UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September 30, 2017~~March 31, 2020



o☐	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~~



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 x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x☒ No o☐

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~~“emerging growth ~~company"~~company” in Rule 12b-2 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 o☐ No x☒

At ~~November 7, 2017,~~May 8, 2020, there were ~~73,666,045~~77,480,279 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 ~~our acquisition or disposition~~the uncertain financial impact of ~~properties,~~COVID-19, our capital resources ~~future expenditures for development projects,~~and liquidity, expected waivers of financial covenants related to the Company's bank credit facilities and private placement notes, expected liquidity and performance of our customers, including AMC, our expected dividend payments and share repurchases and our results of operations and financial condition. 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:

~~Our previously completed transaction~~Risks associated with ~~CNL Lifestyle Properties, Inc. presents certain risks to our business, financial condition, results~~the current outbreak of ~~operations and cash flows;~~the novel coronavirus, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases;

Global economic uncertainty and disruptions in financial markets;

Reduction in discretionary spending by consumers;

Adverse changes in our credit ratings;

Fluctuations in interest rates;

The duration or outcome of litigation, or other factors outside of litigation such as project financing, relating to our significant investment in a planned casino and resort development which may cause the development to be indefinitely delayed or cancelled;

~~Unsuccessful development, operation, financing or compliance with licensing requirements of the planned casino and resort development by the third-party lessee;~~

~~Risks related to overruns for the construction of common infrastructure at our planned casino and resort development for which we would be responsible;~~

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 ~~with theatre tenants~~ on terms comparable to prior leases and/or our ability to ~~lease any re-claimed space from some of our larger theatres at~~locate substitute lessees for these properties on economically favorable terms;

Risks of operating in the ~~entertainment~~experiential real estate industry;

Our ability to compete effectively;

Risks associated with ~~a single tenant~~three tenants representing a substantial portion of our lease revenues;

The ability of our public charter school tenants to comply with their charters and continue to receive funding from local, state and federal governments, the approval by applicable governing authorities of substitute operators to assume control of any failed public charter schools and our ability to negotiate the terms of new leases with such substitute tenants on acceptable terms, and our ability to complete collateral substitutions as applicable;

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

Risks ~~relating~~associated with our dependence on third-party managers to operate certain of our ~~tenants' exercise~~experiential lodging properties;

Risks associated with our level of ~~purchase options or borrowers' exercise of prepayment options related to our education properties;~~indebtedness;

Risks associated with use of leverage to acquire properties;

Financing arrangements that require lump-sum payments;

Our ability to raise capital;

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

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;~~purposes and related tax matters;

The ability of our subsidiaries to satisfy their obligations;

Financing arrangements that expose us to funding ~~or purchase~~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 our experiential lodging properties;

Risks associated with the gaming industry;

Risks associated with gaming and other regulatory authorities;

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

Risks associated with security breaches and other disruptions;

Changes in accounting standards that may adversely affect our ~~consolidated~~ 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 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 ~~climate change;~~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 ~~the Canadian~~foreign exchange ~~rate;~~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, 2016 filed with the Securities and Exchange Commission ("SEC") on March 1, 2017, as supplemented by Part II, Item 1A- "Risk Factors" in this Quarterly Report on Form 10-Q.Factors."

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference herein. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by law, we do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

TABLE OF CONTENTS



			Page

PART I			1

	Item 1.	Financial Statements	1
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4029
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6046
	Item 4.	Controls and Procedures	6047

PART II			6147

	Item 1.	Legal Proceedings	6147
	Item 1A.	Risk Factors	6247
	Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	6268
	Item 3.	Defaults Upon Senior Securities	6269
	Item 4.	Mine Safety Disclosures	6269
	Item 5.	Other Information	6269
	Item 6.	Exhibits	6370

iii

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

EPR PROPERTIES Consolidated Balance Sheets (Dollars in thousands except share data)	EPR PROPERTIES Consolidated Balance Sheets (Dollars in thousands except share data)						EPR PROPERTIES Consolidated Balance Sheets (Dollars in thousands except share data)

	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(unaudited)						(unaudited)
Assets
Rental properties, net of accumulated depreciation of $711,384 and $635,535 at September 30, 2017 and December 31, 2016, respectively	$	4,535,994		$	3,595,762
Real estate investments, net of accumulated depreciation of $1,023,993 and $989,254 at March 31, 2020 and December 31, 2019, respectively							$	5,184,692		$	5,197,308
Land held for development	33,674			22,530			28,080			28,080
Property under development	284,211			297,110			30,063			36,756
Operating lease right-of-use assets							207,605			211,187
Mortgage notes and related accrued interest receivable	972,371			613,978			356,666			357,391
Investment in a direct financing lease, net	57,698			102,698
Investment in joint ventures	5,616			5,972			33,897			34,317
Cash and cash equivalents	11,412			19,335			1,225,122			528,763
Restricted cash	24,323			9,744			4,583			2,677
Accounts receivable, net	99,213			98,939
Accounts receivable							72,537			86,858
Other assets	108,498			98,954			112,095			94,174
Total assets	$	6,133,010		$	4,865,022		$	7,255,340		$	6,577,511
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	140,582		$	119,758		$	112,167		$	122,939
Operating lease liabilities							232,343			235,650
Common dividends payable	25,046			20,367			30,063			29,424
Preferred dividends payable	5,951			5,951			6,034			6,034
Unearned rents and interest	85,198			47,420			84,190			74,829
Debt	2,987,925			2,485,625			3,854,062			3,102,830
Total liabilities	3,244,702			2,679,121			4,318,859			3,571,706
Equity:
Common Shares, $.01 par value; 100,000,000 shares authorized; and 76,397,669 and 66,263,487 shares issued at September 30, 2017 and December 31, 2016, respectively	764			663
Common Shares, $.01 par value; 100,000,000 shares authorized; and 81,811,816 and 81,588,489 shares issued at March 31, 2020 and December 31, 2019, respectively							818			816
Preferred Shares, $.01 par value; 25,000,000 shares authorized:
5,399,050 Series C convertible shares issued at September 30, 2017 and December 31, 2016; liquidation preference of $134,976,250	54			54
3,449,165 and 3,450,000 Series E convertible shares issued at September 30, 2017 and December 31, 2016, respectively; liquidation preference of $86,229,125	34			35
5,000,000 Series F shares issued at September 30, 2017 and December 31, 2016; liquidation preference of $125,000,000	50			50
5,394,050 Series C convertible shares issued at March 31, 2020 and December 31, 2019; liquidation preference of $134,851,250							54			54
3,447,381 Series E convertible shares issued at March 31, 2020 and December 31, 2019; liquidation preference of $86,184,525							34			34
6,000,000 Series G shares issued at March 31, 2020 and December 31, 2019; liquidation preference of $150,000,000							60			60
Additional paid-in-capital	3,420,867			2,677,046			3,845,093			3,834,858
Treasury shares at cost: 2,732,736 and 2,616,406 common shares at September 30, 2017 and December 31, 2016, respectively	(121,539		)	(113,172		)
Treasury shares at cost: 3,224,232 and 3,125,569 common shares at March 31, 2020 and December 31, 2019, respectively							(154,357		)	(147,435		)
Accumulated other comprehensive income	10,919			7,734			(5,289		)	7,275
Distributions in excess of net income	(422,841		)	(386,509		)	(749,932		)	(689,857		)
Total equity	$	2,888,308		$	2,185,901		$	2,936,481		$	3,005,805
Total liabilities and equity	$	6,133,010		$	4,865,022		$	7,255,340		$	6,577,511

See accompanying notes to consolidated financial statements.

Consolidated Statements of Income

(Dollars in thousands except per share data)

Consolidated Statements of Income and Comprehensive Income

(Dollars in thousands except per share data)

Consolidated Statements of Income and Comprehensive Income

(Dollars in thousands except per share data)

See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

Consolidated Statements of Changes in Equity

(Dollars in thousands, except per share data)

Consolidated Statements of Cash Flows

(Dollars in thousands)

EPR PROPERTIES
Consolidated Statements of Changes in Equity
Nine Months Ended September 30, 2017
(Unaudited)
(Dollars in thousands)
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, 2016 66,263,487
$ 663
13,849,050
$ 139
$ 2,677,046
$ (113,172 ) $ 7,734
$ (386,509 ) $ 2,185,901
Restricted share units issued to Trustees 19,030
—
—
—
—
—
—
—
—
Issuance of nonvested shares, net 295,754
3
—
—
5,585
(90 ) —
—
5,498
Purchase of common shares for vesting —
—
—
—
—
(6,729 ) —
—
(6,729 )
Amortization of nonvested shares and restricted share units —
—
—
—
10,038
—
—
—
10,038
Share option expense —
—
—
—
528
—
—
—
528
Foreign currency translation adjustment —
—
—
—
—
—
13,539
—
13,539
Change in unrealized gain (loss) on derivatives —
—
—
—
—
—
(10,354 ) —
(10,354 )
Net income —
—
—
—
—
—
—
197,405
197,405
Issuances of common shares 939,472
9
—
—
68,739
—
—
—
68,748
Issuances of common shares for acquisition 8,851,264
89
—
—
657,384
—
—
—
657,473
Conversion of Series E Convertible Preferred shares to common shares 381
—
(835 ) (1 ) —
—
—
—
(1 )
Stock option exercises, net 28,281
—
—
—
1,547
(1,548 ) —
—
(1 )
Dividends to common and preferred shareholders —
—
—
—
—
—
—
(233,737 ) (233,737 )
Balance at September 30, 2017 76,397,669
$ 764
13,848,215
$ 138
$ 3,420,867
$ (121,539 ) $ 10,919
$ (422,841 ) $ 2,888,308

EPR PROPERTIES Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)

Continued from previous page
	Three Months Ended March 31,
	2020			2019
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of the period	$	528,763		$	5,872
Restricted cash at beginning of the period	2,677			12,635
Cash and cash equivalents and restricted cash at beginning of the period	$	531,440		$	18,507

Cash and cash equivalents at end of the period	$	1,225,122		$	11,116
Restricted cash at end of the period	4,583			11,166
Cash and cash equivalents and restricted cash at end of the period	$	1,229,705		$	22,282

Supplemental schedule of non-cash activity:
Transfer of property under development to real estate investments	$	20,089		$	7,330
Issuance of nonvested shares and restricted share units at fair value, including nonvested shares issued for payment of bonuses	$	17,595		$	14,682
Credit loss expense related to adoption of ASC Topic 326	$	2,163		$	—
Amounts related to adoption of ASC Topic 842:
Operating lease right-of-use assets	$	—		$	214,576
Operating lease liabilities	$	—		$	238,614
Sub-lessor straight-line rent receivable	$	—		$	24,454
Acquisition of real estate in exchange for assumption of debt at fair value	$	—		$	14,000
Assumption of debt	$	—		$	18,585
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	28,137		$	28,676
Cash paid during the period for income taxes	$	251		$	695
Interest cost capitalized	$	262		$	3,137
Change in accrued capital expenditures	$	(882	)	$	(6,406	)

See accompanying notes to consolidated financial statements.

EPR PROPERTIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended September 30,
2017 2016
Operating activities:
Net income $ 197,405
$ 166,841
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from early extinguishment of debt (977 ) —
Impairment charges 10,195
—
Gain on sale of real estate (28,462 ) (3,885 )
Gain on insurance recovery (606 ) (3,837 )
Deferred income tax expense (benefit) 911
(664 )
Costs associated with loan refinancing or payoff 1,491
905
Equity in income from joint ventures (86 ) (501 )
Distributions from joint ventures 442
511
Depreciation and amortization 95,919
79,222
Amortization of deferred financing costs 4,579
3,522
Amortization of above and below market leases, net and tenant improvements (41 ) 138
Share-based compensation expense to management and Trustees 10,566
8,282
Increase in restricted cash (744 ) (1,463 )
Decrease (increase) in mortgage notes accrued interest receivable 875
(188 )
Decrease (increase) in accounts receivable, net 10,220
(19,066 )
Increase in direct financing lease receivable (1,003 ) (2,503 )
Increase in other assets (2,225 ) (5,193 )
Decrease in accounts payable and accrued liabilities (13,969 ) (5,260 )
Increase (decrease) in unearned rents and interest 15,818
(1,088 )
Net cash provided by operating activities 300,308
215,773
Investing activities:
Acquisition of and investments in rental properties and other assets (354,277 ) (177,362 )
Proceeds from sale of real estate 136,467
20,651
Investment in mortgage notes receivable (130,076 ) (80,786 )
Proceeds from mortgage note receivable paydown 16,608
63,876
Investment in promissory notes receivable (1,868 ) (66 )
Proceeds from promissory note receivable paydown 1,599
—
Proceeds from sale of infrastructure related to issuance of revenue bonds —
43,462
Proceeds from insurance recovery 579
3,036
Proceeds from sale of investment in a direct financing lease, net —
825
Additions to properties under development (304,084 ) (288,887 )
Net cash used by investing activities (635,052 ) (415,251 )
Financing activities:
Proceeds from debt facilities and senior unsecured notes 1,175,000
854,360
Principal payments on debt (667,091 ) (587,109 )
Deferred financing fees paid (14,207 ) (3,047 )
Costs associated with loan refinancing or payoff (cash portion) (7 ) (482 )
Net proceeds from issuance of common shares 68,552
142,452
Impact of stock option exercises, net —
(717 )
Purchase of common shares for treasury for vesting (6,729 ) (4,211 )
Dividends paid to shareholders (228,861 ) (198,678 )
Net cash provided by financing activities 326,657
202,568
Effect of exchange rate changes on cash 164
(62 )
Net (decrease) increase in cash and cash equivalents (7,923 ) 3,028
Cash and cash equivalents at beginning of the period 19,335
4,283
Cash and cash equivalents at end of the period $ 11,412
$ 7,311
Supplemental information continued on next page.

EPR PROPERTIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Continued from previous page.
Nine Months Ended September 30,
2017 2016
Supplemental schedule of non-cash activity:
Transfer of property under development to rental properties $ 301,612
$ 364,234
Issuance of nonvested shares and restricted share units at fair value, including nonvested shares issued for payment of bonuses $ 23,893
$ 19,626
Issuance of common shares for acquisition $ 657,473
$ —
Assumption of liabilities net of accounts receivable for acquisition $ 12,083
$ —
Transfer of investment in direct financing lease to rental properties $ 35,807
$ —
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 103,702
$ 83,307
Cash paid during the period for income taxes $ 1,253
$ 1,380
Interest cost capitalized $ 7,833
$ 7,983
Decrease in accrued capital expenditures $ 7,137
$ 5,621

~~See accompanying notes to consolidated financial statements.~~

EPR PROPERTIES

Notes to Consolidated Financial Statements (Unaudited)

1. Organization

Description of Business

EPR Properties (the Company) iswas formed on August 22, 1997 as a ~~specialty~~Maryland real estate investment trust (REIT) ~~organized~~, and an initial public offering of the Company's common shares of beneficial interest (“common shares”) was completed on ~~August 29, 1997 in Maryland. The~~November 18, 1997. Since that time, the Company ~~develops, owns, leases and finances properties~~has been a leading Experiential net lease REIT specializing in select ~~market segments primarily related to Entertainment, Education~~enduring experiential properties. The Company's underwriting is centered on key industry and ~~Recreation.~~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~~three month period ended ~~September 30, 2017~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2020. Amounts as of December 31, 2019 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, 2019 filed with the Securities and Exchange Commission (SEC) on February 25, 2020.

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 interest 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 March 31, 2020 and December 31, 2019, the Company does not have any investments in consolidated VIEs.

Risks and Uncertainties

On March 11, 2020, the World Health Organization declared a novel strain of coronavirus (COVID-19) a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of COVID-19 on the Company’s business is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly and is severely impacting experiential real estate properties given that such properties rely on social interaction and discretionary consumer spending. Substantially all the Company's tenants have announced temporary closures of their operations during this pandemic. The severity of the impact of COVID-19 on the Company’s

~~The consolidated balance sheet as~~business will depend on a number of ~~December 31, 2016 has been derived from~~factors, including, but not limited to, the ~~audited consolidated balance sheet at that date but does not include~~duration and severity of the pandemic and the extent and severity of the impact on consumers, all of which are uncertain and cannot be predicted. Many experts predict that the ~~information~~outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 has negatively affected, and ~~footnotes required~~COVID-19 (or a future pandemic) could have material and adverse effects on, the Company's ability to successfully operate and on its financial condition, results of operations and cash flows.

The Company’s consolidated financial statements reflect estimates and assumptions made by ~~U.S. GAAP for complete financial statements. For further information, refer to~~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 ~~footnotes thereto included~~reported amounts of revenue and expenses during the reporting periods presented. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s financial condition and results of operations for the three month period ended March 31, 2020, other than the following:

The Company recognized straight-line write-offs totaling $12.5 million, which were comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable. Straight-line rental revenue, net of write-offs, was a reduction to total rental revenue of $9.7 million for the three months ended March 31, 2020.

The Company increased its expected credit losses by $1.2 million (an increase of approximately 50%) from its implementation estimate. This increase was primarily the result of the economic uncertainty and the rapidly changing environment surrounding the COVID-19 pandemic.

The Company reduced rental revenue by $1.5 million in rent abatements for certain of its tenants due to COVID-19.

Beginning with the quarter ended March 31, 2020, the Company will recognize revenue from American-Multi Cinema, Inc. (AMC) on a cash basis.

In reliance upon a FASB Staff Q&A (discussed below), the Company intends to not treat deferrals or rent concessions during the period effected by the COVID-19 pandemic as lease modifications. The Company will continue to evaluate the impacts of COVID-19 and its impact on the Company's ~~Annual Report~~lease receivables and related accounting processes.

In addition, the Company expects that it will not be in technical compliance (non-payment related) with certain earnings and other financial covenants under its bank credit facilities and private placement notes at the end of the second quarter of 2020 because such covenants are calculated based on ~~Form 10-K for~~ the ~~year ended December 31, 2016 filed~~most recent quarterly net operating income. Accordingly, the Company is in discussions with its lenders and private placement note holders to obtain a temporary suspension or modification of these covenants, with some suspended financial covenants expected to extend through the ~~Securities and Exchange Commission (SEC) on March 1, 2017.~~

~~Operating Segments~~

first quarter of 2021. The Company has ~~four~~received approval from the requisite lenders under its bank credit facilities that the bank lenders will temporarily suspend or modify these financial covenants, subject to the Company's and such lenders' subsequent execution and delivery of a definitive agreement. The Company expects to execute these covenant modification agreements with its bank lenders and the holders of its private placement notes within the next 30 days. The Company has determined it is probable that the definitive agreement with its bank lenders will be completed and executed. While not anticipated, events and conditions could influence the timing and completion of this agreement. As a part of this process, the Company has also determined that it will temporarily suspend its monthly cash dividend to common shareholders after the common share dividend payable May 15, 2020 (except as may be necessary to maintain REIT status and to not owe income tax) and will suspend its share repurchase plan upon the effective date of the covenant modification agreements.

Recently Adopted Accounting Pronouncements

On January 1, 2020, Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) became effective for the Company. The Company adopted the standard on the effective date and used the effective date as the date of initial application. Accordingly, comparative periods have not been recast, and disclosures required under the new standard will not be provided for dates and periods before January 1, 2020. On the effective date, the Company recognized credit loss expense through retained earnings and the corresponding allowance for credit losses of approximately $2.2 million, which was comprised of $2.1 million related to mortgage notes receivable and $0.1 million related to notes receivable (which are presented within other assets in the accompanying

consolidated balance sheet). See Note 5 for information related to the Company's measurement of credit losses on its mortgage notes and notes receivable.

