the outstanding principal balance of the note as of September 30, 2021. Income for this borrower is recognized on a cash basis. During the nine months ended September 30, 2021, the borrower repaid $6.8 million on amounts due under the note and the Company was released from an additional $8.5 million in funding commitments. As a result, the Company recognized a credit loss benefit totaling $15.3 million related to this borrower during the nine months ended September 30, 2021. The remaining credit loss benefit for the nine months ended September 30, 2021 was due to a change in the expectation in the credit loss model of the timing of the economic recovery from the impacts of the COVID-19 pandemic.

The following summarizes the activity within the allowance for credit losses related to mortgage notes, unfunded commitments and notes receivable for the nine months ended September 30, 2021 (in thousands):
Mortgage notes receivable Unfunded commitments - mortgage notes receivable 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 (4,152) (54) (2,605) (12,866) (19,677)
Charge-offs —  —  —  —  — 
Recoveries —  —  —  —  — 
Allowance for credit losses at September 30, 2021 $ 2,848  $ 84  $ 10,249  $ —  $ 13,181 

7. Accounts Receivable

The following table summarizes the carrying amounts of accounts receivable as of September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021 December 31, 2020
Receivable from tenants $ 41,531  $ 81,120 
Receivable from non-tenants 923  505 
Straight-line rent receivable 38,037  34,568 
Total $ 80,491  $ 116,193 

As of September 30, 2021, receivable from tenants includes payments of approximately $39.2 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 nine months ended September 30, 2021, the Company collected $6.0 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 nine months
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ended September 30, 2021, the Company collected $53.5 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.

8. Capital Markets and Dividends

During the three and nine months ended September 30, 2021, the Board declared cash dividends of $0.359375 and $1.078125 per share, respectively, on both the Company's 5.75% Series C cumulative convertible preferred shares and the Company's 5.75% Series G cumulative redeemable preferred shares and $0.5625 and $1.6875 per share, respectively, on the Company's 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 resumed regular monthly cash dividends to common shareholders. During the three months ended September 30, 2021, the Company declared cash dividends totaling $0.75 per common share.

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 and term loan facilities both during and after the Covenant Relief Period are dependent on the Company's unsecured debt ratings.

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 on July 12, 2021 as discussed below.

On July 12, 2021, the Company provided notice of its election to terminate the Covenant Relief Period early and was released from the additional restrictions described above. Also, 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 nine months ended September 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.

On September 13, 2021, the Company paid off its $400.0 million unsecured term loan facility and $1.5 million of deferred financing costs (net of accumulated amortization) were written off during the three months ended September 30, 2021. In connection with the payoff, the Company terminated the related interest rate swap agreements on its term loan facility for a cash settlement of $3.2 million. Both amounts, totaling $4.7 million, are included in costs associated with loan refinancing or payoff for the three months ended September 30, 2021. See Note 10 for further details.

During the three months ended September 30, 2021, the Company received an investment grade rating from S&P Global Ratings on its unsecured debt, adding to its current investment grade rating from Moody's Investors Services. The Company previously caused certain of its key subsidiaries to guarantee its obligations under its existing bank
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credit facility, private placement notes and senior unsecured bonds due to a decrease in the Company's credit ratings resulting from the impact of the COVID-19 pandemic. As a result of the Company obtaining an investment grade rating on its long-term unsecured debt from both S&P and Moody's, the Company's subsidiary guarantors were released from their guarantees under these debt agreements in accordance with the terms of such agreements. Additionally, during October of 2021, Moody's revised its outlook on the Company's investment grade rating on its unsecured debt from negative to stable.

Subsequent to September 30, 2021, on October 6, 2021, the Company entered into a Third Amended, Restated and Consolidated Credit Agreement, governing a new amended and restated senior unsecured revolving credit facility. The new facility, which will mature on October 6, 2025, replaced the Company’s existing $1.0 billion senior unsecured revolving credit facility and $400.0 million senior unsecured term loan facility. The new facility provides for an initial maximum principal amount of borrowing availability of $1.0 billion with an “accordion” feature under which the Company may increase the total maximum principal amount available by $1.0 billion, to a total of $2.0 billion, subject to lender consent. The new facility has the same pricing terms and financial covenants as the prior facility (with improved valuation of certain asset types), as well as customary covenants and events of default. The Company has two options to extend the maturity date of the new credit facility by an additional six months each (for a total of 12 months), subject to paying additional fees and the absence of any default.

On October 27, 2021, the Company issued $400.0 million in aggregate principal amount of senior notes due November 15, 2031 pursuant to an underwritten public offering. The notes bear interest at an annual rate of 3.60%. Interest is payable on May 15 and November 15 of each year beginning on May 15, 2022 until the stated maturity date. The notes were issued at 99.174% of their face value and are unsecured. The notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause the ratio of the Company’s debt to adjusted total assets to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause the ratio of the Company’s secured debt to adjusted total assets to exceed 40%; (iii) a limitation on incurrence of any debt which would cause the Company’s debt service coverage ratio to be less than 1.5 times; and (iv) the maintenance at all times of the Company's total unencumbered assets such that they are not less than 150% of the Company’s outstanding unsecured debt. Net proceeds from the note offering will be used for the redemption of the Company's senior notes due in 2023 discussed below and for general business purposes, including the acquisition of experiential properties consistent with the Company’s current strategy.

In addition, on October 13, 2021, the Company delivered notice of redemption to redeem all of the $275.0 million principal amount of its 5.25% senior notes due in 2023. The redemption date has been set for November 12, 2021 and the Company will use a portion of the proceeds from the senior note offering completed in October to fund this redemption plus the make-whole premium payment.

9. Unconsolidated Real Estate Joint Ventures

As of September 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 September 30, 2021 and December 31, 2020, the Company had equity investments of $27.2 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 September 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 $0.2 million remaining to fund at September 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
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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 $2.8 million and $2.5 million during the nine months ended September 30, 2021 and 2020, respectively, and received no distributions during the nine months ended September 30, 2021 and 2020 related to the equity investments in these joint ventures.

As of September 30, 2021 and December 31, 2020, the Company's investments in these two 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 September 30, 2021, is its investment in the joint ventures of $27.2 million as well as the Company's guarantee of the estimated costs to complete renovations of approximately $0.2 million.