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. The purpose of this Staff Q&A was to respond to frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. In response to the Staff Q&A, the Company intends to not treat deferrals or rent concessions during the period effected by the COVID-19 pandemic as lease modifications. The Company will continue to evaluate the impacts of COVID-19 and its impact on the Company's lease accounting and related processes.

Reportable Segments

The Company has 2 reportable operating segments: ~~Entertainment,~~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 ~~Recreation~~segment includes the following property types: early childhood education centers and ~~Other.~~private schools. See Note 1415 for financial information related to these ~~operating~~reportable segments.

~~Rental Properties~~Real Estate Investments

~~Rental properties~~Real estate investments are carried at ~~cost~~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, ~~and~~ 3three years to 25 years for furniture, fixtures and ~~equipment.~~equipment and 10 years to 20 years for site improvements. Tenant improvements, including allowances, are depreciated over the shorter of the ~~base~~lease term ~~of the lease~~ or the estimated useful ~~life. Expenditures for ordinary maintenance~~life and ~~repairs~~leasehold interests are ~~charged to operations in the period incurred. Significant renovations and improvements that improve or extend~~depreciated over the useful life of the ~~asset are capitalized and depreciated over their estimated useful life.~~underlying ground lease.

Management reviews a property for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be ~~recoverable. The review of recoverability~~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. Assets~~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 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.

~~Accounting for~~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. ~~In January 2017,~~

If the ~~FASB issued Accounting Standards Update (ASU) No. 2017-01, Business Combinations (Topic 805):~~ ~~Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance~~acquisition is determined to ~~assist entities with evaluating whether acquisitions should~~ be ~~accounted for as business combinations or~~an asset acquisitions. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. The Company has elected to early adopt ASU No. 2017-01~~as of January 1, 2017. As a result,~~acquisition, the Company ~~expects that fewer of its real estate acquisitions will be accounted for as business combinations.~~

~~Costs incurred for asset acquisitions and development properties, including transaction costs, are capitalized. For asset acquisitions, the Company allocates~~records the purchase price and other related costs incurred to the ~~real estate~~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 ~~based on recent independent appraisals or methods similar to those used by independent appraisers~~tangible assets and ~~management judgment.~~identified intangible assets and liabilities as well as any noncontrolling interest. Acquisition-related costs in connection with business combinations are expensed as ~~incurred. Costs related to such transactions, as well as~~incurred and included in transaction costs ~~associated with terminated transactions, are included~~ in the accompanying consolidated statements of income ~~as transaction costs.~~and comprehensive income.

For real estate acquisitions (asset acquisitions or business combinations), the fair value (or relative fair value in an asset acquisition) of the tangible assets is determined by valuing the property using recent independent appraisals or methods

similar to those used by independent appraisers. Land is valued using the sales comparison approach which uses available market data from recent comparable land sales as an input to estimate the fair value. Site improvements and tenant improvements are valued using the cost approach which uses replacement cost data obtained from industry recognized guides less depreciation as an input to estimate the fair value. The building is valued either using the cost approach described above or a combination of the cost and the income approach. The income approach uses market leasing assumptions to estimate the fair value of the property as if vacant. The cost and income approaches are reconciled to arrive at an estimated building fair value.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations or mortgage note receivable as applicable. Deferred financing costs of ~~$34.0~~$35.9 million and $~~29.3~~37.2 million as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively, are shown as a reduction of debt. The deferred financing costs of $3.1 million and $3.5 million as of March 31, 2020 and December 31, 2019, respectively, related to the unsecured revolving credit facility are included in other assets.

~~Allowance for Doubtful Accounts~~Rental Revenue

~~Accounts receivable is reduced by an allowance for amounts where collection is not probable.~~ The ~~Company’s accounts receivable balance is comprised~~Company leases real estate to its tenants primarily ~~of rents and~~under leases that are predominately classified as operating ~~cost recoveries due from tenants as well as accrued rental rate increases to be received over the life of the existing~~ leases. The ~~Company regularly evaluates~~Company's leases generally provide for rent escalations throughout the adequacy of its allowance for doubtful accounts. 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 and/or other debtor, current economic conditions and changes in customer paymentlease terms. Additionally, with respect to tenants in bankruptcy, the Company estimates the expected recovery through bankruptcy claims and increases the allowance for amounts deemed uncollectible. These estimates have a direct impact on the Company's net income.

~~Revenue Recognition~~

Rents that are fixed ~~and determinable~~ are recognized on a straight-line basis over the ~~minimum term~~lease term. Base rent escalations that include a variable component are recognized upon the occurrence of the ~~leases. Base rent escalation on leases that are dependent upon increases~~specified event as defined in the ~~Consumer Price Index (CPI)~~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 three months ended March 31, 2020, the Company recognized ~~when known.~~ straight-line write-offs totaling $12.5 million, which were comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable. Straight-line rental revenue, net of write-offs, was a reduction to total rental revenue of $9.7 million for the three months ended March 31, 2020. For the three months ended March 31, 2019, the Company recognized $0.9 million (of which $0.8 million has been classified within discontinued operations) of straight-line write-offs and total straight-line rental revenue net of these write-offs was $2.4 million (of which $0.2 million has been classified within discontinued operations).

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 payments made by the lessees 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 three months ended March 31, 2020 and 2019, the Company recognized $0.4 million and $2.2 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 three months ended March 31, 2020 and 2019, the non-lease components included in rental revenue totaled $3.3 million and $3.9 million, respectively.

In addition, most of the Company's tenants are subject to additional rents if gross revenues of the properties exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents ~~as well as participating interest for those mortgage agreements that contain similar such clauses~~ are recognized at the time when specific ~~triggering events occur~~parameters have been met as provided by the lease ~~or mortgage agreements.~~agreement. Rental revenue included percentage rents of ~~$4.7~~$2.8 million and ~~$2.7~~$1.4 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. ~~Mortgage and other financing income included participating interest income of $0.7 million and $0.9 million for~~

The Company regularly evaluates the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2016, mortgage and other financing income included a $3.6 million prepayment fee related to a mortgage note that was paid fully in advancecollectibility of its ~~maturity date.~~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 and/or other debtor, current economic conditions and changes in customer payment

~~Direct financing lease income is recognized on~~terms. When the ~~effective interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values at the date~~collectibility of lease ~~inception represent management's initial estimates of fair value~~receivables or future lease payments are no longer probable, the Company records a direct write-off of the ~~leased assets at~~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 ~~expiration~~purchaser has obtained control of the ~~lease,~~property. Gains on sales of properties are recognized in full in a partial sale of nonfinancial assets, to the extent control is not ~~to exceed original cost. Significant assumptions used~~retained. Any noncontrolling interest retained by the seller would, accordingly, be measured at fair value.

~~in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values.~~ The Company evaluates ~~on an annual basis (or more frequently, if necessary) the collectability of its direct financing lease receivable and unguaranteed residual value~~each sale or disposal transaction to determine ~~whether they~~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 ~~impaired. A direct financing lease receivable~~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 ~~considered~~included in income from continuing operations. Certain reclassifications have been made to ~~be impaired when, based on current information and events, it is probable that the Company will be unable~~prior period amounts to ~~collect all amounts due according~~conform to the existing contractual terms. When a direct financing lease receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable's effective interest rate or to the fair value of the underlying collateral, less costs to sell, if such receivable is collateralized.current period presentation for assets that qualify for presentation as discontinued 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 based on the stated interest rate over the estimated life of the note. Premiums and discounts are amortized or accreted into income over the estimated life of the note using the effective interest method.

The Company ~~defers certain loan origination~~adopted Topic 326 effective January 1, 2020, which requires allowance for credit losses to be recorded to reflect that all mortgage notes and ~~commitment fees, net~~notes receivable have some inherent risk of ~~certain origination costs,~~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 ~~amortizes them over~~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 ~~loan. Interest income~~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.

In the event the Company has a past due mortgage note or note receivable and foreclosure is probable, the Company measures expected credit losses based on ~~performing loans is accrued as earned.~~the fair value of the collateral. The Company evaluates the collectability of both interest and principal offor each of its ~~loans~~mortgage notes and notes receivable on a quarterly basis to determine ~~whether it~~if foreclosure is ~~impaired. A loan is considered~~probable. As of March 31, 2020, the Company does not have any mortgage notes receivable with past due principal balances.

Mortgage and Other Financing Income

Certain of the Company's borrowers are subject to ~~be impaired when,~~additional interest based on current information and events, the Company determines that it is probable that it will be unable to collect all amounts due according to the existing contractual terms. An insignificant delay or shortfall in amounts of payments does not necessarily resultcertain thresholds defined in the loan being identified as impaired. When a loan is considered to be impaired, the amount of loss, if any, is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the Company’s interest in the underlying collateral, less costs to sell, if the loan is collateral dependent. For impaired loans,mortgage agreements (participating interest). Participating interest income is recognized ~~on a cash basis, unless~~at the ~~Company determines based on~~time when specific parameters have been met as provided by the ~~loan~~mortgage agreement. There was no participating interest income for the three months ended March 31, 2020 and 2019. For the three months ended March 31, 2019, mortgage and other financing income included $0.9 million in prepayment fees related to ~~estimated fair value ratio~~mortgage notes that were paid fully in advance of their maturity date. There were 0 prepayment fees recognized during the loan should be on the cost recovery method, and any cash payments received would then be reflected as a reduction of principal. Interest income recognition is recommenced if and when the impaired loan becomes contractually current and performance is demonstrated to be resumed.three months ended March 31, 2020.

Concentrations of Risk

~~On December 21, 2016,~~Regal Entertainment Group (Regal), Topgolf USA (Topgolf) and American Multi-Cinema, Inc. (AMC) ~~announced that it closed its acquisition of Carmike Cinemas Inc. (Carmike). AMC was the lessee of~~represented a ~~substantial~~significant portion ~~(34%) of the megaplex theatre rental properties held by the Company at September 30, 2017. For the nine months ended September 30, 2017, approximately $85.7 million or 20.0%~~ of the Company's total ~~revenues were derived from rental payments by AMC. For~~revenue for the ~~nine~~three months ended ~~September 30, 2016, approximately $65.3 million or 18.0%~~March 31, 2020 and 2019. The following is a summary of the Company's total ~~revenues were~~revenue (including revenue from discontinued operations) derived from rental or interest payments byfrom Regal, Topgolf and AMC (dollars in thousands):



	Three months ended March 31,
	2020				2019
	Total Revenue		% of Company's Total Revenue		Total Revenue		% of Company's Total Revenue
Regal	$	21,354	14.1	%	$	15,692	9.5	%
Topgolf	20,075		13.3	%	18,654		11.3	%
AMC (1)	20,072		13.3	%	30,580		18.6	%

(1) During the three months ended March 31, 2020, the Company wrote-off $9.2 million of straight-line receivables to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of income and approximately $16.9 million or 4.7% of the Company's total revenues were derived from rental payments by Carmike. These rental payments are from AMC under the leases, or from its parent, AMC Entertainment, Inc. (AMCE), as the guarantor of AMC’s obligations under the leases. AMCE is wholly owned by AMC Entertainment Holdings, Inc. (AMCEH). AMCEH is a publicly held company (NYSE: AMC) and its consolidated financial information is publicly available at www.sec.gov.comprehensive income.

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. Prior to May 12, 2016, share-based compensation granted to employees and non-employee Trustees were issued under the 2007 Equity Incentive Plan. The 2016 Equity Incentive Plan was approved by shareholders at the May 11, 2016 annual shareholder meeting and this plan replaced the 2007 Equity Incentive Plan. Accordingly, all share-based compensation granted on or after May 12, 2016 has been issued under the 2016 Equity Incentive Plan.

Share-based compensation expense consists of share option expense and amortization of nonvested share grants issued to employees, and amortization of share units issued to non-employee Trustees for payment of their annual retainers. Share-based compensation included in general and administrative expense in the accompanying consolidated statements of income ~~totaled $10.6 million~~ and ~~$8.3 million for the nine months ended September 30, 2017 and 2016, respectively.~~comprehensive income.

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 and comprehensive income was ~~$528~~$3 thousand and ~~$684~~$2 thousand for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, 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~~(three years or four ~~years)~~ years). Expense recognized related to nonvested shares and included in general and administrative expense in the accompanying consolidated statements of income and comprehensive income was ~~$9.1~~$2.7 million and ~~$6.8~~$2.9 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. Expense recognized related to nonvested shares and included in severance expense in the accompanying consolidated statement of income was $0.1 million for the three months ended March 31, 2019.

Nonvested Performance Shares Issued to Employees

During the three months ended March 31, 2020, the Compensation and Human Capital Committee of the Board of Trustees (Board) approved the 2020 Long Term Incentive Plan (the 2020 LTIP) as 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. 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 and comprehensive income was $0.2 million for the three months ended March 31, 2020.

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 was ~~$936 thousand~~$0.5 million and ~~$813 thousand~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively.

Derivative Instruments

The Company ~~has acquired certain~~uses derivative instruments to reduce exposure to fluctuations in foreign currency exchange rates and variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These derivatives consist of foreign currency forward contracts, cross-currency swaps and interest rate swaps.

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 ~~interest rate~~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 ~~or other types of forecasted transactions,~~ are considered cash flow hedges. ~~Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation.~~ 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 ~~of the hedged asset or liability that are attributable to the hedged risk in a fair value~~ hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. For its net investment hedges that hedge the foreign currency exposure of its Canadian investments, the Company has elected to assess hedge effectiveness using a method based on changes in spot exchange rates and record the changes in the fair value amounts excluded from the assessment of effectiveness into earnings on a systematic and rational basis. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. If hedge accounting is not applied, realized and unrealized gains or losses are reported in earnings.

The Company's policy is to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Impact of Recently Issued Accounting Standards

In ~~May 2014,~~March 2020, the FASB issued ASU No. ~~2014-09,~~ ~~Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to~~

~~customers when it satisfies performance obligations. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.~~

~~In February 2017, the FASB issued ASU No. 2017-05,~~ ~~Other Income: Gains and Losses from the Derecognition of Nonfinancial Assets~~, which amends ASC Topic 610-20. ASU No. 2017-05 provides guidance on how entities recognize sales, including partial sales, of nonfinancial assets (and in-substance nonfinancial assets) to non-customers. ASU No. 2017-05 requires the seller to recognize a full gain or loss 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. Both ASU No. 2014-09 and 2017-05 will become effective for the Company beginning with the first quarter of 2018. The standards permit the use of either the full retrospective method or the modified retrospective method. The Company anticipates it will use the modified retrospective method for transition under both standards, in which case the cumulative effect of applying the standards, if any, would be recognized at the date of initial application.

The Company has reviewed its revenue streams and determined the significant majority of its revenue is derived from lease revenue (which will be impacted upon adoption of the lease standard in 2019 discussed below) and mortgage and other financing income (which is not in scope of the revenue standard). In addition, the Company also has sales of real estate which have historically been in all-cash transactions with no contingencies and no future involvement in the operations. Accordingly, the Company does not anticipate a significant change to the timing of revenue recognition upon adoption of this new revenue standard.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~, which amends existing accounting standards for lease accounting and is intended to improve financial reporting related to lease transactions. The ASU will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Lessor accounting will remain largely unchanged from current U.S. GAAP. However, ASU No. 2016-02 is expected to impact the Company’s consolidated financial statements as the Company has certain operating land leases and other arrangements for which it is the lessee and will be required to recognize these arrangements on the financial statements. The ASU will become effective for the Company for interim and annual reporting periods in fiscal years beginning after December 15, 2018. The Company expects to adopt the new standard on its effective date. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has assembled an implementation team that is assessing the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. Additionally, the Company is developing an implementation plan based on the results of the assessment. The Company currently believes substantially all of its leases will continue to be classified as operating leases under the new standard. Subsequent to the adoption of the new standard, common area maintenance provided in lease contracts will be accounted for as a non-lease component within the scope of the new revenue standard. As a result, the Company will be required to recognize revenues associated with leases separately from revenues associated with common area maintenance. The Company is continuing to evaluate whether the variable payment provisions in the new lease standard or the allocation and recognition provisions of the new revenue standard will affect the timing of recognition of lease and non-lease revenue.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~, which amends ASC Topic 326, Financial Instruments - Credit Losses. The ASU changes the methodology for measuring credit losses on financial instruments and timing of when such losses are recorded. ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is currently evaluating the impact that the ASU will have on its consolidated financial statements and related disclosures.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments, which amends ASC Topic 230,~~ ~~Statement of Cash Flows~~2020-04, Reference Rate Reform (Topic 848). The ASU ~~clarifies~~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 three months ended March 31, 2020, the ~~treatment~~Company elected to apply the hedge accounting expedients related to probability and the assessments of ~~several~~effectiveness for future LIBOR-indexed cash ~~flow issues~~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 ~~the objective of reducing diversity in practice. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017.~~past presentation. The Company ~~has determined that~~continues to evaluate the ~~adoption~~impact of ~~ASU 2016-15 will not impact its financial position or results of operations~~the guidance and ~~there are no known~~may apply other elections as applicable as additional changes in ~~presentation as a result of adopting this standard.~~the market occur.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows~~, which amends ASC Topic 230, Statement of Cash Flows. The ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the

restrictions. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017. The Company has determined that the adoption of this ASU will result in the Company including restricted cash and cash and cash equivalents on its Consolidated Statement of Cash Flows.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities~~. The ASU better aligns a company's financial reporting for hedging activities with the economic objectives of those activities. ASU No. 2017-12 is effective for fiscal years beginning after December 15, 2018 with early adoption allowed using a modified retrospective transition approach. This adoption method would require the Company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that the Company adopts the update. The Company is currently reviewing the ASU to assess the potential impact on its consolidated financial statements and related disclosures but does not anticipate that this ASU will have a material impact.

3. ~~Rental Properties~~Real Estate Investments

The following table summarizes the carrying amounts of ~~rental properties~~real estate investments as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 (in thousands):


	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
Buildings and improvements	$	4,037,328		$	3,272,865		$	4,761,319		$	4,747,101
Furniture, fixtures & equipment	86,831			40,684			123,229			123,239
Land	1,097,445			917,748			1,298,096			1,290,181
Leasehold interests	25,774			—			26,041			26,041
	5,247,378			4,231,297			6,208,685			6,186,562
Accumulated depreciation	(711,384		)	(635,535		)	(1,023,993		)	(989,254		)
Total	$	4,535,994		$	3,595,762		$	5,184,692		$	5,197,308

Depreciation expense on ~~rental properties~~real estate investments from continuing operations was ~~$93.2~~$40.8 million and ~~$76.3~~$34.5 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively.

4. Investments and Dispositions

The Company's investment spending during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 totaled ~~$1.5 billion, and included~~$41.9 million of investments in ~~each~~Experiential properties. These investments included spending on the acquisition of ~~its~~ ~~four~~ ~~operating segments.~~

~~Entertainment investment spending during the nine months ended September 30, 2017 totaled $264.9~~2 megaplex theatres totaling $22.1 million ~~including spending on~~as well as build-to-suit development and redevelopment ~~of megaplex theatres, entertainment retail centers and family entertainment centers, as well as $154.1 million in acquisitions of six megaplex theatres.~~projects.

Education investment spending during the nine months ended September 30, 2017 totaled $238.7 million, including spending on build-to-suit development and redevelopment of public charter schools, early education centers and private schools, as well as $38.3 million in acquisitions of seven early education centers and two public charter schools and an investment of $95.5 million in mortgage notes receivable.

Recreation investment spending during the nine months ended September 30, 2017 totaled $951.6 million, including the transaction with CNL Lifestyle Properties Inc. (CNL Lifestyle) and funds affiliated with Och-Ziff Real Estate (OZRE) valued at $730.8 million discussed below. Additionally, included in recreation investment spending was build-to-suit development of golf entertainment complexes and attractions, redevelopment of ski areas, $51.9 million in acquisitions of five other recreation facilities, and an investment of $10.7 million in a mortgage note secured by one other recreation facility.