On August 26, 2021, the Company entered into two real estate joint venture agreements to acquire an experiential lodging property located in Wisconsin with an initial investment of $11.0 million. The Company's investments in these joint ventures were considered to be variable interests, however, the underlying entities are not VIEs. The Company has a 95% interest in these joint ventures and accounts for its investment under the equity method of accounting. The Company's partner, TJO Warrens, LLC and its affiliates, owns the remaining 5% interest in the joint ventures. There are two separate joint ventures, one that holds the investment in the real estate of the experiential lodging property and the other that holds lodging operations, which are facilitated by a management agreement. The Company's investment in the operating entity is held in a TRS.

The joint venture that holds the real property has a secured mortgage loan of $15.0 million at September 30, 2021 and provides for additional draws of approximately $9.6 million to fund renovations. The maturity date of this mortgage loan is September 15, 2031. The loan bears interest at an annual fixed rate of 4.00% with monthly interest payments required.

As of September 30, 2021, the Company had equity investments of $10.8 million in these two joint ventures. The Company recognized losses of $0.2 million during the three months ended September 30, 2021 and received no distributions during the three months ended September 30, 2021 related to the equity investments in these joint ventures.

In addition, as of September 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 nine months ended September 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 $7 thousand and losses of $649 thousand during the nine months ended September 30, 2021 and 2020, respectively, and received distributions of $90 thousand from its investment in these joint ventures for the nine months ended September 30, 2021. No distributions were received during the nine months ended September 30, 2020.

10. 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 September 30, 2021 and December 31, 2020. The Company had derivative liabilities of $4.4 million and $14.0 million at September 30, 2021 and December 31, 2020, respectively. The Company has not posted or received collateral with its derivative counterparties as of September 30, 2021 or December 31, 2020. See Note 11 for disclosures relating to the fair value of the derivative instruments.

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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.

During the three months ended September 30, 2021, the Company terminated four of its interest rate swap agreements in connection with the payoff of the related unsecured term loan facility. These interest rate swaps had a combined notional amount of $400.0 million at termination and $3.2 million was reclassified into earnings as expense during the three months ended September 30, 2021, as the forecasted future transactions were no longer probable.

At September 30, 2021, the Company had one 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. The interest rate swap agreement outstanding as of September 30, 2021 is summarized below:
Fixed rate Notional Amount (in millions) Index Maturity
1.3925% $ 25.0  USD LIBOR September 30, 2024

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 September 30, 2021, the Company estimates that during the twelve months ending September 30, 2022, $0.3 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 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
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transaction. As of September 30, 2021, the Company estimates that during the twelve months ending September 30, 2022, $0.1 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 September 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 nine months ended September 30, 2021 and 2020.

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (Dollars in thousands)
  Three Months Ended September 30, Nine Months Ended September 30,
Description 2021 2020 2021 2020
Cash Flow Hedges
Interest Rate Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative $ (3,338) $ 123  $ (3,209) $ (11,550)
Amount of Expense Reclassified from AOCI into Earnings (1) (4,962) (2,037) (9,074) (4,103)
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative 143  (243) (71) 424 
Amount of (Expense) Income Reclassified from AOCI into Earnings (2) (57) 13  (205) 455 
Net Investment Hedges
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative 4,456  (3,827) 356  3,160 
Amount of Income Recognized in Earnings (2) (3) 97  141  270  475 
Total
Amount of Gain (Loss) Recognized in AOCI on Derivatives $ 1,261  $ (3,947) $ (2,924) $ (7,966)
Amount of Expense Reclassified from AOCI into Earnings (5,019) (2,024) (9,279) (3,648)
Amount of Income Recognized in Earnings 97  141  270  475 
Interest expense, net in accompanying consolidated statements of income (loss) and comprehensive income (loss) $ 36,584  $ 41,744  $ 114,090  $ 114,837 
Other income in accompanying consolidated statements of income (loss) and comprehensive income (loss) $ 8,091  $ 182  $ 9,802  $ 8,171 
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(1) Included in "Interest expense, net" in the accompanying consolidated statements of income (loss) and comprehensive income (loss) for the three and nine months ended September 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 nine months ended September 30, 2021 and 2020.
(3) Amounts represent derivative gains excluded from the effectiveness testing.

As of September 30, 2021, the fair value of the Company's derivatives in a liability position related to these agreements was $4.4 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 $4.5 million. As of September 30, 2021, the Company had not posted any collateral related to these agreements and was not in breach of any provisions in these agreements.

11. 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 September 30, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the
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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 September 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
September 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
September 30, 2021
Cross-Currency Swaps* $ —  $ (3,781) $ —  $ (3,781)
Interest Rate Swap Agreements* —  (610) —  (610)
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
The table below presents the Company's assets measured at fair value on a non-recurring basis as of September 30, 2021 and 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 September 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
September 30, 2021
Real estate investments, net $ —  $ 6,956  $ —  $ 6,956 
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 nine months ended September 30, 2021, the Company recorded impairment charges related to real estate investments, net on two of its properties. Management estimated the fair values of these investments taking into account various factors including purchase offers, shortened hold periods and market conditions. The Company determined, based on the inputs, that the valuation of these properties with purchase offers were classified within Level 2 of the fair value hierarchy and were measured at fair value.

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
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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 September 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 September 30, 2021, the Company had a carrying value of $369.1 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 9.02%. 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 7.25% to 9.00%, management estimates the fair value of the fixed rate mortgage notes receivable to be approximately $406.0 million with an estimated weighted average market rate of 7.80% at September 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 September 30, 2021, the Company had a carrying value of $25.0 million in variable rate debt outstanding with an average interest rate of approximately 0.13%. The carrying value of the variable rate debt outstanding approximated the fair value at September 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 September 30, 2021 and December 31, 2020, $25.0 million and $425.0 million, respectively, of the Company's variable rate debt, discussed above, had been effectively converted to a fixed rate by interest rate swap agreements. See Note 10 for additional information related to the Company's interest rate swap agreements.
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At September 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 4.54%. Discounting the future cash flows for fixed rate debt using September 30, 2021 market rates of 1.91% to 4.56%, management estimates the fair value of the fixed rate debt to be approximately $2.86 billion with an estimated weighted average market rate of 3.04% at September 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.