On April 6, 2017, the Company completed a transaction with CNL Lifestyle and OZRE. The Company acquired the Northstar California Resort, 15 attraction properties (waterparks and amusement parks), five small family entertainment

centers and certain related working capital for aggregate consideration valued at $479.8 million, including final purchase price adjustments. Additionally, the Company provided $251.0 million of secured debt financing to OZRE for its purchase of 14 CNL Lifestyle ski properties valued at $374.5 million. Subsequent to the transaction, the Company sold the five family entertainment centers for approximately $6.8 million and one waterpark for approximately $2.5 million. No gain or loss was recognized on these sales.

The secured debt financing with OZRE has an initial term of five years with three 2.5 year options to extend. The note bears interest fixed at 8.5%. The Company received a $3.0 million origination fee upon closing that will be recognized using the effective interest method.

The Company assumed long-term, triple-net leases on the Northstar California Resort and three of the attractions properties and entered into new long-term, triple-net lease agreements on the remaining attractions properties at closing. Additionally, the Company assumed ground lease agreements on nine of the properties.

The Company’s aggregate investment in this transaction was $730.8 million and was funded with $657.5 million of the Company’s common shares, consisting of 8,851,264 newly issued registered common shares valued at $74.28 per share, $61.2 million of cash and assumed working capital liabilities (net of assumed accounts receivable) of $12.1 million. CNL Lifestyle subsequently distributed the common shares to its stockholders on April 20, 2017. The Company's portion of the cash purchase price was funded with borrowings under its unsecured revolving credit facility.

This transaction was previously announced as a business combination and, accordingly, related expenses were recognized as transaction costs through December 31, 2016. In connection with the adoption of ASU No. 2017-01 on January 1, 2017, this transaction was determined to be an asset acquisition. As such, transaction costs related to this asset acquisition incurred in 2017 have been capitalized.

~~The aggregate investment of $730.8 million in this transaction was recorded as follows (in thousands):~~

~~Other investment spending during the nine months ended September 30, 2017 totaled $1.0 million, and was related to the Adelaar casino and resort project in Sullivan County, New York.~~

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, the Company completed the sale of ~~four entertainment~~2 early education properties for net proceeds totaling ~~$72.3 million. In connection with these sales, the Company~~$2.9 million and recognized a combined gain on sale of ~~$19.4~~$0.2 million.

5. Investment in Mortgage Notes and Notes Receivable

Effective January 1, 2020, the Company adopted Topic 326, which requires the Company to estimate and record credit losses for each of its mortgage notes and note 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 March 31, 2020, 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.

During the ~~nine~~three months ended ~~September 30, 2017, pursuant to tenant purchase options,~~March 31, 2020, the Company ~~completed~~increased its expected credit losses by $1.2 million (an increase of approximately 50%) from its implementation estimate. This increase was as a result of adjustments to current macroeconomic conditions resulting from the ~~sale of five public charter schools located in Colorado, Arizona~~economic uncertainty and ~~Utah for net proceeds totaling $44.8 million. In connection with these sales,~~ the ~~Company recognized a gain on sale of $7.2 million. Additionally,~~rapidly changing environment surrounding the ~~Company completed the sale of two other education facilities for net proceeds of $9.8 million. In connection with these sales, the Company recognized a gain on sale of $1.9 million.~~COVID-19 pandemic.

~~During~~Investment in mortgage notes, including related accrued interest receivable, at March 31, 2020 and December 31, 2019 consists of the ~~nine~~following (in thousands):



					Outstanding principal amount of mortgage		Carrying amount as of				Unfunded commitments
Description	Year of Origination	Interest Rate		Maturity Date	Outstanding principal amount of mortgage		March 31, 2020		December 31, 2019 (1)		March 31, 2020
Attraction property Powells Point, North Carolina	2019	7.75	%	6/30/2025	$	27,423	$	27,090	$	27,423	$	—
Fitness & wellness property Omaha, Nebraska	2016	7.85	%	12/28/2026	5,766		5,799		5,803		—
Fitness & wellness property Omaha, Nebraska	2017	7.85	%	1/3/2027	10,905		10,904		10,977		—
Fitness & wellness property Merriam, Kansas	2019	7.55	%	7/31/2029	7,949		7,968		5,985		1,141
Ski property Girdwood, Alaska	2019	8.25	%	12/31/2029	37,000		36,998		37,000		20,000
Experiential lodging property Nashville, Tennessee	2019	6.99	%	9/30/2031	70,000		68,650		70,396		—
Eat & play property Austin, Texas	2012	11.31	%	6/1/2033	11,488		11,487		11,582		—
Ski property West Dover and Wilmington, Vermont	2007	11.61	%	12/1/2034	51,050		51,038		51,050		—
Four ski properties Ohio and Pennsylvania	2007	10.75	%	12/1/2034	37,562		37,464		37,562		—
Ski property Chesterland, Ohio	2012	11.21	%	12/1/2034	4,550		4,430		4,550		—
Ski property Hunter, New York	2016	8.57	%	1/5/2036	21,000		21,000		21,000		—
Eat & play property Midvale, Utah	2015	10.25	%	5/31/2036	17,505		17,504		17,505		—
Eat & play property West Chester, Ohio	2015	9.75	%	8/1/2036	18,068		18,062		18,068		—
Private school property Mableton, Georgia	2017	8.84	%	4/30/2037	4,674		5,052		5,048		—
Fitness & wellness property Fort Collins, Colorado	2018	7.85	%	1/31/2038	10,292		10,163		10,360		—
Early childhood education center Lake Mary, Florida	2019	7.75	%	5/9/2039	4,200		4,241		4,258		—
Eat & play property Eugene, Oregon	2019	8.13	%	6/17/2039	14,700		14,794		14,800		—
Early childhood education center Lithia, Florida	2017	8.25	%	10/31/2039	3,959		4,022		4,024		—
					$	358,091	$	356,666	$	357,391	$	21,141

(1) Balances as of December 31, 2019 are prior to the adoption of ASC Topic 326.

Investment in notes receivable, including related accrued interest receivable, was $14.0 million at both March 31, 2020 and December 31, 2019 and is included in Other assets in the accompanying consolidated balance sheets.

The following summarizes the activity within the allowance for credit losses related to mortgage notes, unfunded commitments and notes receivable for the three months ended September 30, 2017, the Company received a partial prepayment of $4.0 million on one mortgage note receivable that is secured by the observation deck of the John Hancock building in Chicago, Illinois. In connection with the partial prepayment of this note, the Company received a prepayment fee of $800 thousand, which is being recognized over the term of the remaining note using the effective interest method.March 31, 2020 (in thousands):



	Mortgage notes receivable		Unfunded commitments		Notes receivable		Total
Allowance for credit losses at January 1, 2020	$	2,000	$	114	$	49	$	2,163
Credit loss expense	1,145		29		18		1,192
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Allowance for credit losses	$	3,145	$	143	$	67	$	3,355

5.6. Accounts Receivable ~~Net~~

The following table summarizes the carrying amounts of accounts receivable ~~net~~ as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 (in thousands):



	March 31, 2020		December 31, 2019
Receivable from tenants	$	7,198	$	11,373
Receivable from non-tenants	2,071		2,103
Straight-line rent receivable	63,268		73,382
Total	$	72,537	$	86,858

September 30,
2017 December 31,
2016
Receivable from tenants $ 15,977
$ 7,564
Receivable from non-tenants 128
497
Receivable from insurance proceeds 27
1,967
Receivable from Sullivan County Infrastructure Revenue Bonds 10,808
22,164
Straight-line rent receivable 73,657
67,618
Allowance for doubtful accounts (1,384 ) (871 )
Total $ 99,213
$ 98,939

The above total includes receivable from tenants of approximately $5.4 million and straight-line rent receivable of approximately $9.0 million from one of the Company's early education tenants at September 30, 2017. This tenant has been negatively impacted by challenges brought on by its rapid expansion and ramp up to stabilization. The Company is negotiating a restructuring which has been complicated by the impact of recent extreme weather events and the tenant having multiple landlords. However, the Company believes it has made significant progress in these negotiations. The receivable from tenant and straight-line rent receivable balances at September 30, 2017 have been recorded at levels that approximate the estimate of the final restructured reduced rent amounts which are expected to be made effective as of the beginning of 2017. In October 2017, the Company terminated nine leases with the tenant, seven of which have completed construction and two of which are unimproved land. There were only $64 thousand outstanding receivables related to these properties and such amounts were fully reserved at September 30, 2017. The tenant continues to operate these properties (other than the two unimproved properties) as a holdover tenant. The Company will continue to consider whether these and other properties should be leased to other operators based on results of the restructuring process.

~~6. Investment in a Direct Financing Lease~~

The Company’s investment in a direct financing lease relates to the Company’s master lease of six public charter school properties as of September 30, 2017 and 12 public charter school properties as of December 31, 2016, with affiliates of Imagine Schools, Inc. (Imagine). Investment in a direct financing lease, net represents estimated unguaranteed residual values of leased assets and net unpaid rentals, less related deferred income. The following table summarizes the carrying amounts of investment in a direct financing lease, net as of ~~September 30, 2017~~ ~~and December 31, 2016 (in thousands):~~

September 30, 2017 December 31, 2016
Total minimum lease payments receivable $ 113,956
$ 215,753
Estimated unguaranteed residual value of leased assets 47,000
85,247
Less deferred income ⁽¹⁾
(103,258 ) (198,302 )
Less allowance for lease losses —
—
Investment in a direct financing lease, net $ 57,698
$ 102,698

⁽¹⁾~~Deferred income is net of $0.8 million and $1.3 million of initial direct costs at September 30, 2017 and December 31, 2016, respectively.~~

During the three months ended ~~September 30, 2017,~~March 31, 2020, the Company ~~entered into revised~~wrote-off straight-line receivables of totaling $12.5 million to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of income and comprehensive income. The $12.5 million straight-line write-offs were comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease ~~terms with Imagine~~straight-line accounts receivable.

7. Capital Markets and Dividends

During the three months ended March 31, 2020, the Company's Board approved a share repurchase program pursuant to which ~~reduced~~ the ~~rental payments and term on six properties. As a result~~Company may repurchase up to $150.0 million of the ~~revised lease terms, these six properties~~Company's common shares. The share repurchase program is scheduled to expire on December 31, 2020; however, the Company will suspend the program upon the effective date of the covenant modification agreements, as discussed in Note 2. Subsequent to March 31, 2020, the Company repurchased 1,116,643 common shares under the share repurchase program for approximately $22.9 million. The repurchases were ~~classified as operating leases~~made under a Rule 10b5-1 trading plan.

The Board declared regular monthly cash dividends on its common shares during the three months ended ~~September~~March 31, 2020 totaling $1.1325 per common share. Subsequent to March 31, 2020, the Board declared its monthly cash dividend to common shareholders of $0.3825 per share payable May 15, 2020 to shareholders of record as of April 30, ~~2017. Due to lease negotiations during~~2020.

During the three months ended ~~June 30, 2017,~~March 31, 2020, the Board also declared cash dividends of $0.359375 per share on its 5.75% Series C cumulative convertible preferred shares, $0.5625 per share on its 9.00% Series E cumulative convertible preferred shares and $0.359375 per share on its 5.75% Series G cumulative redeemable preferred shares.

8. Unconsolidated Real Estate Joint Ventures

As of March 31, 2020 and December 31, 2019, the Company had a 65% investment interest in 2 unconsolidated real estate joint ventures related to 2 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 2 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 ~~evaluated whether it could recover~~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 ~~leases taking into account~~joint ventures under the ~~revised lease terms~~equity method of accounting. As of March 31, 2020 and ~~independent appraisals prepared as of June 30, 2017, and determined the~~

~~carrying value of the investment in the direct financing leases exceeded the expected lease payments to be received and residual values for these six leases. Accordingly,~~December 31, 2019, the Company ~~recorded~~had equity investments of $29.6 million and $29.7 million, respectively, in these joint ventures.

The joint venture that holds the real property has a secured mortgage loan due April 1, 2022 with an ~~impairment charge~~initial balance of ~~$9.6 million during the nine months ended September 30, 2017, which included an allowance for lease loss of $7.3~~$61.2 million and a ~~charge~~maximum availability of ~~$2.3~~$85.0 million. The note can be extended for two additional one year periods upon the satisfaction of certain conditions. As of March 31, 2020, the joint venture had $61.2 million ~~related~~outstanding and total availability of $23.8 million to ~~estimated unguaranteed residual value. The Company determined that no allowance for losses was necessary at December 31, 2016.~~

fund upcoming property renovations. Additionally, ~~during the nine months ended September 30, 2017,~~ the Company ~~performed its annual review~~has guaranteed the completion of the estimated unguaranteed residual value on its other properties leased to Imagine and determined that the residual value on one of these properties was impaired. As such, the Company recorded an impairment charge of the unguaranteed residual value of $0.6 million during the nine months ended September 30, 2017.

~~The Company’s direct financing lease has expiration dates ranging from approximately 15 to 18 years. Future minimum rentals receivable on this direct financing lease at~~ ~~September 30, 2017~~ ~~are as follows (in thousands):~~

Amount
Year:
2017 $ 1,545
2018 6,301
2019 6,490
2020 6,685
2021 6,885
Thereafter 86,050
Total $ 113,956

~~7. Debt and Capital Markets~~

~~During the nine months ended September 30, 2017, the Company prepaid~~renovations in full nine mortgage notes payable totaling $73.0 million that were secured by nine theatre properties. In addition, the Company prepaid in full a mortgage note payable of $87.0 million that was secured by 11 theatre properties. In connection with this note payoff, the Company recorded a gain on early extinguishment of debt of $1.0 million for the nine months ended September 30, 2017. The gain represents the difference between the carrying value of the note and the amount ~~due at payoff as the note was recorded at fair value upon acquisition and was not anticipated to be paid off in advance~~ of ~~maturity.~~

~~On May 23, 2017, the Company issued $450.0 million in aggregate principal amount of senior notes due on June 1, 2027 pursuant to an underwritten public offering.~~approximately $24.3 million. The ~~notes bear~~mortgage loan bears interest at an annual rate equal to the greater of ~~4.50%~~6.00% or LIBOR plus 3.75%. Interest is payable ~~on June 1 and December 1 of each year~~monthly beginning on ~~December~~May 1, ~~2017~~2019 until the stated maturity date of ~~June~~April 1, ~~2027.~~2022, which can be extended to April 1, 2023. The notes were issued at 99.393% of their face value and are unsecured and guaranteed by certain of the Company's subsidiaries. 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.joint venture has an

On August 30, 2017, the Company refinanced its variable-rate bonds payable totaling $25.0 million which are secured by three theatre properties. The maturity date was extended from October 1, 2037 to August 1, 2047 and the outstanding principal balance and interest rate ~~were not changed.~~

~~On September 27, 2017,~~cap agreement to limit the ~~Company amended its unsecured consolidated credit agreement which governs its unsecured revolving credit facility and its unsecured term loan facility.~~

~~The amendments to the unsecured revolving~~variable portion of the ~~credit facility, among other things, (i) increase the initial maximum available amount from $650.0 million to $1.0 billion, (ii) extend the maturity date from April 24, 2019, to~~

~~February 27, 2022 (with the Company having the right to extend the loan for an additional seven months) and (iii) lower the~~ interest rate (LIBOR) on this note to 3.0% from March 28, 2019 to April 1, 2023.

The Company recognized a loss of $132 thousand and facility fee pricing based on a grid related to the Company's senior unsecured credit ratings which at closing was LIBOR plus 1.00% and 0.20%, versus LIBOR plus 1.25% and 0.25%, respectively, under the previous terms. In connection with the amendment, $19income of $494 thousand ~~of deferred financing costs (net of accumulated amortization) were written off~~ during the three months ended ~~September 30, 2017~~March 31, 2020 and ~~are included in costs associated with loan refinancing. At September 30, 2017, the Company had $170.0 million outstanding under this portion of the facility.~~

The amendments to the unsecured term loan portion of the credit facility, among other things, (i) increase the initial amount from $350.0 million to $400.0 million, (ii) extend the maturity date from April 24, 2020, to February 27, 20232019, respectively, and (iii) lower the interest rate based on a grid related to the Company's senior unsecured credit ratings which at closing was LIBOR plus 1.10% versus LIBOR plus 1.40% under the previous terms. In connection with the amendment, $1.5 million of deferred financing costs (net of accumulated amortization) were written offreceived 0 distributions during the three months ended ~~September 30, 2017~~March 31, 2020 and ~~are included~~2019 related to the equity investments in ~~costs associated with loan refinancing. At closing, the Company borrowed the remaining $50.0 million available on the $400.0 million term loan portion~~these joint ventures.

As of ~~the facility, which was used to pay down a portion of~~March 31, 2020 and 2019, the Company's ~~unsecured revolving credit facility.~~

~~In addition, there is a $1.0 billion accordion feature on~~investments in these joint ventures were considered to be variable interests and the combined unsecured revolving credit and term loan facility that increases the maximum amount available under the combined facility, subject to lender approval, from $1.4 billion to $2.4 billion. If the Company exercises all or any portion of the accordion feature, the resulting increase in the facility may have a shorter or longer maturity date and different pricing terms.

In connection with the amendment to the unsecured consolidated credit agreement, the obligations of the Company’s subsidiaries that were co-borrowers under the Company’s prior senior unsecured revolving credit and term loan facility were released. As a result, simultaneously with the amendment, the guarantees by the Company’s subsidiaries that were guarantors with respect to the Company’s outstanding 4.50% Senior Notes due 2027, 4.75% Senior Notes due 2026, 4.50% Senior Notes due 2025, 5.25% Senior Notes due 2023, 5.75% Senior Notes due 2022, and 7.75% Senior Notes due 2020 were released in accordance with the terms of the applicable indentures governing such notes.

In addition, the guarantees by the Company’s subsidiaries that were guarantors of the Company’s outstanding 4.35% Series A Guaranteed Senior Notes due August 22, 2024 and 4.56% Series B Guaranteed Senior Notes due August 22, 2026 (referred to herein as the "private placement notes") were also released. The foregoing release was effected by the Company entering into an amendment to the Note Purchase Agreement, dated as of September 27, 2017. The amendment to the private placement notes releases the Company’s subsidiary guarantors as described above and among other things: (i) amends certain financial and other covenants and provisions in the Note Purchase Agreement to conform generally to the corresponding covenants and provisions contained in the amended unsecured consolidated credit agreement; (ii) provides the investors thereunder certain additional guaranty and lien rights, in the event that certain subsequent events occur; (iii) expands the scope of the “most favored lender” covenant contained in the Note Purchase Agreement; and (iv) imposes restrictions on debt that can be incurred by certain subsidiaries of the Company.

~~Subsequent to September 30, 2017, the Company entered into three interest rate swap agreements on its unsecured term loan. See Note 9 for further details.~~

During the nine months ended September 30, 2017, the Company issued an aggregate of 928,219 common shares under the direct share purchase component of its Dividend Reinvestment and Direct Share Purchase Plan (DSPP) for total net proceeds of $67.9 million. These proceeds were used to pay down a portion of the Company's unsecured revolving credit facility.

~~During the nine months ended September 30, 2017, the Company issued 8,851,264 common shares in connection with the transactions with CNL Lifestyle and OZRE. See Note 4 for further information.~~

~~8. Variable Interest Entities~~

~~The Company’s variable interest in VIEs currently~~underlying entities are ~~in the form of equity ownership and loans provided by the Company to a VIE or other partner.~~VIEs. The Company ~~examines specific criteria and uses its judgment when determining if the Company~~ is not the primary beneficiary of ~~a VIE. Factors considered in determining whether~~the VIEs as the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, and level of economic disproportionality between the Company and the other partner(s).