12. Earnings Per Share

The following table summarizes the Company’s computation of basic and diluted earnings per share (EPS) for the three and nine months ended September 30, 2021 and 2020 (amounts in thousands except per share information):
  Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
  Income
(numerator) 		Shares
(denominator) 		Per Share
Amount 		Income
(numerator) 		Shares
(denominator) 		Per Share
Amount
Basic EPS:
Net income $ 32,117  $ 54,049 
Less: preferred dividend requirements (6,033) (18,100)
Net income available to common shareholders $ 26,084  74,804  $ 0.35  $ 35,949  74,738  $ 0.48 
Diluted EPS:
Net income available to common shareholders $ 26,084  74,804  $ 35,949  74,738 
Effect of dilutive securities:
Share options and performance shares —  107  —  81 
Net income available to common shareholders $ 26,084  74,911  $ 0.35  $ 35,949  74,819  $ 0.48 

  Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
  Income
(numerator) 		Shares
(denominator) 		Per Share
Amount 		Income
(numerator) 		Shares
(denominator) 		Per Share
Amount
Basic EPS:
Net loss $ (85,904) $ (111,751)
Less: preferred dividend requirements (6,034) (18,102)
Net loss available to common shareholders $ (91,938) 74,613  $ (1.23) $ (129,853) 76,456  $ (1.70)
Diluted EPS:
Net loss available to common shareholders $ (91,938) 74,613  $ (129,853) 76,456 
Effect of dilutive securities:
Share options and performance shares —  —  —  — 
Net loss available to common shareholders $ (91,938) 74,613  $ (1.23) $ (129,853) 76,456  $ (1.70)

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
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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 nine months ended September 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 nine months ended September 30, 2021 and 2020.
•Outstanding options to purchase 89 thousand common shares at per share prices ranging from $44.44 to $76.63 for both the three and nine months ended September 30, 2021.
•Outstanding options to purchase 117 thousand common shares at per share prices ranging from $44.62 to $76.63 for both the three and nine months ended September 30, 2020.
•The effect of 56 thousand contingently issuable performance shares granted during 2020 for both the three and nine months ended September 30, 2021 and 2020 as performance and market conditions were not met.

13. 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 September 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 (4,806) 45.20  —  61.79  51.42 
Outstanding at September 30, 2021 109,657  $ 44.44  —  $ 76.63  $ 56.69 

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

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The following table summarizes outstanding and exercisable options at September 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 exercisable Weighted avg. life remaining Weighted avg. exercise price Aggregate intrinsic value (in thousands)
$44.44 - 49.99
22,295  3.1 20,457  0.9
50.00 - 59.99
31,008  2.8 30,050  2.6
60.00 - 69.99
52,198  4.8 50,031  3.7
70.00 - 76.63
4,156  6.3 3,186  6.0
109,657  3.9 $ 56.69  $ 66  103,724  2.9 $ 56.48  $ 57 

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 (201,380) 67.87 
Forfeited (10,025) 59.75 
Outstanding at September 30, 2021 480,559  $ 56.58  1.10
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 $6.6 million and $16.0 million for the nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021, unamortized share-based compensation expense related to nonvested shares was $12.8 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 September 30, 2021
158,776 

The number of common shares issuable upon settlement of the performance shares granted during the nine months ended September 30, 2021 and 2020, will be based upon the Company's achievement level relative to the following performance measures at December 31, 2023 and 2022, respectively: 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 nine months ended September 30, 2021 and 2020, respectively. The estimated fair value is amortized to expense over the three-year vesting period, which ends on December 31, 2023 and 2022 for performance shares granted in 2021 and 2020, respectively. 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 nine months ended September 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.
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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 September 30, 2021, achievement of the performance condition was deemed probable for the performance shares granted during the nine months ended September 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 nine months ended September 30, 2020 was deemed not probable at September 30, 2021.

At September 30, 2021, unamortized share-based compensation expense related to nonvested performance shares was $7.8 million.

The performance shares accrue dividend equivalents which are paid only if common shares are issued upon settlement of the performance shares. During the nine months ended September 30, 2021 and 2020, the Company accrued dividend equivalents expected to be paid on earned awards of $65 thousand and $29 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 September 30, 2021 43,306  $ 49.15  0.67

The holders of restricted share units receive dividend equivalents from the date of grant. At September 30, 2021, unamortized share-based compensation expense related to restricted share units was $1.4 million.

14. 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 September 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 September 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, one of these properties is 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.

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The following table summarizes rental revenue, including sublease arrangements and lease costs, for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Classification 2021 2020 2021 2020
Operating leases (1) Rental revenue $ 117,408  $ 54,785  $ 325,429  $ 283,891 
Sublease income - operating ground leases (2) Rental revenue $ 5,632  $ 806  $ 16,108  $ 4,274 
Lease costs
Operating ground lease cost Property operating expense $ 5,827  $ 6,015  $ 17,051  $ 18,515 
Operating office lease cost General and administrative expense $ 226  $ 226  $ 678  $ 678 
Operating lease right-of-use asset impairment charges (3) Impairment charges $ —  $ —  $ —  $ 15,009 

(1) During the three and nine months ended September 30, 2020, the Company wrote-off straight-line rent receivables of $20.4 million and $25.4 million, respectively, to straight-line rental revenue classified in "Rental revenue" in the accompanying consolidated statements of income (loss) and comprehensive income (loss). Additionally, during the three and nine months ended September 30, 2020, the Company wrote-off lease receivables from tenants totaling $22.8 million and $23.0 million, respectively, to minimum rent and percentage rent classified in rental revenue in the accompanying consolidated statements of income (loss) and comprehensive income (loss) related to tenants being recognized on a cash basis.
(2) During the three and nine months ended September 30, 2020, the Company wrote-off sub-lessor ground lease straight-line rent receivables totaling $3.5 million and $11.5 million, respectively, to straight-line rental revenue classified in "Rental revenue" in the accompanying consolidated statements of income (loss) and comprehensive income (loss). Additionally, during both the three and nine months ended September 30, 2020, the Company wrote-off sub-lessor ground lease receivables from tenants totaling $1.4 million, to minimum rent classified in rental revenue in the accompanying consolidated statements of income (loss) and comprehensive income (loss) related to tenants being recognized on a cash basis.
(3) During the nine months ended September 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.