~~Consolidated VIEs~~

~~As of~~ ~~September 30, 2017, the Company had invested approximately $18.5 million in one real estate project which is a VIE. This entity~~ does not individually have ~~any other significant assets or liabilities at September 30, 2017~~the power to direct the activities that are most important to the joint ventures and ~~was established to facilitate the development of a theatre project.~~

~~Unconsolidated VIE~~

~~At September 30, 2017, the Company's recorded investment in two unconsolidated VIEs totaled $178.4 million.~~accordingly these investments are not consolidated. The Company's maximum exposure to loss ~~associated with these VIEs~~at March 31, 2020, is ~~limited to~~its investment in the joint ventures of $29.6 million as well as the Company's ~~outstanding mortgage notes~~guarantee of the estimated costs to complete renovations of approximately $24.3 million.

In addition, as of March 31, 2020 and ~~related accrued interest receivable of $178.4 million. These mortgage notes are secured by three recreation properties and one public charter school. While these entities are VIEs,~~December 31, 2019, the Company ~~has determined that~~had equity investments of $4.3 million and $4.6 million, respectively, in unconsolidated joint ventures for 3 theatre projects located in China. The Company recognized losses of $288 thousand and $5 thousand during the ~~power to direct~~three months ended March 31, 2020 and 2019, respectively, and received distributions of $112 thousand from its investment in these joint ventures for the ~~activities of these VIEs that most significantly impact~~three months ended March 31, 2019. NaN distributions were received during the ~~VIEs' economic performance is not held by the Company.~~three months ended March 31, 2020.

9. Derivative Instruments

All derivatives are recognized at fair value in the consolidated balance sheets within the line items "Other assets" and "Accounts payable and accrued liabilities" as applicable. The ~~Company's derivatives are subject to a master netting arrangement and the~~ Company has elected not to offset its derivative position for purposes of balance sheet presentation and disclosure. The Company had derivative ~~liabilities~~assets of ~~$0.2~~$14.9 million and ~~$2.5~~$1.1 million ~~recorded in “Accounts payable and accrued liabilities” and derivative assets of $23.3 million and $35.9 million recorded in “Other assets” in the consolidated balance sheet~~ at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively, and derivative liabilities of $14.4 million and $4.5 million derivative liabilities at March 31, 2020 and December 31, 2019, respectively. The Company ~~had~~has not posted or received collateral with its derivative counterparties as of ~~September 30, 2017~~March 31, 2020 or December 31, ~~2016.~~2019. See Note 10 for disclosures relating to the fair value of the derivative ~~instruments as of~~ ~~September 30, 2017~~ ~~and December 31, 2016.~~instruments.

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions including the effect of changes in foreign currency exchange rates on foreign currency transactions and interest rates on its LIBOR based borrowings. The Company manages this risk by following established risk management policies and procedures including the use of derivatives. The Company’s objective in using derivatives is to add stability to reported earnings and to manage its exposure to foreign exchange and interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps, cross-currency swaps and foreign currency forwards.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its LIBOR based borrowings. To accomplish these objectives, the Company ~~currently~~ 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 ~~exchange for~~ the Company ~~making fixed-rate payments~~recording net interest expense that is fixed over the life of the agreements without exchange of the underlying notional amount.

As of ~~September 30, 2017,~~March 31, 2020, the Company had ~~two~~4 interest rate swap agreements ~~to fix the~~designated as cash flow hedges of interest rate ~~at 2.64% on $300.0 million of the~~risk related to its variable rate unsecured term loan facility ~~from July 6, 2017~~totaling $400.0 million. Additionally, at March 31, 2020, the Company had an interest rate swap agreement designated as a cash flow hedge of interest rate risk related to ~~April 5, 2019.~~its variable rate secured bonds totaling $25.0 million. Interest rate swap agreements outstanding as of March 31, 2020 are summarized below:



Fixed rate	Notional Amount (in millions)		Index	Maturity
3.1450%	$	116.7	USD LIBOR	February 7, 2022
3.1575%	116.7		USD LIBOR	February 7, 2022
3.1580%	116.6		USD LIBOR	February 7, 2022
3.3450%	50.0		USD LIBOR	February 7, 2022
Total	$	400.0

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

The ~~effective portion of changes~~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. During~~earnings within the ~~nine months ended September 30, 2017 and 2016, such derivatives were used to hedge~~same income statement line item as the ~~variable cash flows associated with existing variable-rate debt. The~~

~~ineffective portion~~earnings effect of the ~~change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness on cash flow hedges was recognized during the nine months ended September 30, 2017 and 2016.~~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, 2017~~March 31, 2020, the Company estimates that during the twelve months ending ~~September 30, 2018, $0.2~~March 31, 2021, $7.3 million will be reclassified from AOCI to interest expense.

Subsequent to September 30, 2017, on October 31, 2017, the Company entered into three interest rate swap agreements to fix the interest rate at 3.15% on an additional $50.0 million of its unsecured term loan facility from November 6, 2017 to April 4, 2019 and on $350.0 million of the unsecured term loan facility from April 5, 2019 to February 7, 2022.

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~~4 Canadian properties. The Company uses ~~cross currency~~cross-currency swaps ~~and foreign currency forwards~~ to mitigate its exposure to fluctuations in the USD-CAD exchange rate on ~~its Canadian properties. These foreign currency derivatives~~cash inflows associated with these properties which should hedge a significant portion of the Company's expected CAD denominated cash flow of the Canadian properties as their impact on the Company's cash flow when settled should move in the opposite direction of the exchange rates used to translate revenues and expenses of these properties.flows.

As of ~~September 30, 2017~~,March 31, 2020, the Company had a USD-CAD cross-currency swaps with a fixed original notional value of $100.0 million CAD and $98.1 million USD. The net effect of these swaps is to lock in an exchange rate of $1.05 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows on the properties through June 2018. Additionally, on August 30, 2017, the Company entered into a cross-currency swap ~~that will be effective July 1, 2018~~ with a fixed original notional value of $100.0 million CAD and $79.5 million USD. The net effect of ~~these swaps~~this swap is to lock in an exchange rate of ~~1.26~~$1.26 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows ~~on the properties~~ through June 2020.

During the three months ended March 31, 2020, the Company entered into USD-CAD cross-currency swaps that will be effective July 1, 2020 with a fixed original notional value of $100.0 million CAD and $76.6 million USD. The ~~effective portion~~net effect of ~~changes~~this swap is to lock in an exchange rate of $1.31 CAD per USD on approximately $7.2 million annual CAD denominated cash flows through June 2022.

The change in the fair value of foreign currency derivatives designated and that qualify as cash flow hedges of foreign exchange risk is recorded in AOCI and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects ~~earnings. The ineffective portion~~earnings within the same income statement line item as the earnings effect of the change in fair value of the derivative, as well as amounts excluded from the assessment of hedge effectiveness, is recognized directly in earnings. No hedge ineffectiveness on foreign currency derivatives was recognized for the nine months ended September 30, 2017 and 2016.hedged transaction. As of ~~September 30, 2017~~,March 31, 2020, the Company estimates that during the twelve months ending ~~September 30, 2018, $1.5~~March 31, 2021, $0.6 million of gains will be reclassified from AOCI to other income.

Net Investment Hedges

~~As discussed above, the~~The Company is exposed to fluctuations in ~~foreign~~the USD-CAD exchange ~~rates~~rate on its ~~four Canadian properties.~~net investments in Canada. As such, the Company uses either currency forward agreements or cross-currency swaps to ~~hedge~~manage its exposure to changes in foreign exchange ~~rates. Currency forward agreements involve fixing~~rates on certain of its foreign net investments. As of March 31, 2020, the USD-CAD exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in USD for their fair value at or close to their settlement date. In order to hedgeCompany 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 ~~four~~ ~~of the Canadian properties, on June 13, 2013, the Company entered into a forward contract with a fixed notional value of~~ ~~$100.0 million~~ ~~CAD and~~ ~~$94.3 million~~ ~~USD with a~~ ~~July 2018~~ ~~settlement. The~~at an exchange rate of ~~this forward contract is approximately~~ ~~$1.06~~$1.32 CAD per ~~USD. Additionally,~~USD on ~~February 28, 2014,~~$4.5 million of CAD annual cash flows, the ~~Company entered into a forward contract with a fixed notional value~~net effect of ~~$100.0 million~~ ~~CAD and~~ ~~$88.1 million~~ ~~USD with a July 2018 settlement date. The exchange rate~~which is an excluded component from the effectiveness testing of this ~~forward contract is approximately~~ ~~$1.13~~ ~~CAD per USD. These forward contracts should hedge a significant portion of the Company’s CAD denominated net investment in these~~ ~~four~~ ~~centers through July 2018 as the impact on AOCI from marking the derivative to market should move in the opposite direction of the translation adjustment on the net assets of these~~ ~~four~~ ~~Canadian properties.~~hedge.

For qualifying foreign currency derivatives designated as net investment hedges, the ~~effective portion of changes~~change in the fair value of the derivatives are reported in AOCI as part of the cumulative translation adjustment. ~~The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness on net investment~~

~~hedges was recognized for the nine months ended September 30, 2017 and 2016.~~ 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, 2017~~March 31, 2020 and ~~2016.~~

2019.

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Income for the Three and Nine Months Ended September 30, 2017 and 2016
(Dollars in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
Description 2017 2016 2017 2016
Interest Rate Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) $ 110
$ 1,327
$ 317
$ (5,299 )
Amount of Expense Reclassified from AOCI into Earnings (Effective Portion) (1) (263 ) (1,317 ) (2,247 ) (3,970 )
Cross Currency Swaps
Amount of (Loss) Gain Recognized in AOCI on Derivative (Effective Portion) (532 ) 279
(907 ) (1,159 )
Amount of Income Reclassified from AOCI into Earnings (Effective Portion) (2) 520
643
1,879
1,957
Currency Forward Agreements
Amount of (Loss) Gain Recognized in AOCI on Derivative (Effective Portion) (5,417 ) 1,735
(10,132 ) (5,819 )
Amount of Income Reclassified from AOCI into Earnings (Effective Portion) —
—
—
—
Total
Amount of (Loss) Gain Recognized in AOCI on Derivative (Effective Portion) $ (5,839 ) $ 3,341
$ (10,722 ) $ (12,277 )
Amount of Income (Expense) Reclassified from AOCI into Earnings (Effective Portion) 257
(674 ) (368 ) (2,013 )

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Dollars in thousands)

	Three Months Ended March 31,
Description	2020			2019
Cash Flow Hedges
Interest Rate Swaps
Amount of Loss Recognized in AOCI on Derivative	$	(10,642	)	$	(2,439	)
Amount of (Expense) Income Reclassified from AOCI into Earnings (1)	(465		)	775
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative	1,139			(311		)
Amount of Income Reclassified from AOCI into Earnings (2)	206			134

Net Investment Hedges
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative	13,175			(3,839		)
Amount of Income Recognized in Earnings (2) (3)	162			138

Total
Amount of Gain (Loss) Recognized in AOCI on Derivatives	$	3,672		$	(6,589	)
Amount of (Expense) Income Reclassified from AOCI into Earnings	(259		)	909
Amount of Income Recognized in Earnings	162			138

Interest expense, net in accompanying consolidated statements of income and comprehensive income	$	34,753		$	33,963
Other income in accompanying consolidated statements of income and comprehensive income	$	7,573		$	344


~~(1)~~	~~Included in "Interest expense, net" in the accompanying consolidated statements of income for the three and nine months ended September 30, 2017 and 2016.~~


~~(2)~~	~~Included in "Other income" in the accompanying consolidated statements of income for the three and nine months ended September 30, 2017 and 2016.~~

(1) Included in "Interest expense, net" in the accompanying consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019.

(2) Included in "Other income" in the accompanying consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019.

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

Credit-risk-related Contingent Features

The Company has agreements with each of its interest rate derivative counterparties that contain a provision where if the Company defaults on any of its obligations for borrowed money or credit in an amount exceeding ~~$25.0~~$50.0 million and such default is not waived or cured within a specified period of time, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its interest rate derivative obligations.

As of ~~September 30, 2017~~,March 31, 2020, the fair value of the ~~Company’s~~Company's derivatives in a liability position related to these agreements was ~~$0.2~~$14.4 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, after considering the right of offset of $12.6 million. As of March 31, 2020, the Company ~~would have no obligation.~~had not posted any collateral related to these agreements and was not in breach of any provisions in these agreements.

10. Fair Value Disclosures

The Company has certain financial instruments that are required to be measured under the FASB’s Fair Value Measurement guidance. The Company currently does not have any non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurement guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Derivative Financial Instruments

The Company uses interest rate swaps, foreign currency forwards and cross-currency swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair values of interest rate swaps are 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, 2017~~March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives and therefore, classified its derivatives as Level 2 within the fair value reporting hierarchy.

The table below presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 aggregated by the level in the fair value hierarchy within which those measurements are classified and by derivative type.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2017 and December 31, 2016 (Dollars in thousands)
Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2020 and December 31, 2019 (Dollars in thousands)											Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2020 and December 31, 2019 (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)		Assets (Liabilities) Balance at end of period			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, 2017
March 31, 2020
Cross-Currency Swaps*	$	—	$	1,372		$	—	$	1,372		$	—	$	14,936		$	—	$	14,936
Currency Forward Agreements*	$	—	$	21,650		$	—	$	21,650
Interest Rate Swap Agreements**											$	—	$	(14,447	)	$	—	$	(14,447	)
December 31, 2019
Cross-Currency Swaps*											$	—	$	828		$	—	$	828
Interest Rate Swap Agreements*	$	—	$	83		$	—	$	83		$	—	$	225		$	—	$	225
December 31, 2016:
Cross-Currency Swaps*	$	—	$	4,158		$	—	$	4,158
Currency Forward Agreements*	$	—	$	31,782		$	—	$	31,782
Interest Rate Swap Agreements**	$	—	$	(2,482	)	$	—	$	(2,482	)	$	—	$	(4,495	)	$	—	$	(4,495	)

*Included in "Other assets" in the accompanying consolidated balance sheets.

**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 during the nine months ended September 30, 2017 aggregated by the level in the fair value hierarchy within which those measurements fall.

~~Assets Measured at Fair Value on a Non-Recurring Basis During the Nine Months Ended September 30, 2017~~

~~(Dollars in thousands)~~

As discussed further in Note 6, during the nine months ended September 30, 2017, the Company recorded impairment charges totaling $10.2 million related to its investment in a direct financing lease, net. Management estimated the fair values of this investment taking into account various factors including independent appraisals, input from an outside broker and current market conditions. The Company determined, based on the inputs, that its valuation of the investment was classified within Level 3 of the fair value hierarchy as many of the assumptions are not observable. During the three months ended September 30, 2017, the Company entered into revised lease terms on these properties and as a result, these properties were classified as operating leases and moved to rental properties, net during the three months ended September 30, 2017.

~~Fair Value of Financial Instruments~~Share Options

~~The following methods and assumptions were used by~~Share options are granted to employees pursuant to the ~~Company to estimate the~~Long-Term Incentive Plan. The fair value of ~~each class~~share options granted is estimated at the date of ~~financial instruments at~~ ~~September 30, 2017~~grant using the Black-Scholes option pricing model. Share options granted to employees vest over a period of four years and ~~December~~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 and comprehensive income was $3 thousand and $2 thousand for the three months ended March 31, ~~2016:~~2020 and 2019, 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 and comprehensive income was $2.7 million and $2.9 million for the three months ended March 31, 2020 and 2019, respectively. Expense recognized related to nonvested shares and included in severance expense in the accompanying consolidated statement of income was $0.1 million for the three months ended March 31, 2019.

~~Mortgage notes receivable~~Nonvested Performance Shares Issued to Employees

During the three months ended March 31, 2020, the Compensation and Human Capital Committee of the Board of Trustees (Board) approved the 2020 Long Term Incentive Plan (the 2020 LTIP) as 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. The performance shares contain both a market condition and a performance condition. The Company amortizes the expense related ~~accrued interest receivable:~~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 and comprehensive income was $0.2 million for the three months ended March 31, 2020.

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 ~~Company’s mortgage notes~~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 ~~related accrued interest receivable~~ranges from one year from the grant date to upon termination of service. This expense is ~~estimated~~amortized by ~~discounting the future cash flows of each instrument using current market rates. At September 30, 2017,~~ the Company ~~had~~on a ~~carrying value~~straight-line basis over the year of ~~$972.4~~service by the non-employee Trustees. Total expense recognized related to shares issued to non-employee Trustees was $0.5 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively.

Derivative Instruments

The Company uses derivative instruments to reduce exposure to fluctuations in ~~fixed rate mortgage notes receivable outstanding, including related accrued~~foreign currency exchange rates and variable interest ~~with a weighted average interest rate of approximately 8.40%.~~ rates.

The ~~fixed rate mortgage notes bear interest~~Company records all derivatives on the balance sheet at ~~rates of 7.00% to 11.31%. Discounting the future cash flows~~fair value. The accounting for ~~fixed rate mortgage notes receivable using rates of 7.00% to 12.00%, management estimates~~changes in the fair value of derivatives depends on the ~~fixed rate mortgage notes receivable to be approximately $1.0 billion with an estimated weighted average market rate~~intended use of ~~8.53% at~~ ~~September 30, 2017~~.

~~At December 31, 2016,~~the derivative, whether the Company ~~had~~has elected to designate a ~~carrying value~~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 ~~$614.0 million~~the exposure to changes in ~~fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately~~ ~~8.77%. The fixed rate mortgage notes bear interest at rates of~~ ~~7.00%~~ to ~~11.31%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of~~ ~~7.00%~~ to ~~12.00%, management estimates~~ the fair value of ~~the fixed rate mortgage notes receivable~~an asset, liability, or firm commitment attributable to be ~~$648.5 million~~ ~~with an estimated weighted average market rate of~~ ~~8.48%~~ ~~at December 31, 2016.~~

~~Investment in~~ a ~~direct financing lease, net:~~

~~At September 30, 2017, the Company had an investment in~~particular risk, such as foreign currency risk, are considered fair value hedges. Derivatives designated and qualifying as a direct financing lease with a carrying value of $57.7 million, and with a weighted average effective interest rate of 11.98%. At September 30, 2017, the investment in a direct financing lease bears interest at effective rates of 11.90% to 12.38%. The carrying valuehedge of the ~~$57.7 million investment~~exposure to variability in ~~a direct financing lease approximated the fair market value at September 30, 2017.~~

At December 31, 2016, the Company had an investment in a direct financing lease with a carrying value of $102.7 million, and a weighted average effective interest rate of 12.00%. At December 31, 2016, the investment in a direct financing lease bears interest at effective interest rates of 11.79% to 12.38%. The carrying value of the investment in a direct financing lease approximated the fair market value at December 31, 2016.

~~Derivative instruments:~~

~~Derivative instruments are carried at their fair market value.~~

~~Debt instruments:~~

~~The fair value of the Company's debt is estimated by discounting the~~expected future cash flows ~~of each instrument using current market rates. At~~ ~~September 30, 2017~~,are considered cash flow hedges. Hedge accounting generally provides for the ~~Company had a carrying value of $595.0 million in variable rate debt outstanding with a weighted average interest rate of approximately 2.42%. The carrying value~~matching of the ~~variable rate debt outstanding approximated~~timing of gain or loss recognition on the ~~fair market value at~~ ~~September 30, 2017~~.