15. 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 September 30, 2021
Experiential Education Corporate/Unallocated Consolidated
Total Assets $ 5,060,248  $ 511,170  $ 149,739  $ 5,721,157 
As of December 31, 2020
Experiential Education Corporate/Unallocated Consolidated
Total Assets $ 5,133,486  $ 529,755  $ 1,040,944  $ 6,704,185 

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Operating Data:
Three Months Ended September 30, 2021
Experiential Education Corporate/Unallocated Consolidated
Rental revenue $ 113,589  $ 9,451  $ —  $ 123,040 
Other income 8,052  —  39  8,091 
Mortgage and other financing income
8,283  233  —  8,516 
Total revenue 129,924  9,684  39  139,647 
Property operating expense
13,572  16  227  13,815 
Other expense 7,851  —  —  7,851 
Total investment expenses
21,423  16  227  21,666 
Net operating income - before unallocated items 108,501  9,668  (188) 117,981 
Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense (11,154)
Costs associated with loan refinancing or payoff (4,741)
Interest expense, net (36,584)
Transaction costs (2,132)
Credit loss benefit 14,096 
Impairment charges (2,711)
Depreciation and amortization (42,612)
Equity in loss from joint ventures (418)
Gain on sale of real estate 787 
Income tax expense (395)
Net income 32,117 
Preferred dividend requirements (6,033)
Net income available to common shareholders of EPR Properties $ 26,084 
Operating Data:
Three Months Ended September 30, 2020
Experiential Education Corporate/Unallocated Consolidated
Rental revenue $ 40,270  $ 15,321  $ —  $ 55,591 
Other income 14  13  155  182 
Mortgage and other financing income
7,761  343  —  8,104 
Total revenue 48,045  15,677  155  63,877 
Property operating expense
13,011  550  198  13,759 
Other expense 2,680  —  —  2,680 
Total investment expenses
15,691  550  198  16,439 
Net operating income - before unallocated items 32,354  15,127  (43) 47,438 
Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense (10,034)
Interest expense, net (41,744)
Transaction costs (2,776)
Credit loss expense (5,707)
Impairment charges (11,561)
Depreciation and amortization (42,059)
Equity in loss from joint ventures (1,044)
Income tax expense (18,417)
Net loss (85,904)
Preferred dividend requirements (6,034)
Net loss available to common shareholders of EPR Properties $ (91,938)

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Operating Data:
Nine Months Ended September 30, 2021
Experiential Education Corporate/Unallocated Consolidated
Rental revenue $ 313,424  $ 28,113  $ —  $ 341,537 
Other income 9,442  —  360  9,802 
Mortgage and other financing income 24,663  772  —  25,435 
Total revenue 347,529  28,885  360  376,774 
Property operating expense 42,985  113  708  43,806 
Other expense 13,428  —  —  13,428 
Total investment expenses 56,413  113  708  57,234 
Net operating income - before unallocated items 291,116  28,772  (348) 319,540 
Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense (33,866)
Costs associated with loan refinancing or payoff (4,982)
Interest expense, net (114,090)
Transaction costs (3,342)
Credit loss benefit 19,677 
Impairment charges (2,711)
Depreciation and amortization (123,476)
Equity in loss from joint ventures (3,000)
Gain on sale of real estate 1,499 
Income tax expense (1,200)
Net income 54,049 
Preferred dividend requirements (18,100)
Net income available to common shareholders of EPR Properties $ 35,949 

Operating Data:
Nine Months Ended September 30, 2020
Experiential Education Corporate/Unallocated Consolidated
Rental revenue $ 243,134  $ 45,031  $ —  $ 288,165 
Other income 7,227  13  931  8,171 
Mortgage and other financing income 23,913  1,000  —  24,913 
Total revenue 274,274  46,044  931  321,249 
Property operating expense 39,854  1,719  608  42,181 
Other expense 15,012  —  —  15,012 
Total investment expenses 54,866  1,719  608  57,193 
Net operating income - before unallocated items 219,408  44,325  323  264,056 
Reconciliation to Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
General and administrative expense (31,454)
Costs associated with loan refinancing or payoff (820)
Interest expense, net (114,837)
Transaction costs (4,622)
Credit loss expense (10,383)
Impairment charges (62,825)
Depreciation and amortization (128,319)
Equity in loss from joint ventures (3,188)
Impairment charges on joint ventures (3,247)
Gain on sale of real estate 242 
Income tax benefit (16,354)
Net loss (111,751)
Preferred dividend requirements (18,102)
Net loss available to common shareholders of EPR Properties $ (129,853)
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16. Other Commitments and Contingencies

As of September 30, 2021, the Company had 15 development projects with commitments to fund an aggregate of approximately $66.9 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 September 30, 2021, the Company had two mortgage notes with commitments totaling approximately $12.8 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 September 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.

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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 September 30, 2021, our total assets were approximately $5.7 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 September 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 September 30, 2021 and December 31, 2020. We group our investments into two reportable segments, Experiential and Education. As of September 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 September 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;
•eight experiential lodging properties;
•one gaming property;
•three cultural properties; and
•seven fitness & wellness properties.

As of September 30, 2021, our owned Experiential real estate portfolio consisted of approximately 19.4 million square feet, which was 95.0% leased and included a total of $40.4 million in property under development and undeveloped land inventory.

As of September 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 September 30, 2021, our owned Education real estate portfolio consisted of approximately 1.4 million square feet, which was 100% leased and included $1.7 million in undeveloped land inventory.

The combined owned portfolio consisted of 20.8 million square feet and was 96% 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
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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 September 30, 2021, we had no properties closed due to COVID-19 restrictions. 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 nine months ended September 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, and recovery from, the COVID-19 pandemic on the assumptions and estimates used in determining our financial condition and results of operations for the nine months ended September 30, 2021. The following were impacts to our financial statements during the nine months ended September 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 Cinemas ("Regal"), a subsidiary of Cineworld Group.
•We reduced rental revenue by $9.1 million due to rent abatements.
•As of September 30, 2021, we have deferred amounts due from tenants of approximately $39.2 million and amounts due from borrowers of $1.7 million that are booked as receivables. 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.
•Through July 12, 2021, we remained 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 on July 12, 2021.
•On July 12, 2021, we provided notice of our election to terminate the Covenant Relief Period early. Our election to terminate the Covenant Relief Period early meant 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
36

from certain restrictions under these agreements, including restrictions on investments, capital expenditures, incurrences of indebtedness and payment of dividends.
•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. During the three months ended September 30, 2021, we received an investment grade rating from S&P Global Ratings on our unsecured debt. As a result, the subsidiary guarantors were released from their guarantees under these debt agreements in accordance with the terms of such agreements. Additionally, during October of 2021, Moody's revised its outlook on our investment grade rating related to our unsecured debt from negative to stable.
•During the nine months ended September 30, 2021, we decreased our expected credit losses by $19.7 million due to cash collections from a borrower on a previously fully reserved note and the release of our commitments to fund additional amounts to the borrower as well as a change in the expectation in the credit loss model of the timing of the economic recovery from the impacts of the COVID-19 pandemic.