~~At December 31, 2016,~~hedging instrument with the ~~Company had a carrying value of $375.0 million in variable rate debt outstanding with a weighted average interest rate of approximately 3.23%. The carrying value~~recognition of the ~~variable rate debt outstanding approximated the fair market value at December 31, 2016.~~

At ~~September 30, 2017~~ and December 31, 2016, $300.0 million of variable rate debt outstanding under the Company's unsecured term loan facility had been effectively converted to a fixed rate through April 5, 2019 by interest rate swap agreements.

At ~~September 30, 2017, the Company had a carrying value of $2.43 billion~~changes in fixed rate long-term debt outstanding with a weighted average interest rate of approximately 5.15%. Discounting the future cash flows for fixed rate debt using September 30, 2017 market rates of 2.89% to 4.56%, management estimates the fair value hedge or the earnings effect of the ~~fixed rate debt to be approximately $2.54 billion with an estimated weighted average market rate~~hedged forecasted transactions in a cash flow hedge. For its net investment hedges that hedge the foreign currency exposure of ~~3.96% at~~ ~~September 30, 2017~~.

~~At December 31, 2016,~~its Canadian investments, the Company ~~had~~has elected to assess hedge effectiveness using a ~~carrying value of $2.14 billion~~method based on changes in ~~fixed rate long-term debt outstanding with an average weighted interest rate of approximately 5.27%. Discounting~~spot exchange rates and record the ~~future cash flows for fixed rate debt using December 31, 2016 market rates of 2.97% to 4.75%, management estimates~~changes in the fair value amounts excluded from the assessment of effectiveness into earnings on a systematic and rational basis. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. If hedge accounting is not applied, realized and unrealized gains or losses are reported in earnings.

The Company's policy is to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Impact of Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During three months ended March 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. The Company continues to evaluate the impact of the ~~fixed rate debt to be approximately $2.21 billion with an estimated weighted average~~guidance and may apply other elections as applicable as additional changes in the market ~~rate of 4.26% at December 31, 2016.~~occur.

~~11. Earnings Per Share~~

3. Real Estate Investments

The following table summarizes the ~~Company’s computation~~carrying amounts of ~~basic~~real estate investments as of March 31, 2020 and ~~diluted earnings per share (EPS)~~December 31, 2019 (in thousands):



	March 31, 2020			December 31, 2019
Buildings and improvements	$	4,761,319		$	4,747,101
Furniture, fixtures & equipment	123,229			123,239
Land	1,298,096			1,290,181
Leasehold interests	26,041			26,041
	6,208,685			6,186,562
Accumulated depreciation	(1,023,993		)	(989,254		)
Total	$	5,184,692		$	5,197,308

Depreciation expense on real estate investments from continuing operations was $40.8 million and $34.5 million for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016 (amounts~~2019, respectively.

4. Investments and Dispositions

The Company's investment spending during the three months ended March 31, 2020 totaled $41.9 million of investments in ~~thousands except per share information):~~Experiential properties. These investments included spending on the acquisition of 2 megaplex theatres totaling $22.1 million as well as build-to-suit development and redevelopment projects.

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017

Income
(numerator)

Shares
(denominator)

Per Share
Amount
Income
(numerator) Shares
(denominator) Per Share
Amount
Basic EPS:
Income from continuing operations $ 62,954
$ 197,405

Less: preferred dividend requirements (5,951 ) (17,855 )
Net income available to common shareholders $ 57,003
73,663
$ 0.77
$ 179,550
70,320
$ 2.55
Diluted EPS:
Net income available to common shareholders $ 57,003
73,663
$ 179,550
70,320

Effect of dilutive securities:
Share options —
61
—
65

Net income available to common shareholders $ 57,003
73,724
$ 0.77
$ 179,550
70,385
$ 2.55
During the three months ended March 31, 2020, the Company completed the sale of 2 early education properties for net proceeds totaling $2.9 million and recognized a combined gain on sale of $0.2 million.

5. Investment in Mortgage Notes and Notes Receivable

During the three months ended March 31, 2020, the Company increased its expected credit losses by $1.2 million (an increase of approximately 50%) from its implementation estimate. This increase was as a result of adjustments to current macroeconomic conditions resulting from the economic uncertainty and the rapidly changing environment surrounding the COVID-19 pandemic.

Investment in mortgage notes, including related accrued interest receivable, at March 31, 2020 and December 31, 2019 consists of the following (in thousands):

Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
Income
(numerator) Shares
(denominator) Per Share
Amount Income
(numerator) Shares
(denominator) Per Share
Amount
Basic EPS:
Income from continuing operations $ 57,526
$ 166,841

Less: preferred dividend requirements (5,951 ) (17,855 )
Net income available to common shareholders $ 51,575
63,627
$ 0.81
$ 148,986
63,296
$ 2.35
Diluted EPS:
Net income available to common shareholders $ 51,575
63,627
$ 148,986
63,296

Effect of dilutive securities:
Share options —
120
—
97

Net income available to common shareholders $ 51,575
63,747
$ 0.81
$ 148,986
63,393
$ 2.35



					Outstanding principal amount of mortgage		Carrying amount as of				Unfunded commitments
Description	Year of Origination	Interest Rate		Maturity Date	Outstanding principal amount of mortgage		March 31, 2020		December 31, 2019 (1)		March 31, 2020
Attraction property Powells Point, North Carolina	2019	7.75	%	6/30/2025	$	27,423	$	27,090	$	27,423	$	—
Fitness & wellness property Omaha, Nebraska	2016	7.85	%	12/28/2026	5,766		5,799		5,803		—
Fitness & wellness property Omaha, Nebraska	2017	7.85	%	1/3/2027	10,905		10,904		10,977		—
Fitness & wellness property Merriam, Kansas	2019	7.55	%	7/31/2029	7,949		7,968		5,985		1,141
Ski property Girdwood, Alaska	2019	8.25	%	12/31/2029	37,000		36,998		37,000		20,000
Experiential lodging property Nashville, Tennessee	2019	6.99	%	9/30/2031	70,000		68,650		70,396		—
Eat & play property Austin, Texas	2012	11.31	%	6/1/2033	11,488		11,487		11,582		—
Ski property West Dover and Wilmington, Vermont	2007	11.61	%	12/1/2034	51,050		51,038		51,050		—
Four ski properties Ohio and Pennsylvania	2007	10.75	%	12/1/2034	37,562		37,464		37,562		—
Ski property Chesterland, Ohio	2012	11.21	%	12/1/2034	4,550		4,430		4,550		—
Ski property Hunter, New York	2016	8.57	%	1/5/2036	21,000		21,000		21,000		—
Eat & play property Midvale, Utah	2015	10.25	%	5/31/2036	17,505		17,504		17,505		—
Eat & play property West Chester, Ohio	2015	9.75	%	8/1/2036	18,068		18,062		18,068		—
Private school property Mableton, Georgia	2017	8.84	%	4/30/2037	4,674		5,052		5,048		—
Fitness & wellness property Fort Collins, Colorado	2018	7.85	%	1/31/2038	10,292		10,163		10,360		—
Early childhood education center Lake Mary, Florida	2019	7.75	%	5/9/2039	4,200		4,241		4,258		—
Eat & play property Eugene, Oregon	2019	8.13	%	6/17/2039	14,700		14,794		14,800		—
Early childhood education center Lithia, Florida	2017	8.25	%	10/31/2039	3,959		4,022		4,024		—
					$	358,091	$	356,666	$	357,391	$	21,141

(1) Balances as of December 31, 2019 are prior to the adoption of ASC Topic 326.

The following summarizes the activity within the allowance for credit losses related to mortgage notes, unfunded commitments and notes receivable for the three months ended March 31, 2020 (in thousands):



	Mortgage notes receivable		Unfunded commitments		Notes receivable		Total
Allowance for credit losses at January 1, 2020	$	2,000	$	114	$	49	$	2,163
Credit loss expense	1,145		29		18		1,192
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Allowance for credit losses	$	3,145	$	143	$	67	$	3,355

6. Accounts Receivable

The ~~additional 2.1~~following table summarizes the carrying amounts of accounts receivable as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020		December 31, 2019
Receivable from tenants	$	7,198	$	11,373
Receivable from non-tenants	2,071		2,103
Straight-line rent receivable	63,268		73,382
Total	$	72,537	$	86,858

During the three months ended March 31, 2020, the Company wrote-off straight-line receivables of totaling $12.5 million to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of income and ~~2.0~~comprehensive income. The $12.5 million straight-line write-offs were comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable.

7. Capital Markets and Dividends

During the three months ended March 31, 2020, the Company's Board approved a share repurchase program pursuant to which the Company may repurchase up to $150.0 million of the Company's common shares. The share repurchase program is scheduled to expire on December 31, 2020; however, the Company will suspend the program upon the effective date of the covenant modification agreements, as discussed in Note 2. Subsequent to March 31, 2020, the Company repurchased 1,116,643 common shares ~~that would result from~~under the ~~conversion~~share repurchase program for approximately $22.9 million. The repurchases were made under a Rule 10b5-1 trading plan.

The Board declared regular monthly cash dividends on its common shares during the three months ended March 31, 2020 totaling $1.1325 per common share. Subsequent to March 31, 2020, the Board declared its monthly cash dividend to common shareholders of $0.3825 per share payable May 15, 2020 to shareholders of record as of April 30, 2020.

During the ~~Company’s~~three months ended March 31, 2020, the Board also declared cash dividends of $0.359375 per share on its 5.75% Series C cumulative convertible preferred shares, ~~and the additional 1.6 million common shares that would result from the conversion of the Company’s 9.0%~~$0.5625 per share on its 9.00% Series E cumulative convertible preferred shares and $0.359375 per share on its 5.75% Series G cumulative redeemable preferred shares.

8. Unconsolidated Real Estate Joint Ventures

As of March 31, 2020 and December 31, 2019, the ~~corresponding add-back~~Company had a 65% investment interest in 2 unconsolidated real estate joint ventures related to 2 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 2 separate joint ventures, one that holds the investment in the real estate of the ~~preferred dividends declared~~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 March 31, 2020 and December 31, 2019, the Company had equity investments of $29.6 million and $29.7 million, respectively, in these joint ventures.

The joint venture that holds the real property has a secured mortgage loan due April 1, 2022 with an initial balance of $61.2 million and a maximum availability of $85.0 million. The note can be extended for two additional one year periods upon the satisfaction of certain conditions. As of March 31, 2020, the joint venture had $61.2 million outstanding and total availability of $23.8 million to fund upcoming property renovations. Additionally, the Company has guaranteed the completion of the renovations in the amount of approximately $24.3 million. 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 ~~those shares~~May 1, 2019 until the stated maturity date of April 1, 2022, which can be extended to April 1, 2023. The joint venture has an

interest rate cap agreement to limit the variable portion of the interest rate (LIBOR) on this note to 3.0% from March 28, 2019 to April 1, 2023.

The Company recognized a loss of $132 thousand and income of $494 thousand during the three months ended March 31, 2020 and 2019, respectively, and received 0 distributions during the three months ended March 31, 2020 and 2019 related to the equity investments in these joint ventures.

As of March 31, 2020 and 2019, the Company's investments in these joint ventures were considered to be variable interests and the underlying entities are VIEs. The Company is not the primary beneficiary of the VIEs as the Company does not individually have the power to direct the activities that are most important to the joint ventures and accordingly these investments are not ~~included~~consolidated. The Company's maximum exposure to loss at March 31, 2020, is its investment in the ~~calculation~~joint ventures of ~~diluted earnings per share~~$29.6 million as well as the Company's guarantee of the estimated costs to complete renovations of approximately $24.3 million.

In addition, as of March 31, 2020 and December 31, 2019, the Company had equity investments of $4.3 million and $4.6 million, respectively, in unconsolidated joint ventures for 3 theatre projects located in China. The Company recognized losses of $288 thousand and $5 thousand during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively, ~~because the effect is anti-dilutive.~~

~~The dilutive effect~~and received distributions of ~~potential common shares~~$112 thousand from ~~the exercise of share options is included~~its investment in diluted earnings per share for the three and nine months ended September 30, 2017 and 2016. However, options to purchase 7 thousand shares of common shares at per share prices ranging from $61.79 to $76.63, were outstandingthese joint ventures for the three months ended ~~September 30, 2017, but~~March 31, 2019. NaN distributions were ~~not included in the computation of diluted earnings per share because they were anti-dilutive. For~~received during the three months ended ~~September 30, 2016, there were no anti-dilutive options. Options~~March 31, 2020.

9. Derivative Instruments

All derivatives are recognized at fair value in the consolidated balance sheets within the line items "Other assets" and "Accounts payable and accrued liabilities" as applicable. The Company has elected not to ~~purchase 5 thousand~~offset its derivative position for purposes of balance sheet presentation and ~~84 thousand shares~~disclosure. The Company had derivative assets of ~~common shares,~~$14.9 million and $1.1 million at March 31, 2020 and December 31, 2019, respectively, and derivative liabilities of $14.4 million and $4.5 million derivative liabilities at March 31, 2020 and December 31, 2019, respectively. The Company has not posted or received collateral with its derivative counterparties as of March 31, 2020 or December 31, 2019. See Note 10 for disclosures relating to the fair value of the derivative instruments.

Risk Management Objective of Using Derivatives

Cash Flow Hedges of Interest Rate Risk

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

As of March 31, 2020, the Company had 4 interest rate swap agreements designated as cash flow hedges of interest rate risk related to its variable rate unsecured term loan facility totaling $400.0 million. Additionally, at March 31, 2020, the Company had an interest rate swap agreement designated as a cash flow hedge of interest rate risk related to its variable rate secured bonds totaling $25.0 million. Interest rate swap agreements outstanding as of March 31, 2020 are summarized below:



Fixed rate	Notional Amount (in millions)		Index	Maturity
3.1450%	$	116.7	USD LIBOR	February 7, 2022
3.1575%	116.7		USD LIBOR	February 7, 2022
3.1580%	116.6		USD LIBOR	February 7, 2022
3.3450%	50.0		USD LIBOR	February 7, 2022
Total	$	400.0

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

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 March 31, 2020, the Company estimates that during the twelve months ending March 31, 2021, $7.3 million 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 4 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.

As of March 31, 2020, the Company had a USD-CAD cross-currency swap with a fixed original notional value of $100.0 million CAD and $79.5 million USD. The net effect of this swap is to lock in an exchange rate of $1.26 CAD per ~~share prices ranging~~USD on approximately $13.5 million of annual CAD denominated cash flows through June 2020.

During the three months ended March 31, 2020, the Company entered into USD-CAD cross-currency swaps that will be effective July 1, 2020 with a fixed original notional value of $100.0 million CAD and $76.6 million USD. The net effect of this swap 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.

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 March 31, 2020, 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 ~~$61.79 were outstanding~~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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively, but were~~2019.

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Dollars in thousands)

	Three Months Ended March 31,
Description	2020			2019
Cash Flow Hedges
Interest Rate Swaps
Amount of Loss Recognized in AOCI on Derivative	$	(10,642	)	$	(2,439	)
Amount of (Expense) Income Reclassified from AOCI into Earnings (1)	(465		)	775
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative	1,139			(311		)
Amount of Income Reclassified from AOCI into Earnings (2)	206			134

Net Investment Hedges
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative	13,175			(3,839		)
Amount of Income Recognized in Earnings (2) (3)	162			138

Total
Amount of Gain (Loss) Recognized in AOCI on Derivatives	$	3,672		$	(6,589	)
Amount of (Expense) Income Reclassified from AOCI into Earnings	(259		)	909
Amount of Income Recognized in Earnings	162			138

Interest expense, net in accompanying consolidated statements of income and comprehensive income	$	34,753		$	33,963
Other income in accompanying consolidated statements of income and comprehensive income	$	7,573		$	344

(1) Included in "Interest expense, net" in the accompanying consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019.

(2) Included in "Other income" in the accompanying consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019.

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

Credit-risk-related Contingent Features

The Company has agreements with each of its interest rate derivative counterparties that contain a provision where if the Company defaults on any of its obligations for borrowed money or credit in an amount exceeding $50.0 million and such default is not waived or cured within a specified period of time, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its interest rate derivative obligations.

As of March 31, 2020, the fair value of the Company's derivatives in a liability position related to these agreements was $14.4 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, after considering the right of offset of $12.6 million. As of March 31, 2020, the Company had not posted any collateral related to these agreements and was not in breach of any provisions in these agreements.

10. Fair Value Disclosures

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 ~~computation~~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 ~~diluted earnings per share because they were anti-dilutive.~~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.

~~12. Equity Incentive Plan~~Derivative Financial Instruments

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 March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives and therefore, classified its derivatives as Level 2 within the fair value reporting hierarchy.

~~All grants~~The table below presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of ~~common shares~~March 31, 2020 and ~~options to purchase common shares were issued under~~December 31, 2019 aggregated by 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 adjustmentlevel in the ~~event of certain capital events, may be granted. At September 30, 2017, there were 1,633,001 shares available for grant under~~fair value hierarchy within which those measurements are classified and by derivative type.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2020 and December 31, 2019 (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
March 31, 2020
Cross-Currency Swaps*	$	—	$	14,936		$	—	$	14,936
Interest Rate Swap Agreements**	$	—	$	(14,447	)	$	—	$	(14,447	)
December 31, 2019
Cross-Currency Swaps*	$	—	$	828		$	—	$	828
Interest Rate Swap Agreements*	$	—	$	225		$	—	$	225
Interest Rate Swap Agreements**	$	—	$	(4,495	)	$	—	$	(4,495	)

*Included in "Other assets" in the ~~2016 Equity Incentive Plan.~~accompanying consolidated balance sheets.

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

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 and comprehensive income was $3 thousand and $2 thousand for the three months ended March 31, 2020 and 2019, 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 and comprehensive income was $2.7 million and $2.9 million for the three months ended March 31, 2020 and 2019, respectively. Expense recognized related to nonvested shares and included in severance expense in the accompanying consolidated statement of income was $0.1 million for the three months ended March 31, 2019.

Nonvested Performance Shares Issued to Employees

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 was $0.5 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively.

Derivative Instruments

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

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as foreign currency risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. For its net investment hedges that hedge the foreign currency exposure of its Canadian investments, the Company has elected to assess hedge effectiveness using a method based on changes in spot exchange rates and record the changes in the fair value amounts excluded from the assessment of effectiveness into earnings on a systematic and rational basis. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. If hedge accounting is not applied, realized and unrealized gains or losses are reported in earnings.

The Company's policy is to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Impact of Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During three months ended March 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. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

3. Real Estate Investments

The following table summarizes the carrying amounts of real estate investments as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020			December 31, 2019
Buildings and improvements	$	4,761,319		$	4,747,101
Furniture, fixtures & equipment	123,229			123,239
Land	1,298,096			1,290,181
Leasehold interests	26,041			26,041
	6,208,685			6,186,562
Accumulated depreciation	(1,023,993		)	(989,254		)
Total	$	5,184,692		$	5,197,308

Depreciation expense on real estate investments from continuing operations was $40.8 million and $34.5 million for the three months ended March 31, 2020 and 2019, respectively.

4. Investments and Dispositions

The Company's investment spending during the three months ended March 31, 2020 totaled $41.9 million of investments in Experiential properties. These investments included spending on the acquisition of 2 megaplex theatres totaling $22.1 million as well as build-to-suit development and redevelopment projects.

During the three months ended March 31, 2020, the Company completed the sale of 2 early education properties for net proceeds totaling $2.9 million and recognized a combined gain on sale of $0.2 million.