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 resumed regular monthly cash dividends to common shareholders. During the three months ended September 30, 2021, we declared cash dividends totaling $0.75 per common share.

Collections of rent and interest were impacted by the COVID-19 pandemic. During the three months ended September 30, 2021, tenants and borrowers paid approximately 90% of contractual cash revenue. During the nine months ended September 30, 2021, we collected $53.5 million of deferred rent and interest from accrual basis tenants and borrowers that reduced related accounts and interest receivable and approximately $6.0 million in deferred rent from cash basis tenants and from tenants for which the deferred payments were not previously recognized as revenue. 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 nine months ended September 30, 2021 and 2020 (in millions, except per share information):
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Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Total revenue $ 139.6  $ 63.9  118  % $ 376.8  $ 321.2  17  %
Net income (loss) available to common shareholders per diluted share $ 0.35  $ (1.23) 128  % $ 0.48  $ (1.70) 128  %
FFOAA per diluted share $ 0.86  $ (0.16) 638  % $ 2.01  $ 1.25  61  %

The major factors impacting our results for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020 were as follows:
•The effects of the COVID-19 pandemic as described above;
•The effect of write-offs of receivables from tenants and straight-line receivables totaling $62.6 million recognized during the nine months ended September 30, 2020;
•The effect of property acquisitions as well as dispositions and mortgage note payoffs that occurred in 2021 and 2020;
•The change 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 and the re-opening of this property in July of 2021;
•The increase in costs associated with loan refinancing or payoff;
•The decrease in interest expense due to the repayment of our unsecured term loan facility and revolving credit facility;
•The decrease in credit loss (benefit) expense, impairment charges and income tax expense.

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 nine months ended September 30, 2021, there were no changes to critical accounting policies.

Recent Developments

Investment Spending
Our investment spending during the nine months ended September 30, 2021 and 2020 totaled $107.9 million and $62.3 million, respectively, and is detailed below (in thousands):
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Nine Months Ended September 30, 2021
Operating Segment Total Investment Spending New Development Re-development Asset Acquisition  Mortgage Notes or Notes Receivable Investment in Joint Ventures
Experiential:
Theatres $ 4,190  $ 3,785  $ 405  $ —  $ —  $ — 
Eat & Play 36,414  9,347  315  26,752  —  — 
Attractions 46  —  46  —  —  — 
Ski 5,546  —  —  —  5,546  — 
Experiential Lodging 55,193  16,300  11,070  —  —  27,823 
Cultural 4,394  —  15  —  4,379  — 
Fitness & Wellness 2,124  —  —  —  2,124  — 
Total Experiential 107,907  29,432  11,851  26,752  12,049  27,823 
Education:
Total Education —  —  —  —  —  — 
Total Investment Spending $ 107,907  $ 29,432  $ 11,851  $ 26,752  $ 12,049  $ 27,823 
Nine Months Ended September 30, 2020
Operating Segment Total Investment Spending New Development Re-development Asset Acquisition  Mortgage Notes or Notes Receivable Investment in Joint Ventures
Experiential:
Theatres $ 28,959  $ 3,515  $ 3,336  $ 22,108  $ —  $ — 
Eat & Play 14,989  13,915  1,074  —  —  — 
Attractions 655  —  655  —  —  — 
Ski 89  —  —  —  89  — 
Experiential Lodging 13,673  10,849  1,134  —  —  1,690 
Cultural 156  —  156  —  —  — 
Fitness & Wellness 3,768  —  —  —  3,768  — 
Total Experiential 62,289  28,279  6,355  22,108  3,857  1,690 
Education:
Early Childhood Education Centers 3  —  —  —  3  — 
Total Education 3  —  —  —  3  — 
Total Investment Spending $ 62,292  $ 28,279  $ 6,355  $ 22,108  $ 3,860  $ 1,690 

The above amounts include $1.3 million and $0.8 million in capitalized interest for the nine months ended September 30, 2021 and 2020, respectively, and $0.3 million in capitalized other general and administrative direct project costs for both the nine months ended September 30, 2021 and 2020. Excluded from the table above is approximately $2.8 million and $11.1 million of maintenance capital expenditures and other spending for the nine months ended September 30, 2021 and 2020, respectively.

We limited our investment spending during the three and nine months ended September 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 8, 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.

Impairment Charges
During the nine months ended September 30, 2021, we received various offers to purchase two vacant properties. As a result, we reassessed the expected holding periods of such properties, and determined that the estimated cash flows
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were not sufficient to recover the carrying values of these properties. Accordingly, we recognized impairment charges of $2.7 million on the real estate investments for these two properties.

Dispositions
During the nine months ended September 30, 2021, we completed the sale of two theatre properties and three land parcels for net proceeds totaling $30.8 million. In connection with these sales, we recognized a combined gain on sale of $1.5 million. Subsequent to September 30, 2021, we completed the sale of two ski properties for net proceeds of $48.0 million and recognized a gain on sale of approximately $15.4 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 nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020

Analysis of Revenue

The following table summarizes our total revenue (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Minimum rent (1) $ 114,375  $ 69,697  $ 44,678  $ 315,665  $ 297,505  $ 18,160 
Percentage rent (2) 3,149  1,303  1,846  7,195  5,514  1,681 
Straight-line rent (3) 981  (17,969) 18,950  3,690  (25,448) 29,138 
Tenant reimbursements (4) 4,187  2,413  1,774  14,009  10,280  3,729 
Other rental revenue 348  147  201  978  314  664 
Total Rental Revenue $ 123,040  $ 55,591  $ 67,449  $ 341,537  $ 288,165  $ 53,372 
Other income (5) 8,091  182  7,909  9,802  8,171  1,631 
Mortgage and other financing income 8,516  8,104  412  25,435  24,913  522 
Total revenue $ 139,647  $ 63,877  $ 75,770  $ 376,774  $ 321,249  $ 55,525 

(1) For the three months ended September 30, 2021 compared to the three months ended September 30, 2020, the increase in minimum rent resulted primarily from an increase of $47.7 million related to rental revenue on existing properties including improved collections of rent being recognized on a cash basis, less receivable write-offs as well as scheduled rent increases. In addition, there was an increase in minimum rent of $2.5 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 $0.5 million due to vacant properties.