5. Investment in Mortgage Notes and Notes Receivable

Investment in mortgage notes, including related accrued interest receivable, at March 31, 2020 and December 31, 2019 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	Outstanding principal amount of mortgage		March 31, 2020		December 31, 2019 (1)		March 31, 2020
Attraction property Powells Point, North Carolina	2019	7.75	%	6/30/2025	$	27,423	$	27,090	$	27,423	$	—
Fitness & wellness property Omaha, Nebraska	2016	7.85	%	12/28/2026	5,766		5,799		5,803		—
Fitness & wellness property Omaha, Nebraska	2017	7.85	%	1/3/2027	10,905		10,904		10,977		—
Fitness & wellness property Merriam, Kansas	2019	7.55	%	7/31/2029	7,949		7,968		5,985		1,141
Ski property Girdwood, Alaska	2019	8.25	%	12/31/2029	37,000		36,998		37,000		20,000
Experiential lodging property Nashville, Tennessee	2019	6.99	%	9/30/2031	70,000		68,650		70,396		—
Eat & play property Austin, Texas	2012	11.31	%	6/1/2033	11,488		11,487		11,582		—
Ski property West Dover and Wilmington, Vermont	2007	11.61	%	12/1/2034	51,050		51,038		51,050		—
Four ski properties Ohio and Pennsylvania	2007	10.75	%	12/1/2034	37,562		37,464		37,562		—
Ski property Chesterland, Ohio	2012	11.21	%	12/1/2034	4,550		4,430		4,550		—
Ski property Hunter, New York	2016	8.57	%	1/5/2036	21,000		21,000		21,000		—
Eat & play property Midvale, Utah	2015	10.25	%	5/31/2036	17,505		17,504		17,505		—
Eat & play property West Chester, Ohio	2015	9.75	%	8/1/2036	18,068		18,062		18,068		—
Private school property Mableton, Georgia	2017	8.84	%	4/30/2037	4,674		5,052		5,048		—
Fitness & wellness property Fort Collins, Colorado	2018	7.85	%	1/31/2038	10,292		10,163		10,360		—
Early childhood education center Lake Mary, Florida	2019	7.75	%	5/9/2039	4,200		4,241		4,258		—
Eat & play property Eugene, Oregon	2019	8.13	%	6/17/2039	14,700		14,794		14,800		—
Early childhood education center Lithia, Florida	2017	8.25	%	10/31/2039	3,959		4,022		4,024		—
					$	358,091	$	356,666	$	357,391	$	21,141

(1) Balances as of December 31, 2019 are prior to the adoption of ASC Topic 326.



	Mortgage notes receivable		Unfunded commitments		Notes receivable		Total
Allowance for credit losses at January 1, 2020	$	2,000	$	114	$	49	$	2,163
Credit loss expense	1,145		29		18		1,192
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Allowance for credit losses	$	3,145	$	143	$	67	$	3,355

6. Accounts Receivable

The following table summarizes the carrying amounts of accounts receivable as of March 31, 2020 and December 31, 2019 (in thousands):



	March 31, 2020		December 31, 2019
Receivable from tenants	$	7,198	$	11,373
Receivable from non-tenants	2,071		2,103
Straight-line rent receivable	63,268		73,382
Total	$	72,537	$	86,858

During the three months ended March 31, 2020, the Company wrote-off straight-line receivables of totaling $12.5 million to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of income and comprehensive income. The $12.5 million straight-line write-offs were comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable.

7. Capital Markets and Dividends

During the three months ended March 31, 2020, the Company's Board approved a share repurchase program pursuant to which the Company may repurchase up to $150.0 million of the Company's common shares. The share repurchase program is scheduled to expire on December 31, 2020; however, the Company will suspend the program upon the effective date of the covenant modification agreements, as discussed in Note 2. Subsequent to March 31, 2020, the Company repurchased 1,116,643 common shares under the share repurchase program for approximately $22.9 million. The repurchases were made under a Rule 10b5-1 trading plan.

During the three months ended March 31, 2020, the Board also declared cash dividends of $0.359375 per share on its 5.75% Series C cumulative convertible preferred shares, $0.5625 per share on its 9.00% Series E cumulative convertible preferred shares and $0.359375 per share on its 5.75% Series G cumulative redeemable preferred shares.

8. Unconsolidated Real Estate Joint Ventures

As of March 31, 2020 and December 31, 2019, the Company had a 65% investment interest in 2 unconsolidated real estate joint ventures related to 2 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 2 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 March 31, 2020 and December 31, 2019, the Company had equity investments of $29.6 million and $29.7 million, respectively, in these joint ventures.

The joint venture that holds the real property has a secured mortgage loan due April 1, 2022 with an initial balance of $61.2 million and a maximum availability of $85.0 million. The note can be extended for two additional one year periods upon the satisfaction of certain conditions. As of March 31, 2020, the joint venture had $61.2 million outstanding and total availability of $23.8 million to fund upcoming property renovations. Additionally, the Company has guaranteed the completion of the renovations in the amount of approximately $24.3 million. The mortgage loan bears interest at an annual rate equal to the greater of 6.00% or LIBOR plus 3.75%. Interest is payable monthly beginning on May 1, 2019 until the stated maturity date of April 1, 2022, which can be extended to April 1, 2023. The joint venture has an

interest rate cap agreement to limit the variable portion of the interest rate (LIBOR) on this note to 3.0% from March 28, 2019 to April 1, 2023.

As of March 31, 2020 and 2019, the Company's investments in these joint ventures were considered to be variable interests and the underlying entities are VIEs. The Company is not the primary beneficiary of the VIEs as the Company does not individually have the power to direct the activities that are most important to the joint ventures and accordingly these investments are not consolidated. The Company's maximum exposure to loss at March 31, 2020, is its investment in the joint ventures of $29.6 million as well as the Company's guarantee of the estimated costs to complete renovations of approximately $24.3 million.

In addition, as of March 31, 2020 and December 31, 2019, the Company had equity investments of $4.3 million and $4.6 million, respectively, in unconsolidated joint ventures for 3 theatre projects located in China. The Company recognized losses of $288 thousand and $5 thousand during the three months ended March 31, 2020 and 2019, respectively, and received distributions of $112 thousand from its investment in these joint ventures for the three months ended March 31, 2019. NaN distributions were received during the three months ended March 31, 2020.

9. Derivative Instruments

All derivatives are recognized at fair value in the consolidated balance sheets within the line items "Other assets" and "Accounts payable and accrued liabilities" as applicable. The Company has elected not to offset its derivative position for purposes of balance sheet presentation and disclosure. The Company had derivative assets of $14.9 million and $1.1 million at March 31, 2020 and December 31, 2019, respectively, and derivative liabilities of $14.4 million and $4.5 million derivative liabilities at March 31, 2020 and December 31, 2019, respectively. The Company has not posted or received collateral with its derivative counterparties as of March 31, 2020 or December 31, 2019. See Note 10 for disclosures relating to the fair value of the derivative instruments.

Risk Management Objective of Using Derivatives

Cash Flow Hedges of Interest Rate Risk



Fixed rate	Notional Amount (in millions)		Index	Maturity
3.1450%	$	116.7	USD LIBOR	February 7, 2022
3.1575%	116.7		USD LIBOR	February 7, 2022
3.1580%	116.6		USD LIBOR	February 7, 2022
3.3450%	50.0		USD LIBOR	February 7, 2022
Total	$	400.0

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

Cash Flow Hedges of Foreign Exchange Risk

As of March 31, 2020, the Company had a USD-CAD cross-currency swap with a fixed original notional value of $100.0 million CAD and $79.5 million USD. The net effect of this swap is to lock in an exchange rate of $1.26 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows through June 2020.

During the three months ended March 31, 2020, the Company entered into USD-CAD cross-currency swaps that will be effective July 1, 2020 with a fixed original notional value of $100.0 million CAD and $76.6 million USD. The net effect of this swap 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.

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

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 months ended March 31, 2020 and 2019.

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Dollars in thousands)

	Three Months Ended March 31,
Description	2020			2019
Cash Flow Hedges
Interest Rate Swaps
Amount of Loss Recognized in AOCI on Derivative	$	(10,642	)	$	(2,439	)
Amount of (Expense) Income Reclassified from AOCI into Earnings (1)	(465		)	775
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative	1,139			(311		)
Amount of Income Reclassified from AOCI into Earnings (2)	206			134

Net Investment Hedges
Cross-Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative	13,175			(3,839		)
Amount of Income Recognized in Earnings (2) (3)	162			138

Total
Amount of Gain (Loss) Recognized in AOCI on Derivatives	$	3,672		$	(6,589	)
Amount of (Expense) Income Reclassified from AOCI into Earnings	(259		)	909
Amount of Income Recognized in Earnings	162			138

Interest expense, net in accompanying consolidated statements of income and comprehensive income	$	34,753		$	33,963
Other income in accompanying consolidated statements of income and comprehensive income	$	7,573		$	344

(1) Included in "Interest expense, net" in the accompanying consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019.

(2) Included in "Other income" in the accompanying consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019.

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

Credit-risk-related Contingent Features

The Company has agreements with each of its interest rate derivative counterparties that contain a provision where if the Company defaults on any of its obligations for borrowed money or credit in an amount exceeding $50.0 million and such default is not waived or cured within a specified period of time, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its interest rate derivative obligations.

10. Fair Value Disclosures

Derivative Financial Instruments

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 March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives and therefore, classified its derivatives as Level 2 within the fair value reporting hierarchy.

The table below presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 aggregated by the level in the fair value hierarchy within which those measurements are classified and by derivative type.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2020 and December 31, 2019 (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
March 31, 2020
Cross-Currency Swaps*	$	—	$	14,936		$	—	$	14,936
Interest Rate Swap Agreements**	$	—	$	(14,447	)	$	—	$	(14,447	)
December 31, 2019
Cross-Currency Swaps*	$	—	$	828		$	—	$	828
Interest Rate Swap Agreements*	$	—	$	225		$	—	$	225
Interest Rate Swap Agreements**	$	—	$	(4,495	)	$	—	$	(4,495	)

*Included in "Other assets" in the accompanying consolidated balance sheets.

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

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 March 31, 2020 and December 31, 2019:

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 March 31, 2020, the Company had a carrying value of $356.7 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 8.99%. The fixed rate mortgage notes bear interest at rates of 6.99% to 11.61%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of 6.99% to 9.00%, management estimates the fair value of the fixed rate mortgage notes receivable to be approximately $395.8 million with an estimated weighted average market rate of 7.74% at March 31, 2020.

At December 31, 2019, the Company had a carrying value of $357.4 million in fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately 8.98%. The fixed rate mortgage notes bear interest at rates of 6.99% to 11.61%. Discounting the future cash flows for fixed rate mortgage notes receivable using rates of 6.99% to 9.25%, management estimates the fair value of the fixed rate mortgage notes receivable to be $395.6 million with an estimated weighted average market rate of 7.76% at December 31, 2019.

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 March 31, 2020, the Company had a carrying value of $1.2 billion in variable rate debt outstanding with a weighted average interest rate of approximately 1.98%. The carrying value of the variable rate debt outstanding approximated the fair value at March 31, 2020.

At December 31, 2019, the Company had a carrying value of $425.0 million in variable rate debt outstanding with a weighted average interest rate of approximately 2.75%. The carrying value of the variable rate debt outstanding approximated the fair value at December 31, 2019.

At March 31, 2020 and December 31, 2019, $425.0 million of the Company's variable rate debt, discussed above, had been effectively converted to a fixed rate by interest rate swap agreements. See Note 9 for additional information related to the Company's interest rate swap agreements.

At March 31, 2020, the Company had a carrying value of $2.72 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 March 31, 2020 market rates of 4.56% to 8.05%, management estimates the fair value of the fixed rate debt to be approximately $2.44 billion with an estimated weighted average market rate of 6.26% at March 31, 2020.

At December 31, 2019, 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 4.54%. Discounting the future cash flows for fixed rate debt using December 31, 2019 market rates of 2.87% to 4.56%, management estimates the fair value of the fixed rate debt to be approximately $2.87 billion with an estimated weighted average market rate of 3.51% at December 31, 2019.

11. Earnings Per Share

The following table summarizes the Company’s computation of basic and diluted earnings per share (EPS) for the three months ended March 31, 2020 and 2019 (amounts in thousands except per share information):



	Three Months Ended March 31, 2020
	Income (numerator)			Shares (denominator)	Per Share Amount
Basic EPS:
Net income	$	37,118
Less: preferred dividend requirements	(6,034		)
Net income available to common shareholders	$	31,084		78,467	$	0.40
Diluted EPS:
Net income available to common shareholders	$	31,084		78,467
Effect of dilutive securities:
Share options	—			9
Net income available to common shareholders	$	31,084		78,476	$	0.40



	Three Months Ended March 31, 2019
	Income (numerator)			Shares (denominator)	Per Share Amount
Basic EPS:
Income from continuing operations	$	48,464
Less: preferred dividend requirements	(6,034		)
Income from continuing operations available to common shareholders	$	42,430		74,679	$	0.57
Income from discontinued operations available to common shareholders	$	16,885		74,679	$	0.22
Net income available to common shareholders	$	59,315		74,679	$	0.79
Diluted EPS:
Income from continuing operations available to common shareholders	$	42,430		74,679
Effect of dilutive securities:
Share options	—			46
Income from continuing operations available to common shareholders	$	42,430		74,725	$	0.57
Income from discontinued operations available to common shareholders	$	16,885		74,725	$	0.22
Net income available to common shareholders	$	59,315		74,725	$	0.79

The additional 2.2 million and 2.1 million common shares that would result from the conversion of the Company’s 5.75% Series C cumulative convertible preferred shares for the three months ended March 31, 2020 and 2019, respectively, and the additional 1.7 million and 1.6 million common shares that would result from the conversion of the Company’s 9.0% Series E cumulative convertible preferred shares for the three months ended March 31, 2020 and 2019, respectively, and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted earnings per share because the effect is anti-dilutive.

The dilutive effect of potential common shares from the exercise of share options is included in diluted earnings per share for the periods presented. Options to purchase 62 thousand and 4 thousand common shares at per share prices ranging from $56.94 to $76.63 and $73.84 to $76.63 were outstanding for the three months ended March 31, 2020 and 2019, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

The dilutive effect of the potential common shares from the performance shares is 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. During the three months ended March 31, 2020, the Company determined the performance and market conditions were not met, therefore, none of the 62 thousand contingently issuable performance shares were included in the computation of diluted earnings per share.

12. Equity Incentive Plan

All grants of common shares and options to purchase common shares were issued under the Company's 2007 Equity Incentive Plan prior to May 12, 2016 and under the 2016 Equity Incentive Plan on and after May 12, 2016. Under the 2016 Equity Incentive Plan, an aggregate of 1,950,000 common shares, options to purchase common shares and restricted share units, subject to adjustment in the event of certain capital events, may be granted. During the three months ended March 31, 2020, the Compensation and Human Capital Committee of the Board approved the 2020 Long Term Incentive Plan (2020 LTIP) as 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 March 31, 2020, there were 817,143 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, and for employees typically become exercisable at a rate of 25% per year over a four-year period.~~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, 2019	118,030		$	44.62	—	$	76.63	$	55.63
Exercised	(1,410	)	44.98		—	44.98		44.98
Granted	2,890		69.19		—	69.19		69.19
Outstanding at March 31, 2020	119,510		$	44.62	—	$	76.63	$	56.09

Number of
options

Option price
per share

Weighted avg.
exercise price
Outstanding at December 31, 2016 285,986
$ 19.02
—
$ 61.79
$ 51.93
Exercised (28,281 ) 46.86
—
61.79
54.72
Granted 2,215
76.63
—
76.63
76.63
Forfeited/Expired (1,342 ) 51.64
—
61.79
59.52
Outstanding at September 30, 2017 258,578
$ 19.02
—
$ 76.63
$ 51.80

The weighted average fair value of options granted was ~~$7.91~~$3.73 and $4.64 during the ~~nine~~three months ended ~~September 30, 2017. There were no options granted during the nine months ended September 30, 2016.~~March 31, 2020 and 2019, respectively. The intrinsic value of ~~stock~~share options exercised was ~~$0.5 million~~$22 thousand and ~~$3.4~~$2.5 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. Additionally, the Company repurchased 21,260 shares into treasury shares in conjunction with the stock options exercised during the nine months ended September 30, 2017 with a total value of $1.5 million. At September 30, 2017, stock-option expense to be recognized in future periods was $0.5 million.

The expense related to share options included in the determination of net income for the nine months ended September 30, 2017 and 2016 was $0.5 million and $0.7 million, respectively. The following assumptions were used in applying the Black-Scholes option pricing model at the grant dates for the nine months ended September 30, 2017: risk-free interest rate of 2.1%, dividend yield of 5.4%, volatility factors in the expected market price of the Company’s common shares of 22.0%, 0.74% expected forfeiture rate and an expected life of approximately six years. The Company uses historical data to estimate the expected life of the option and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Additionally, expected volatility is computed based on the average historical volatility of the Company’s publicly traded shares.

The following table summarizes outstanding ~~options at~~ ~~September 30, 2017~~:

Exercise price range
Options
outstanding

Weighted avg.
life remaining

Weighted avg.
exercise price

Aggregate intrinsic
value (in thousands)
$ 19.02 - 19.99 11,097
1.6

20.00 - 29.99 —
—

30.00 - 39.99 1,428
2.3

40.00 - 49.99 86,863
4.3

50.00 - 59.99 75,939
6.1

60.00 - 69.99 81,036
7.4

70.00 - 76.63 2,215
9.4

258,578
5.7
$ 51.80
$ 4,654

~~The following table summarizes~~and exercisable options at ~~September 30, 2017~~March 31, 2020:



	Options outstanding						Options exercisable
Exercise price range	Options outstanding	Weighted avg. life remaining	Weighted avg. exercise price		Aggregate intrinsic value (in thousands)		Options outstanding	Weighted avg. life remaining	Weighted avg. exercise price		Aggregate intrinsic value (in thousands)
$ 44.62 - 49.99	30,035	1.9					30,035	1.9
50.00 - 59.99	31,710	4.3					29,793	4.0
60.00 - 69.99	53,609	6.2					50,719	4.9
70.00 - 76.63	4,156	7.8					2,148	7.4
	119,510	4.7	$	56.09	$	—	112,695	3.9	$	55.41	$	—

Exercise price range
Options
outstanding

Weighted avg.
life remaining

Weighted avg.
exercise price

Aggregate intrinsic
value (in thousands)
$ 19.02 - 19.99 11,097
1.6

20.00 - 29.99 —
—

30.00 - 39.99 1,428
2.3

40.00 - 49.99 86,863
4.3

50.00 - 59.99 51,276
6.0

60.00 - 69.99 38,375
7.4

70.00 - 76.63 —
—

189,039
5.2
$ 49.28
$ 3,868

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, 2019	509,338		$	67.88
Granted	211,549		69.09
Vested	(226,476	)	67.75
Forfeited	(1,317	)	68.38
Outstanding at March 31, 2020	493,094		$	68.45	1.56

Number of
shares

Weighted avg.
grant date
fair value

Weighted avg.
life remaining
Outstanding at December 31, 2016 534,317
$ 59.22

Granted 295,754
76.53

Vested (208,822 ) 57.43

Forfeited (1,342 ) 66.88

Outstanding at September 30, 2017 619,907
$ 68.07
1.21

The holders of nonvested shares have voting rights and receive dividends from the date of grant. ~~These shares vest ratably over a period of~~ ~~three~~ to ~~four~~ ~~years.~~ The fair value of the nonvested shares that vested was ~~$15.0~~$15.9 million and ~~$9.2~~$22.1 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. At ~~September 30, 2017,~~March 31, 2020, unamortized share-based compensation expense related to nonvested shares was ~~$24.2~~$20.9 million.