For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the increase in minimum rent resulted primarily from an increase of $34.9 million related to rental revenue on existing properties including improved collections of rent being recognized on a cash basis, less receivable write-offs as well as scheduled rent increases. In addition, there was an increase in minimum rent of $5.2 million related to property acquisitions and developments completed in 2021 and 2020. This was partially offset by a decrease in rental revenue of $16.0 million from property dispositions and $5.9 million due to vacant properties.

During the nine months ended September 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.

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(2) The increase in percentage rent for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was due to higher percentage rent recognized from one early childhood education center tenant due to a restructured lease and better performance at two attraction properties and one ski property. These increases were offset by lower percentage rent recognized during the three months ended September 30, 2021 from three private school properties that were disposed of during the fourth quarter of 2020.

The increase in percentage rent for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to the same items as for the three months September 30, 2021, and was further offset by higher percentage rents at our gaming property in the first quarter of 2020.

(3) The increase in straight-line rent for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 was primarily due to write-offs totaling $23.9 million and $36.9 million recognized during the three and nine months ended September 30, 2020, respectively, which were comprised of straight-line accounts receivable and 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.

(4) The increase in tenant reimbursements for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 was primarily due to increased collections from cash basis tenants as well as a decrease in COVID-19 contractual abatements.

(5) The increase in other income for the three months ended September 30, 2021, related primarily to an increase in operating income as a result of the re-opening of the Kartrite Resort, which was previously closed due to the COVID-19 pandemic. Additionally, during the three and nine months ended September 30, 2021 the increase in other income was the result of operating income from two theatre properties.

Analysis of Expenses and Other Line Items

The following table summarizes our expenses and other line items (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Property operating expense $ 13,815  $ 13,759  $ 56  $ 43,806  $ 42,181  $ 1,625 
Other expense (1) 7,851  2,680  5,171  13,428  15,012  (1,584)
General and administrative expense 11,154  10,034  1,120  33,866  31,454  2,412 
Costs associated with loan refinancing or payoff (2) 4,741  —  4,741  4,982  820  4,162 
Interest expense, net (3) 36,584  41,744  (5,160) 114,090  114,837  (747)
Transaction costs 2,132  2,776  (644) 3,342  4,622  (1,280)
Credit loss (benefit) expense (4) (14,096) 5,707  (19,803) (19,677) 10,383  (30,060)
Impairment charges (5) 2,711  11,561  (8,850) 2,711  62,825  (60,114)
Depreciation and amortization (6) 42,612  42,059  553  123,476  128,319  (4,843)
Equity in loss from joint ventures (418) (1,044) 626  (3,000) (3,188) 188 
Impairment charges on joint ventures (7) —  —  —  —  (3,247) 3,247 
Gain on sale of real estate 787  —  787  1,499  242  1,257 
Income tax expense (8) (395) (18,417) 18,022  (1,200) (16,354) 15,154 
Preferred dividend requirements (6,033) (6,034) 1  (18,100) (18,102) 2 
(1) The increase in other expense for the three months ended September 30, 2021 related primarily to an increase in operating expenses as a result of the re-opening of the Kartrite Resort, which was previously closed due to the COVID-19 pandemic as well as operating expenses from two theatre properties.
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(2) Costs associated with loan refinancing or payoff for the three and nine months ended September 30, 2021 related to the pay-off of our unsecured term loan facility and the termination of related interest rate swaps.
(3) The decrease in interest expense, net for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, resulted primarily from a decrease in average borrowings. This was partially offset by a decrease in interest income from short-term investments related to cash on hand.

(4) The change in the credit loss (benefit) expense for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 was primarily due to repayments of $6.8 million from a borrower on a previously fully reserved note receivable and the release from an additional $8.5 million in funding commitments. Additionally, the decrease in credit loss expense was due to a change in 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 an improvement in macroeconomic factors.

(5) Impairment charges recognized during the three and nine months ended September 30, 2021 related to two vacant properties that we intend to sell and we determined that the cash flows were not sufficient to recover the carrying value. Impairment charges recognized during the three months ended September 30, 2020, related to two properties with revised estimated undiscounted cash flows and shorter hold periods as a result of the COVID-19 pandemic and was comprised of $11.6 million of impairments of real estate investments. Impairment charges recognized during the nine months ended September 30, 2020 related to eight properties with revised estimated undiscounted cash flows and shorter hold periods as a result of the COVID-19 pandemic and was comprised of $47.8 million of impairments of real estate investments, and $15.0 million of impairments of operating lease right-of-use assets.

(6) The decrease in depreciation and amortization expense for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 resulted primarily from property dispositions that occurred during 2020 and 2021 as well as property impairments. This decrease was partially offset by acquisitions and developments completed in 2020 and 2021.

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

(8) The decrease in income tax expense for the three and nine months ended September 30, 2021 compared to the income tax expense for the three and nine months ended September 30, 2020 is primarily related to the recognition of a full valuation allowance on deferred tax assets for our Canadian operations and certain TRSs as a result of the economic uncertainty caused by the COVID-19 pandemic.

Liquidity and Capital Resources

Cash and cash equivalents were $144.4 million at September 30, 2021. In addition, we had restricted cash of $5.1 million at September 30, 2021. Of the restricted cash at September 30, 2021, $4.1 million related to cash held for our tenants' off-season rent reserves and $1.0 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 September 30, 2021, we had total debt outstanding of $2.7 billion of which 99% was unsecured.