Nonvested Performance Shares

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



	Number of Performance Shares
Outstanding at December 31, 2019	—
Granted	61,615
Vested	—
Forfeited	—
Outstanding at March 31, 2020	61,615

The number of common shares issuable upon settlement of the performance shares granted during the three months ended March 31, 2020 will be based upon the Company's achievement level relative to the following performance measures at December 31, 2022: 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 $3.0 million. The estimated fair value is amortized to expense over the three-year vesting period, which ends on December 31, 2022. 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: risk-free interest rate of 1.4%, volatility factors in the expected market price of the Company's common shares of 18% and an expected life of three years. At March 31, 2020, unamortized share-based compensation expense related to nonvested performance shares was $2.7 million.

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 March 31, 2020, achievement of the performance condition for the performance shares granted during the three months ended March 31, 2020 was deemed not probable.

The performance shares accrue dividend equivalents which are paid only if common shares are issued upon settlement of the performance shares. During the three months ended March 31, 2020, the Company accrued dividend equivalents expected to be paid on earned awards of $3 thousand.

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, 2019	26,236	$	77.54
Granted	—	—
Vested	—	—
Outstanding at March 31, 2020	26,236	$	77.54	0.17

Number of
shares

Weighted avg.
grant date
fair value

Weighted avg.
life remaining
Outstanding at December 31, 2016 15,805
$ 70.93

Granted 19,030
70.91

Vested (15,805 ) 70.93

Outstanding at September 30, 2017 19,030
$ 70.91
0.58

The holders of restricted share units receive dividend equivalents from 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. At ~~September 30, 2017,~~March 31, 2020, unamortized share-based compensation expense related to restricted share units was ~~$0.8~~$0.3 million.

13. Discontinued Operations

During the year ended December 31, 2019, the Company completed the sale of its public charter school portfolio with the largest disposition occurring on November 22, 2019 consisting of 47 public charter school related assets, for net proceeds of approximately $449.6 million. The Company determined the dispositions of the remaining public charter school portfolio in 2019 represented a strategic shift that had a major effect on the Company's operations and financial results. Therefore, all public charter school investments disposed of by the Company during the year ended December 31, 2019 qualified as discontinued operations. Accordingly, the historical financial results of these public charter school investments are reflected in the Company's consolidated financial statements as discontinued operations for the three months ended March 31, 2019.

The operating results relating to discontinued operations are as follows (in thousands):



	Three Months Ended March 31,
	2019
Rental revenue	$	10,431
Mortgage and other financing income	3,584
Total revenue	14,015
Property operating expense	242
Interest expense, net	(137		)
Depreciation and amortization	3,741
Income from discontinued operations before other items	10,169
Gain on sale of real estate	6,716
Income from discontinued operations	$	16,885

The cash flow information relating to discontinued operations are as follows (in thousands):



	Three Months Ended March 31,
	2019
Depreciation and amortization	$	3,741
Acquisition of and investments in real estate and other assets	(1,573		)
Proceeds from sale of real estate	28,004
Investment in mortgage notes receivable	(3,280		)
Proceeds from mortgage notes receivable paydowns	889
Additions to properties under development	(5,790		)

Non-cash activity:
Transfer of property under development to real estate investments	$	48
Interest cost capitalized	137

14. Operating Leases

The Company’s real estate investments are leased under operating leases. As described in Note 2, 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 March 31, 2020 and December 31, 2019, the Company was lessee in 58 operating ground leases as well as lessee in an operating lease of its executive office. The Company's tenants, who are generally sub-tenants under these ground leases, are responsible for paying the rent under these ground leases. In the event the tenant fails to pay the ground lease rent, the Company would be primarily responsible for the payment, assuming the Company does not sell or re-tenant the property.

~~13.~~The following table summarizes the lease income as well as lease costs and sublease income for the three months ended March 31, 2020 and 2019 (in thousands):



		Three Months Ended March 31,
	Classification	2020			2019
Rental revenues
Operating leases (1)	Rental revenue	$	137,089		$	134,569
Sublease income - operating ground leases (2)	Rental revenue	$	(2,046	)	$	5,723

Lease cost
Operating ground lease cost	Property operating expense	$	6,217		$	5,938
Operating office lease cost	General and administrative expense	$	226		$	230

(1) During the three months ended March 31, 2020, the Company wrote-off straight-line receivables of $4.5 million to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of income and comprehensive income.

(2) During the three months ended March 31, 2020, the Company wrote-off sub-lessor ground lease straight-line receivables $8.0 million to straight-line rental revenue classified in rental revenue in the accompanying consolidated statements of income and comprehensive income. This write-off resulted in a net reduction to total rental revenue related to sublease income on operating ground leases for the three months ended March 31, 2020.

15. Segment Information

The Company groups its investments into 2 reportable operating segments: Experiential and Education. Due to the Company's change to 2 reportable segments during the year ended December 31, 2019, certain reclassifications have been made to the 2019 presentation to conform to the current presentation.

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



Balance Sheet Data:
	As of March 31, 2020
	Experiential		Education		Corporate/Unallocated		Consolidated
Total Assets	$	5,279,936	$	723,750	$	1,251,654	$	7,255,340

	As of December 31, 2019
	Experiential		Education		Corporate/Unallocated		Consolidated
Total Assets	$	5,307,295	$	730,165	$	540,051	$	6,577,511



Operating Data:
	Three Months Ended March 31, 2020
	Experiential		Education		Corporate/Unallocated		Consolidated
Rental revenue	$	118,660	$	16,383	$	—	$	135,043
Other income	7,205		—		368		7,573
Mortgage and other financing income	8,044		352		—		8,396
Total revenue	133,909		16,735		368		151,012

Property operating expense	12,329		541		223		13,093
Other expense	9,534		—		—		9,534
Total investment expenses	21,863		541		223		22,627
Net operating income - before unallocated items	112,046		16,194		145		128,385

Reconciliation to Consolidated Statements of Income and Comprehensive Income:
General and administrative expense							(10,988		)
Interest expense, net							(34,753		)
Transaction costs							(1,075		)
Credit loss expense							(1,192		)
Depreciation and amortization							(43,810		)
Equity in loss from joint ventures							(420		)
Gain on sale of real estate							220
Income tax benefit							751
Net income							37,118
Preferred dividend requirements							(6,034		)
Net income available to common shareholders of EPR Properties							$	31,084



Operating Data:
	Three Months Ended March 31, 2019
	Experiential		Education		Corporate/Unallocated		Consolidated
Rental revenue	$	124,016	$	16,276	$	—	$	140,292
Other income	71		—		273		344
Mortgage and other financing income	9,368		523		—		9,891
Total revenue	133,455		16,799		273		150,527

Property operating expense	14,448		870		233		15,551
Total investment expenses	14,448		870		233		15,551
Net operating income - before unallocated items	119,007		15,929		40		134,976

Reconciliation to Consolidated Statements of Income and Comprehensive Income:
General and administrative expense							(11,710		)
Severance expense							(420		)
Interest expense, net							(33,963		)
Transaction costs							(5,123		)
Depreciation and amortization							(36,002		)
Equity in income from joint ventures							489
Loss on sale of real estate							(388		)
Income tax benefit							605
Discontinued operations:
Income from discontinued operations							10,169
Gain on sale of real estate from discontinued operations							6,716
Net income							65,349
Preferred dividend requirements							(6,034		)
Net income available to common shareholders of EPR Properties							$	59,315

16. Other Commitments and Contingencies

As of ~~September 30, 2017,~~March 31, 2020, the Company had 10 development projects with commitments to fund an aggregate of approximately $202.4 million of commitments to fund development projects including 34 entertainment development projects for which it had commitments to fund approximately $97.0 million, nine education development projects for which it had commitments to fund approximately $40.9 million, and six recreation development projects for which it had commitments to fund approximately $64.5$89.1 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.

Additionally as of September 30, 2017, the Company had a commitment to fund approximately $155.0 million over the next three years, of which $22.3 million had been funded, to complete an indoor waterpark hotel and adventure park at the Adelaar casino and resort project in Sullivan County, New York. The Company is also responsible for the construction of the casino and resort project common infrastructure. In June 2016, the Sullivan County Infrastructure Local Development Corporation issued $110.0 million of Series 2016 Revenue Bonds which is expected to fund a substantial portion of such construction costs. The Company received an initial reimbursement of $43.4 million of construction costs during the year ended December 31, 2016 and an additional reimbursement of $23.9 million during the nine months ended September 30, 2017. The Company expects to receive an additional $21.0 million of reimbursements over the balance of the construction period. Construction of infrastructure improvements is currently expected to be completed in 2018.

The Company has certain commitments related to its mortgage ~~note~~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, 2017,~~March 31, 2020, the Company had ~~eight~~2 mortgage notes and notes receivable with commitments totaling approximately ~~$25.7~~$21.1 million. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

The Company has provided guarantees of the payment of certain economic development revenue bonds totaling $24.9 million related to two theatres in Louisiana for which the Company earns a fee at annual rates of 2.88% to 4.00% over the 30-year terms of the related bonds. The Company recorded $10.4 million as a deferred asset included in other assets and $10.4 million included in other liabilities in the accompanying consolidated balance sheet as of ~~September 30, 2017~~ ~~related to these guarantees. No amounts have been accrued as a loss contingency related to these guarantees because payment by the Company is not probable.~~

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, 2017,~~March 31, 2020, the Company had ~~six~~2 surety bonds outstanding totaling ~~$24.3~~$31.6 million.

Prior proposed casino and resort developers Concord Associates, L.P., Concord Resort, LLC and Concord Kiamesha LLC, which are affiliates of Louis Cappelli and from whom the Company acquired the Adelaar resort property (the Cappelli Group), commenced litigation against the Company beginning in 2011 regarding matters relating to the acquisition of that property and the Company's relationship with the Empire Resorts, Inc. and certain of its subsidiaries. This litigation involves three separate cases filed in state and federal court. Two of the cases, a state and the federal case, are closed and resulted in no liability by the Company.

The remaining case was filed on October 20, 2011 by the Cappelli Group against the Company and two of its affiliates in the Supreme Court of the State of New York, County of Westchester (the Westchester Action), asserting a claim for breach of contract and the implied covenant of good faith, and seeking damages of at least $800 million, based on allegations that the Company had breached an agreement (the Casino Development Agreement), dated June 18, 2010. The Company moved to dismiss the complaint in the Westchester Action based on a decision issued by the Sullivan County Supreme Court (one of the two closed cases referenced above) on June 30, 2014, as affirmed by the Appellate Division, Third Department (the Sullivan Action). On January 26, 2016, the Westchester County Supreme Court denied

the Company's motion to dismiss but ordered the Cappelli Group to amend its pleading and remove all claims and allegations previously determined by the Sullivan Action. On February 18, 2016, the Cappelli Group filed an amended complaint asserting a single cause of action for breach of the covenant of good faith and fair dealing based upon allegations the Company had interfered with plaintiffs’ ability to obtain financing which complied with the Casino Development Agreement. On March 23, 2016, the Company filed a motion to dismiss the Cappelli Group’s revised amended complaint. On January 5, 2017, the Westchester County Supreme Court denied the Company’s second motion to dismiss. Discovery is ongoing.

The Company has not determined that losses related to the remaining Westchester Action are probable. In light of the inherent difficulty of predicting the outcome of litigation generally, the Company does not have sufficient information to determine the amount or range of reasonably possible loss with respect to these matters. The Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. The Company intends to vigorously defend the claims asserted against the Company and certain of its subsidiaries by the Cappelli Group and its affiliates, for which the Company believes it has meritorious defenses, but there can be no assurances as to the outcome of the claims and related litigation.

~~14. Segment Information~~

~~The Company groups investments into~~ ~~four~~ ~~reportable operating segments: Entertainment, Education, Recreation and Other. The financial information summarized below is presented by reportable operating segment:~~

Balance Sheet Data:
As of September 30, 2017
Entertainment Education Recreation Other Corporate/Unallocated Consolidated
Total Assets $ 2,343,778
$ 1,489,459
$ 2,057,172
$ 193,766
$ 48,835
$ 6,133,010

As of December 31, 2016
Entertainment Education Recreation Other Corporate/Unallocated Consolidated
Total Assets $ 2,168,669
$ 1,308,288
$ 1,120,498
$ 202,394
$ 65,173
$ 4,865,022

Operating Data:
Three Months Ended September 30, 2017
Entertainment Education Recreation Other Corporate/Unallocated Consolidated
Rental revenue $ 66,888
$ 21,478
$ 32,171
$ 2,290
$ —
$ 122,827
Tenant reimbursements 3,733
1
—
—
—
3,734
Other income 2
—
—
—
520
522
Mortgage and other financing income 1,151
9,023
14,140
—
—
24,314
Total revenue 71,774
30,502
46,311
2,290
520
151,397

Property operating expense 5,680
119
29
327
185
6,340
Total investment expenses 5,680
119
29
327
185
6,340
Net operating income - before unallocated items 66,094
30,383
46,282
1,963
335
145,057

Reconciliation to Consolidated Statements of Income:
General and administrative expense (12,070 )
Costs associated with loan refinancing or payoff (1,477 )
Interest expense, net (34,194 )
Transaction costs (113 )
Depreciation and amortization (34,694 )
Equity in income from joint ventures 35
Gain on sale of real estate 997
Income tax expense (587 )
Net income 62,954
Preferred dividend requirements (5,951 )
Net income available to common shareholders of EPR Properties $ 57,003

Operating Data:
Three Months Ended September 30, 2016
Entertainment Education Recreation Other Corporate/Unallocated Consolidated
Rental revenue $ 64,134
$ 19,900
$ 15,958
$ 2,290
$ —
$ 102,282
Tenant reimbursements 3,816
5
—
—
—
3,821
Other income 8
—
1,825
—
643
2,476
Mortgage and other financing income 1,294
7,319
8,384
34
—
17,031
Total revenue 69,252
27,224
26,167
2,324
643
125,610

Property operating expense 5,228
—
—
233
165
5,626
Total investment expenses 5,228
—
—
233
165
5,626
Net operating income - before unallocated items 64,024
27,224
26,167
2,091
478
119,984

Reconciliation to Consolidated Statements of Income:
General and administrative expense (9,091 )
Costs associated with loan refinancing or payoff (14 )
Interest expense, net (24,265 )
Transaction costs (2,947 )
Depreciation and amortization (27,601 )
Equity in income from joint ventures 203
Gain on sale of real estate 1,615
Income tax expense (358 )
Net income 57,526
Preferred dividend requirements (5,951 )
Net income available to common shareholders of EPR Properties $ 51,575

Operating Data:
Nine Months Ended September 30, 2017
Entertainment Education Recreation Other Corporate/Unallocated Consolidated
Rental revenue $ 197,441
$ 66,168
$ 78,854
$ 6,870
$ —
$ 349,333
Tenant reimbursements 11,423
1
—
—
—
11,424
Other income 614
1
—
—
1,903
2,518
Mortgage and other financing income 3,426
26,440
35,150
—
—
65,016
Total revenue 212,904
92,610
114,004
6,870
1,903
428,291

Property operating expense 17,060
151
86
1,020
445
18,762
Total investment expenses 17,060
151
86
1,020
445
18,762
Net operating income - before unallocated items 195,844
92,459
113,918
5,850
1,458
409,529

Reconciliation to Consolidated Statements of Income:
General and administrative expense (33,787 )
Costs associated with loan refinancing or payoff (1,491 )
Gain on early extinguishment of debt 977
Interest expense, net (97,853 )
Transaction costs (388 )
Impairment charges (10,195 )
Depreciation and amortization (95,919 )
Equity in income from joint ventures 86
Gain on sale of real estate 28,462
Income tax expense (2,016 )
Net income 197,405
Preferred dividend requirements (17,855 )
Net income available to common shareholders of EPR Properties $ 179,550

Operating Data:
Nine Months Ended September 30, 2016
Entertainment Education Recreation Other Corporate/Unallocated Consolidated
Rental revenue $ 185,530
$ 54,797
$ 45,443
$ 6,345
$ —
$ 292,115
Tenant reimbursements 11,570
7
—
—
—
11,577
Other income 222
—
3,635
—
1,955
5,812
Mortgage and other financing income 4,927
25,228
22,650
102
—
52,907
Total revenue 202,249
80,032
71,728
6,447
1,955
362,411

Property operating expense 15,815
—
8
419
445
16,687
Other expense —
—
—
5
—
5
Total investment expenses 15,815
—
8
424
445
16,692
Net operating income - before unallocated items 186,434
80,032
71,720
6,023
1,510
345,719

Reconciliation to Consolidated Statements of Income:
General and administrative expense (27,309 )
Costs associated with loan refinancing or payoff (905 )
Interest expense, net (70,310 )
Transaction costs (4,881 )
Depreciation and amortization (79,222 )
Equity in income from joint ventures 501
Gain on sale of real estate 3,885
Income tax expense (637 )
Net income 166,841
Preferred dividend requirements (17,855 )
Net income available to common shareholders of EPR Properties $ 148,986

~~15. Condensed Consolidating Financial Statements~~

A portion of the Company's subsidiaries have guaranteed the Company’s indebtedness under the Company's unsecured credit facilities and existing senior unsecured notes. The guarantees are joint and several, full and unconditional and subject to customary release provisions. The following summarizes the Company’s condensed consolidating information as of ~~September 30, 2017~~ ~~and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016 (in thousands):~~

Condensed Consolidating Balance Sheet
As of September 30, 2017

EPR Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Consolidated
Elimination
Consolidated
Assets
Rental properties, net $ —
$ 3,640,225
$ 895,769
$ —
$ 4,535,994
Land held for development —
12,402
21,272
—
33,674
Property under development —
236,916
47,295
—
284,211
Mortgage notes and related accrued interest receivable —
963,738
8,633
—
972,371
Investment in a direct financing lease, net —
57,698
—
—
57,698
Investment in joint ventures —
—
5,616
—
5,616
Cash and cash equivalents 8,788
1,472
1,152
—
11,412
Restricted cash 395
23,599
329
—
24,323
Accounts receivable, net 675
89,230
9,308
—
99,213
Intercompany notes receivable —
179,589
—
(179,589 ) —
Investments in subsidiaries 5,892,529
—
—
(5,892,529 ) —
Other assets 26,485
32,417
49,596
—
108,498
Total assets $ 5,928,872
$ 5,237,286
$ 1,038,970
$ (6,072,118 ) $ 6,133,010
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities $ 58,308
$ 65,910
$ 16,364
$ —
$ 140,582
Dividends payable 30,997
—
—
—
30,997
Unearned rents and interest —
69,615
15,583
—
85,198
Intercompany notes payable —
—
179,589
(179,589 ) —
Debt 2,951,259
—
36,666
—
2,987,925
Total liabilities 3,040,564
135,525
248,202
(179,589 ) 3,244,702
Total equity 2,888,308
5,101,761
790,768
(5,892,529 ) 2,888,308
Total liabilities and equity $ 5,928,872
$ 5,237,286
$ 1,038,970
$ (6,072,118 ) $ 6,133,010

Condensed Consolidating Balance Sheet
As of December 31, 2016

EPR
Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Consolidated
Elimination
Consolidated
Assets
Rental properties, net $ —
$ 3,164,622
$ 431,140
$ —
$ 3,595,762
Land held for development —
1,258
21,272
—
22,530
Property under development 1,010
247,239
48,861
—
297,110
Mortgage notes and related accrued interest receivable —
612,141
1,837
—
613,978
Investment in a direct financing lease, net —
102,698
—
—
102,698
Investment in joint ventures —
—
5,972
—
5,972
Cash and cash equivalents 16,586
1,157
1,592
—
19,335
Restricted cash 365
8,352
1,027
—
9,744
Accounts receivable, net 556
89,145
9,238
—
98,939
Intercompany notes receivable —
179,589
—
(179,589 ) —
Investments in subsidiaries 4,521,095
—
—
(4,521,095 ) —
Other assets 21,768
23,068
54,118
—
98,954
Total assets $ 4,561,380
$ 4,429,269
$ 575,057
$ (4,700,684 ) $ 4,865,022
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities $ 63,431
$ 52,061
$ 4,266
$ —
$ 119,758
Dividends payable 26,318
—
—
—
26,318
Unearned rents and interest —
46,647
773
—
47,420
Intercompany notes payable —
—
179,589
(179,589 ) —
Debt 2,285,730
—
199,895
—
2,485,625
Total liabilities 2,375,479
98,708
384,523
(179,589 ) 2,679,121
Total equity 2,185,901
4,330,561
190,534
(4,521,095 ) 2,185,901
Total liabilities and equity $ 4,561,380
$ 4,429,269
$ 575,057
$ (4,700,684 ) $ 4,865,022