At September 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.
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On October 27, 2021, we issued $400.0 million in aggregate principal amount of senior notes due November 15, 2031 pursuant to an underwritten public offering. The notes bear interest at an annual rate of 3.60%. Interest is payable on May 15 and November 15 of each year beginning on May 15, 2022 until the stated maturity date. The notes were issued at 99.174% of their face value and are unsecured. The notes contain various covenants, including: (i) a limitation on incurrence of any debt which would cause the ratio of our debt to adjusted total assets to exceed 60%; (ii) a limitation on incurrence of any secured debt which would cause the ratio of our secured debt to adjusted total assets to exceed 40%; (iii) a limitation on incurrence of any debt which 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. Net proceeds from the note offering will be used for the redemption of our senior notes due in 2023 discussed below and for general business purposes, including the acquisition of experiential properties consistent with our current strategy.

In addition, on October 13, 2021, we delivered notice of redemption to redeem all of the $275.0 million principal amount of our 5.25% senior notes due in 2023. The redemption date has been set for November 12, 2021 and we will use a portion of the proceeds from the senior note offering discussed above to fund this redemption plus the make-whole premium payment estimated to be approximately $20.1 million based on interest rates as of October 29, 2021 (the final make-whole premium will be determined closer to the redemption date).

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. Our election to terminate the Covenant Relief Period early meant 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.

On September 13, 2021, we paid off our $400.0 million unsecured term loan facility and $1.5 million of deferred financing costs (net of accumulated amortization) were written off during the three months ended September 30, 2021 and are included in costs associated with loan refinancing. In connection with the pay off, we terminated the related interest rate swap agreements on our term loan facility for a cash settlement of $3.2 million.

At September 30, 2021, we had no outstanding balance under our $1.0 billion unsecured revolving credit facility. 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 on the revolving credit facility was reduced to 0.25%.

Subsequent to September 30, 2021, on October 6, 2021, we entered into a Third Amended, Restated and Consolidated Credit Agreement, governing a new amended and restated senior unsecured revolving credit facility. The new facility, which will mature on October 6, 2025, replaced our existing $1.0 billion senior unsecured revolving credit facility and $400.0 million senior unsecured term loan facility. The new facility provides for an initial maximum principal amount of borrowing availability of $1.0 billion with an “accordion” feature under which we may increase the total maximum principal amount available by $1.0 billion, to a total of $2.0 billion, subject to lender consent. The new facility has the same pricing terms and financial covenants as the prior facility (with improved valuation of certain asset types), as well as customary covenants and events of default. We have two
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options to extend the maturity date of the new credit facility by an additional six months each (for a total of 12 months), subject to paying additional fees and the absence of any default.

At September 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 September 30, 2021, the interest rates for the private placement notes were 4.35% and 4.56% for the Series A notes due 2024 and the Series B notes due 2026, respectively. During the nine months ended September 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. 

During the three months ended September 30, 2021, we received an investment grade rating from S&P Global Ratings on our unsecured debt, adding to our current investment grade rating from Moody's Investors Services. Additionally, during October of 2021, Moody's revised its outlook on our investment grade rating on our unsecured debt from negative to stable. As discussed above, we previously caused certain of our key subsidiaries to guarantee our obligations under our existing bank credit facility, private placement notes and senior unsecured bonds due to a decrease in our credit ratings resulting from the impact of the COVID-19 pandemic. As a result of us obtaining an investment grade rating on our long-term unsecured debt from both S&P and Moody's, our subsidiary guarantors were released from their guarantees under these debt agreements in accordance with the terms of such agreements.

Additionally, the debt instruments described above 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 September 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):
Nine Months Ended September 30,
2021 2020
Net cash provided by operating activities $ 236,424  $ 59,478 
Net cash used by investing activities (39,477) (70,897)
Net cash (used) provided by financing activities (1,075,273) 467,885 

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
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resume rent and mortgage payments at negotiated times, and begin repaying deferred amount under negotiated schedules. 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.
Commitments
As of September 30, 2021, we had 15 development projects with commitments to fund an aggregate of approximately $66.9 million, of which approximately $0.3 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 September 30, 2021, we had two mortgage notes with commitments totaling approximately $12.8 million of which approximately $2.4 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 September 30, 2021, we had four surety bonds outstanding totaling $33.3 million.

Liquidity Analysis
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, including to fund our operations, make recurring debt service payments, and allow distributions to our shareholders and avoid corporate level federal income or excise tax in accordance with REIT Internal Revenue Code requirements.

After our senior notes due 2023 are redeemed in November of 2021, we will have no scheduled debt payments due until 2024. 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. 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.

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 September 30, 2021 given the temporary disruption caused by the COVID-19 pandemic and the associated accounting for tenant rent deferrals and other lease
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modifications. Our net debt to gross assets ratio was 38% as of September 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 nine months ended September 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):
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  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
FFO:
Net income (loss) available to common shareholders of EPR Properties $ 26,084  $ (91,938) $ 35,949  $ (129,853)
Gain on sale of real estate (787) —  (1,499) (242)
Impairment of real estate investments, net (1) 2,711  11,561  2,711  47,816 
Real estate depreciation and amortization 42,415  41,791  122,856  127,467 
Allocated share of joint venture depreciation 966  369  1,779  1,130 
Impairment charges on joint ventures —  —  —  3,247 
FFO available to common shareholders of EPR Properties $ 71,389  $ (38,217) $ 161,796  $ 49,565 
FFOAA:
FFO available to common shareholders of EPR Properties $ 71,389  $ (38,217) $ 161,796  $ 49,565 
Costs associated with loan refinancing or payoff 4,741  —  4,982  820 
Transaction costs 2,132  2,776  3,342  4,622 
Impairment of operating lease right-of-use assets(1) —  —  —  15,009 
Credit loss (benefit) expense (14,096) 5,707  (19,677) 10,383 
Gain on insurance recovery (included in other income) —  —  (30) — 
Deferred income tax benefit —  18,035  —  15,246 
FFOAA available to common shareholders of EPR Properties $ 64,166  $ (11,699) $ 150,413  $ 95,645 
AFFO:
FFOAA available to common shareholders of EPR Properties $ 64,166  $ (11,699) $ 150,413  $ 95,645 
Non-real estate depreciation and amortization 197  268  620  852 
Deferred financing fees amortization 2,210  1,498  5,331  4,783 
Share-based compensation expense to management and trustees 3,759  3,410  11,218  10,382 
Amortization of above and below market leases, net and tenant allowances (98) (124) (293) (384)
Maintenance capital expenditures (2) (690) (8,911) (2,913) (11,130)
Straight-lined rental revenue (981) 17,969  (3,690) 25,448 
Straight-lined ground sublease expense 98  216  293  599 
Non-cash portion of mortgage and other financing income 55  71  (332) (117)
AFFO available to common shareholders of EPR Properties $ 68,716  $ 2,698  $ 160,647  $ 126,078 
FFO per common share:
Basic $ 0.95  $ (0.51) $ 2.16  $ 0.65 
Diluted 0.95  (0.51) 2.16  0.65 
FFOAA per common share:
Basic $ 0.86  $ (0.16) $ 2.01  $ 1.25 
Diluted 0.86  (0.16) 2.01  1.25 
Shares used for computation (in thousands):
Basic 74,804  74,613  74,738  76,456 
Diluted 74,911  74,613  74,819  76,456 
Other financial information:
Dividends per common share $ 0.7500  $ —  $ 0.7500  $ 1.5150 

(1) Impairment charges recognized during the three and nine months ended September 30, 2020 totaled $62.8 million, which was comprised of $47.8 million of impairments of real estate investments and $15.0 million of
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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 nine 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,
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transaction costs, impairment losses on operating lease right-of-use assets and prepayment fees. For the three months ended September 30, 2020, Adjusted EBITDAre was further adjusted to reflect Adjusted EBITDAre on a cash basis related to Regal and one attraction tenant.

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):
September 30,
2021 2020
Net Debt:
Debt $ 2,684,063  $ 3,854,855 
Deferred financing costs, net 32,166  35,140 
Cash and cash equivalents (144,433) (985,372)
Net Debt $ 2,571,796  $ 2,904,623 
Gross Assets:
Total Assets $ 5,721,157  $ 6,907,210 
Accumulated depreciation 1,142,513  1,072,201 
Cash and cash equivalents (144,433) (985,372)
Gross Assets $ 6,719,237  $ 6,994,039 
Net Debt to Gross Assets 38  % 42  %
Three Months Ended September 30,
2021 2020
EBITDAre and Adjusted EBITDAre:
Net income (loss) $ 32,117  $ (85,904)
Interest expense, net 36,584  41,744 
Income tax expense 395  18,417 
Depreciation and amortization 42,612  42,059 
Gain on sale of real estate (787) — 
Impairment of real estate investments, net 2,711  11,561 
Costs associated with loan refinancing or payoff 4,741  — 
Allocated share of joint venture depreciation 966  369 
Allocated share of joint venture interest expense 981  741 
EBITDAre $ 120,320  $ 28,987 
Transaction costs 2,132  2,776 
Credit loss (benefit) expense (14,096) 5,707 
Accounts receivable write-offs from prior periods (1) —  13,533 
Straight-line receivable write-offs from prior periods (1) —  19,927 
Adjusted EBITDAre $ 108,356  $ 70,930 
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(1) Included in "Rental revenue" in the accompanying consolidated statements of income (loss) and comprehensive income (loss). Rental revenue includes the following:
Three Months Ended September 30,
2021 2020
Minimum rent $ 114,375  $ 83,230 
Accounts receivable write-offs from prior periods —  (13,533)
Tenant reimbursements 4,187  2,413 
Percentage rent 3,149  1,303 
Straight-line rental revenue 981  1,958 
Straight-line receivable write-offs from prior periods —  (19,927)
Other rental revenue 348  147 
Rental revenue $ 123,040  $ 55,591 

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):     
September 30, 2021 December 31, 2020
Total Investments:
Real estate investments, net of accumulated depreciation $ 4,800,561  $ 4,851,302 
Add back accumulated depreciation on real estate investments 1,142,513  1,062,087 
Land held for development 21,875  23,225 
Property under development 20,166  57,630 
Mortgage notes and related accrued interest receivable 369,134  365,628 
Investment in joint ventures 38,729  28,208 
Intangible assets, gross (1) 57,962  57,962 
Notes receivable and related accrued interest receivable, net (1) 7,338  7,300 
Total investments $ 6,458,278  $ 6,453,342 
Total investments $ 6,458,278  $ 6,453,342 
Operating lease right-of-use assets 175,987  163,766 
Cash and cash equivalents 144,433  1,025,577 
Restricted cash 5,142  2,433 
Accounts receivable 80,491  116,193 
Less: accumulated depreciation on real estate investments (1,142,513) (1,062,087)
Less: accumulated amortization on intangible assets (1) (19,362) (16,330)
Prepaid expenses and other current assets (1) 18,701  21,291 
Total assets $ 5,721,157  $ 6,704,185 
(1) Included in "Other assets" in the accompanying consolidated balance sheet. Other assets include the following:
September 30, 2021 December 31, 2020
Intangible assets, gross $ 57,962  $ 57,962 
Less: accumulated amortization on intangible assets (19,362) (16,330)
Notes receivable and related accrued interest receivable, net 7,338  7,300 
Prepaid expenses and other current assets 18,701  21,291 
Total other assets $ 64,639  $ 70,223 
            
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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 September 30, 2021, we had a $1.0 billion unsecured revolving credit facility with no outstanding balance. We also had a $25.0 million bond that bears interest at a floating rate but has been fixed through an interest rate swap agreement.

As of September 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 September 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 10 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.

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Item 4. Controls and Procedures

Evaluation of disclosures controls and procedures
As of September 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.

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

Issuer Purchases of Equity Securities
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 through July 31, 2021 common shares —  $ —  —  $ — 
August 1 through August 31, 2021 common shares 382  (1) 50.57  —  — 
September 1 through September 30, 2021 common shares —  —  —  — 
Total 382  $ 50.57  —  $ — 
(1) The repurchases of equity securities during August 2021 were completed in conjunction with the vesting of employee nonvested shares. These repurchases were not made pursuant to a publicly announced plan or program.

Item 3. Defaults Upon Senior Securities

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

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

There were no reportable events during the quarter ended September 30, 2021.
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Item 6. Exhibits
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.
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.
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.
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.

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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: November 4, 2021 By /s/ Gregory K. Silvers
Gregory K. Silvers, President and Chief Executive
Officer (Principal Executive Officer)
Dated: November 4, 2021 By /s/ Tonya L. Mater
Tonya L. Mater, Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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