Condensed Consolidating Statement of Income
Three Months Ended September 30, 2017

EPR Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Consolidated
Elimination
Consolidated
Rental revenue $ —
$ 97,398
$ 25,429
$ —
$ 122,827
Tenant reimbursements —
1,274
2,460
—
3,734
Other income —
1
521
—
522
Mortgage and other financing income 232
23,960
122
—
24,314
Intercompany fee income 732
—
—
(732 ) —
Interest income on intercompany notes receivable —
2,580
—
(2,580 ) —
Total revenue 964
125,213
28,532
(3,312 ) 151,397
Equity in subsidiaries’ earnings 100,527
—
—
(100,527 ) —
Property operating expense —
3,434
2,906
—
6,340
Intercompany fee expense —
—
732
(732 ) —
General and administrative expense —
9,830
2,240
—
12,070
Costs associated with loan refinancing or payoff 1,474
—
3
—
1,477
Interest expense, net 36,364
(2,368 ) 198
—
34,194
Interest expense on intercompany notes payable —
—
2,580
(2,580 ) —
Transaction costs 113
—
—
—
113
Depreciation and amortization 232
26,633
7,829
—
34,694
Income before equity in income from joint ventures and other items 63,308
87,684
12,044
(100,527 ) 62,509
Equity in income from joint ventures —
—
35
—
35
Gain on sale of real estate —
997
—
—
997
Income before income taxes 63,308
88,681
12,079
(100,527 ) 63,541
Income tax expense (354 ) —
(233 ) —
(587 )
Net income 62,954
88,681
11,846
(100,527 ) 62,954
Preferred dividend requirements (5,951 ) —
—
—
(5,951 )
Net income available to common shareholders of EPR Properties $ 57,003
$ 88,681
$ 11,846
$ (100,527 ) $ 57,003
Comprehensive income $ 64,175
$ 88,681
$ 12,694
$ (101,375 ) $ 64,175

Condensed Consolidating Statement of Income
Three Months Ended September 30, 2016

EPR
Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Consolidated
Elimination
Consolidated
Rental revenue $ —
$ 89,178
$ 13,104
$ —
$ 102,282
Tenant reimbursements —
1,338
2,483
—
3,821
Other income —
1,829
647
—
2,476
Mortgage and other financing income 286
16,692
53
—
17,031
Intercompany fee income 677
—
—
(677 ) —
Interest income on intercompany notes receivable —
2,460
—
(2,460 ) —
Total revenue 963
111,497
16,287
(3,137 ) 125,610
Equity in subsidiaries’ earnings 84,755
—
—
(84,755 ) —
Property operating expense —
2,916
2,710
—
5,626
Intercompany fee expense —
—
677
(677 ) —
General and administrative expense —
7,927
1,164
—
9,091
Costs associated with loan refinancing or payoff —
14
—
—
14
Interest expense, net 24,414
(2,395 ) 2,246
—
24,265
Interest expense on intercompany notes payable —
—
2,460
(2,460 ) —
Transaction costs 2,947
—
—
—
2,947
Depreciation and amortization 449
23,768
3,384
—
27,601
Income before equity in income from joint ventures and other items 57,908
79,267
3,646
(84,755 ) 56,066
Equity in income from joint ventures —
—
203
—
203
Gain on sale of real estate —
1,615
—
—
1,615
Income before income taxes 57,908
80,882
3,849
(84,755 ) 57,884
Income tax (expense) benefit (382 ) —
24
—
(358 )
Income from continuing operations 57,526
80,882
3,873
(84,755 ) 57,526
Net income 57,526
80,882
3,873
(84,755 ) 57,526
Preferred dividend requirements (5,951 ) —
—
—
(5,951 )
Net income available to common shareholders of EPR Properties $ 51,575
$ 80,882
$ 3,873
$ (84,755 ) $ 51,575
Comprehensive income $ 58,739
$ 80,882
$ 2,440
$ (83,322 ) $ 58,739

~~Condensed Consolidating Statement of Income~~

~~Nine Months Ended September 30, 2017~~

EPR Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Consolidated
Elimination
Consolidated
Rental revenue $ —
$ 285,977
$ 63,356
$ —
$ 349,333
Tenant reimbursements —
3,955
7,469
—
11,424
Other income —
614
1,904
—
2,518
Mortgage and other financing income 696
64,103
217
—
65,016
Intercompany fee income 2,094
—
—
(2,094 ) —
Interest income on intercompany notes receivable —
7,435
—
(7,435 ) —
Total revenue 2,790
362,084
72,946
(9,529 ) 428,291
Equity in subsidiaries’ earnings 300,631
—
—
(300,631 ) —
Property operating expense —
9,756
9,006
—
18,762
Intercompany fee expense —
—
2,094
(2,094 ) —
General and administrative expense —
28,112
5,675
—
33,787
Costs associated with loan refinancing or payoff 1,474
—
17
—
1,491
Gain on early extinguishment of debt —
—
(977 ) —
(977 )
Interest expense, net 102,424
(7,482 ) 2,911
—
97,853
Interest expense on intercompany notes payable —
—
7,435
(7,435 ) —
Transaction costs 388
—
—
—
388
Impairment charges —
10,195
—
—
10,195
Depreciation and amortization 662
76,594
18,663
—
95,919
Income before equity in income from joint ventures and other items 198,473
244,909
28,122
(300,631 ) 170,873
Equity in income from joint ventures —
—
86
—
86
Gain on sale of real estate —
27,344
1,118
—
28,462
Income before income taxes 198,473
272,253
29,326
(300,631 ) 199,421
Income tax expense (1,068 ) —
(948 ) —
(2,016 )
Net income 197,405
272,253
28,378
(300,631 ) 197,405
Preferred dividend requirements (17,855 ) —
—
—
(17,855 )
Net income available to common shareholders of EPR Properties $ 179,550
$ 272,253
$ 28,378
$ (300,631 ) $ 179,550
Comprehensive income $ 200,590
$ 272,253
$ 28,998
$ (301,251 ) $ 200,590

~~Condensed Consolidating Statement of Income~~

~~Nine Months Ended September 30, 2016~~

EPR Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-
Guarantor
Subsidiaries

Consolidated
Elimination
Consolidated
Rental revenue $ —
$ 251,900
$ 40,215
$ —
$ 292,115
Tenant reimbursements —
4,059
7,518
—
11,577
Other income —
3,648
2,164
—
5,812
Mortgage and other financing income 710
48,370
3,827
—
52,907
Intercompany fee income 2,018
—
—
(2,018 ) —
Interest income on intercompany notes receivable —
7,297
—
(7,297 ) —
Total revenue 2,728
315,274
53,724
(9,315 ) 362,411
Equity in subsidiaries’ earnings 240,420
—
—
(240,420 ) —
Property operating expense —
8,135
8,552
—
16,687
Intercompany fee expense —
—
2,018
(2,018 ) —
Other expense —
—
5
—
5
General and administrative expense —
23,318
3,991
—
27,309
Costs associated with loan refinancing or payoff —
353
552
—
905
Interest expense, net 69,042
(5,596 ) 6,864
—
70,310
Interest expense on intercompany notes payable —
—
7,297
(7,297 ) —
Transaction costs 4,778
—
103
—
4,881
Depreciation and amortization 1,338
67,516
10,368
—
79,222
Income before equity in income from joint ventures and other items 167,990
221,548
13,974
(240,420 ) 163,092
Equity in income from joint ventures —
—
501
—
501
Gain on sale of real estate —
3,885
—
—
3,885
Income before income taxes 167,990
225,433
14,475
(240,420 ) 167,478
Income tax (expense) benefit (1,149 ) —
512
—
(637 )
Net income 166,841
225,433
14,987
(240,420 ) 166,841
Preferred dividend requirements (17,855 ) —
—
—
(17,855 )
Net income available to common shareholders of EPR Properties $ 148,986
$ 225,433
$ 14,987
$ (240,420 ) $ 148,986
Comprehensive income $ 165,917
$ 225,433
$ 15,391
$ (240,824 ) $ 165,917

Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2017

EPR
Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-Guarantor
Subsidiaries
Consolidated
Intercompany fee income (expense) $ 2,094
$ —
$ (2,094 ) $ —
Interest income (expense) on intercompany receivable/payable —
7,435
(7,435 ) —
Net cash (used) provided by other operating activities (95,174 ) 332,846
62,636
300,308
Net cash (used) provided by operating activities (93,080 ) 340,281
53,107
300,308
Investing activities:
Acquisition of rental properties and other assets (1,012 ) (297,658 ) (55,607 ) (354,277 )
Proceeds from sale of real estate 203
107,022
29,242
136,467
Investment in mortgage notes receivable —
(123,060 ) (7,016 ) (130,076 )
Proceeds from mortgage note receivable paydown —
16,608
—
16,608
Investment in promissory notes receivable —
(1,868 ) —
(1,868 )
Proceeds from promissory notes receivable paydown —
1,599
—
1,599
Proceeds from insurance recovery —
579
—
579
Additions to property under development (725 ) (289,810 ) (13,549 ) (304,084 )
Advances to subsidiaries, net (402,145 ) 246,622
155,523
—
Net cash (used) provided by investing activities (403,679 ) (339,966 ) 108,593
(635,052 )
Financing activities:
Proceeds from debt facilities and senior unsecured notes 1,175,000
—
—
1,175,000
Principal payments on debt (505,000 ) —
(162,091 ) (667,091 )
Deferred financing fees paid (14,001 ) —
(206 ) (14,207 )
Costs associated with loan refinancing or payoff (cash portion) —
—
(7 ) (7 )
Net proceeds from issuance of common shares 68,552
—
—
68,552
Purchase of common shares for treasury for vesting (6,729 ) —
—
(6,729 )
Dividends paid to shareholders (228,861 ) —
—
(228,861 )
Net cash provided (used) by financing activities 488,961
—
(162,304 ) 326,657
Effect of exchange rate changes on cash —
—
164
164
Net (decrease) increase in cash and cash equivalents (7,798 ) 315
(440 ) (7,923 )
Cash and cash equivalents at beginning of the period 16,586
1,157
1,592
19,335
Cash and cash equivalents at end of the period $ 8,788
$ 1,472
$ 1,152
$ 11,412

Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016

EPR
Properties
(Issuer)

Wholly Owned
Subsidiary
Guarantors

Non-Guarantor
Subsidiaries
Consolidated
Intercompany fee income (expense) $ 2,018
$ —
$ (2,018 ) $ —
Interest income (expense) on intercompany receivable/payable —
7,297
(7,297 ) —
Net cash (used) provided by other operating activities (74,550 ) 254,721
35,602
215,773
Net cash (used) provided by operating activities (72,532 ) 262,018
26,287
215,773
Investing activities:
Acquisition of rental properties and other assets (180 ) (175,075 ) (2,107 ) (177,362 )
Proceeds from sale of real estate —
19,175
1,476
20,651
Investment in mortgage note receivable —
(80,786 ) —
(80,786 )
Proceeds from mortgage note receivable paydown —
44,556
19,320
63,876
Investment in promissory notes receivable —
(66 ) —
(66 )
Proceeds from sale of infrastructure related to issuance of revenue bonds —
43,462
—
43,462
Proceeds from insurance recovery —
2,635
401
3,036
Proceeds from sale of investments in a direct financing lease, net —
825
—
825
Additions to property under development (181 ) (282,554 ) (6,152 ) (288,887 )
Investment in (repayment of) intercompany notes payable —
(2,063 ) 2,063
—
Advances to subsidiaries, net (203,471 ) 231,048
(27,577 ) —
Net cash used by investing activities (203,832 ) (198,843 ) (12,576 ) (415,251 )
Financing activities:
Proceeds from debt facilities 840,000
—
14,360
854,360
Principal payments on debt (496,000 ) (63,727 ) (27,382 ) (587,109 )
Deferred financing fees paid (3,020 ) —
(27 ) (3,047 )
Costs associated with loan refinancing or payoff (cash portion) —
—
(482 ) (482 )
Net proceeds from issuance of common shares 142,452
—
—
142,452
Impact of stock option exercises, net (717 ) —
—
(717 )
Purchase of common shares for treasury for vesting (4,211 ) —
—
(4,211 )
Dividends paid to shareholders (198,678 ) —
—
(198,678 )
Net cash provided (used) by financing activities 279,826
(63,727 ) (13,531 ) 202,568
Effect of exchange rate changes on cash —
—
(62 ) (62 )
Net increase (decrease) in cash and cash equivalents 3,462
(552 ) 118
3,028
Cash and cash equivalents at beginning of the period 1,089
1,289
1,905
4,283
Cash and cash equivalents at end of the period $ 4,551
$ 737
$ 2,023
$ 7,311

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 ~~Part II,~~ Item 1A - "Risk Factors" in this Quarterly Report on Form ~~10-Q and Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017.~~10-Q.

Overview

Business

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

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

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

Historically, our primary challenges have 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. Our business is subject to a number of risks and uncertainties, including those described in ~~Part II,~~ Item 1A - "Risk Factors" in this Quarterly Report on Form ~~10-Q and Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017.~~10-Q.

~~We group our investments into four reportable operating segments: Entertainment, Education, Recreation and Other.~~ As of ~~September 30, 2017,~~March 31, 2020, our total assets were approximately ~~$6.1~~$7.3 billion (after accumulated depreciation of approximately ~~$0.7~~$1.0 billion) ~~which included investments in each of our four operating segments~~ with properties located in 4344 states ~~the District of Columbia~~ and Ontario, Canada.

Our Entertainment segment included investments in 147 megaplex theatre properties, seven entertainment retail centers (which include seven additional megaplex theatre properties) and nine family entertainment centers. Our portfolio of owned entertainment properties consisted of 12.8 million square feet and was 99% leased, including megaplex theatres that were 100% leased.

Our Education segment included investments in 69 public charter school properties, 15 private schools and 63 early education centers. Our portfolio of owned education properties consisted of 4.3 million square feet and was 98% leased.

Our Recreation segment included investments in 26 ski areas, 20 attractions, 28 golf entertainment complexes and seven other recreation facilities. Our portfolio of owned recreation properties was 100% leased.

Our Other segment consisted primarily of land under ground lease, property under development and land held for development related to the Adelaar casino and resort project in Sullivan County, New York.

~~The combined owned portfolio consisted of 20.0 million square feet and was 99% leased. As of September 30, 2017, we had a total of approximately $284.2 million invested in property under development.~~

Our total investments (a non-GAAP financial measure) were approximately $6.7 billion at September 30, 2017. We define total investments as the sum of the carrying values of rental properties and rental properties held for sale (before accumulated depreciation), land held for development, property under development, mortgage notes receivable (including related accrued interest receivable), investment in a direct financing lease, net, investment in joint ventures, intangible assets, gross (before accumulated amortization and included in other assets) and notes receivable and related accrued interest receivable (included in other assets). Total investments is a non-GAAP financial measure.March 31, 2020. 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, 2017~~March 31, 2020 and December 31, ~~2016.~~2019. We group our investments into two reportable segments, Experiential and Education. As of March 31, 2020, our Experiential investments comprised $6.0 billion, or 89%, and our Education investments comprised $0.7 billion, or 11%, of our total investments.

OfAs of March 31, 2020, our Experiential segment consisted of the following property types (owned or financed):

181 theatre properties;

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

18 attraction properties;

13 ski properties;

six experiential lodging properties;

one gaming property;

three cultural properties; and

seven fitness & wellness properties.

As of March 31, 2020, our owned Experiential real estate portfolio consisted of approximately 19.5 million square feet, was 98.3% leased and included $30.1 million in property under development and $24.6 million in undeveloped land inventory.

As of March 31, 2020, our legacy Education segment consisted of the following property types (owned or financed):

70 early childhood education center properties; and

16 private school properties.

As of March 31, 2020, our owned Education real estate portfolio consisted of approximately 1.9 million square feet, was 100% leased and included $3.5 million in undeveloped land inventory.

The combined owned portfolio consisted of 21.4 million square feet and was 98.4% leased.

COVID-19 Update

On March 11, 2020, the World Health Organization declared a novel strain of coronavirus (“COVID-19”) a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of COVID-19 on our business is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, and is severely impacting experiential real estate properties given that such properties rely on social interaction and discretionary consumer spending. Substantially all our tenants have announced temporary closures of their operations during this pandemic. The severity of the impact of COVID-19 on our business will depend on a

number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on consumers, all of which are uncertain and cannot be predicted. Many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 has negatively affected, and COVID-19 (or a future pandemic) could have material and adverse effects on, our ability to successfully operate and 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 impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on our results of operations for the three month period ended March 31, 2020, other than the following:

We recognized straight-line write-offs totaling $12.5 million, which was comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable. Straight-line rental revenue, net of write-offs, was a reduction to total ~~investments~~rental revenue of ~~$6.7 billion at September 30, 2017, $2.9 billion~~$9.7 million for the three months ended March 31, 2020.

We increased our expected credit losses by $1.2 million (an increase of approximately 50%) from our implementation estimate. This increase was primarily the result of the economic uncertainty and the rapidly changing environment surrounding the COVID-19 pandemic.

We reduced rental revenue by $1.5 million in rent abatements for certain of our tenants due to COVID-19.

Beginning with the quarter ended March 31, 2020, we will recognize revenue from American-Multi Cinema, Inc. (“AMC”) on a cash basis.

In reliance upon a FASB Staff Q&A, we intend to not treat deferrals or ~~43%~~rent concessions during the period effected by the COVID-19 pandemic as lease modifications. We will continue to evaluate the impacts of COVID-19 and its impact on our lease receivables and related accounting processes.

For the month of April 2020, tenants and borrowers paid approximately 15% of our contractual base rent and mortgage payments for the month. We agreed to defer rent and mortgage payments on a month-to-month basis for substantially all of our customers that did not pay rent for the month of April 2020. 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 will be 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, whiledeferred mortgage payments will be reflected as mortgage notes and related accrued interest receivable, less any allowance for credit loss. In limited cases, tenants may be entitled to the abatement of rent during governmentally imposed prohibitions on business operations. In cases where we provide abatements to tenants or borrowers to which they are not otherwise entitled, those amounts will be recognized in the period to which they relate.

In response to the impact of COVID-19, we took several actions. On March 20, 2020, we borrowed $750 million under our unsecured revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility considering the current uncertainty in the global markets. On March 24, 2020, our Board of Trustees (the "Board") announced approval of a limited share repurchase program in response to the extraordinary dislocation in our common share price. We may repurchase up to $150 million of our common shares, but there is no requirement that we repurchase a minimum number of common shares. The share repurchase program is scheduled to expire on December 31, 2020, however, we will suspend the program upon the effective date of the covenant modification agreements, as discussed below. Subsequent to March 31, 2020, we have repurchased 1,116,643 common shares under the share repurchase program for approximately $22.9 million. The repurchases were made under a Rule 10b5-1 trading plan. On March 24, 2020, we also announced the deferral of our anticipated gaming venue investment and revisions to our ~~Entertainment segment, $1.5 billion~~2020 anticipated investment spending to include only previously committed investment spending totaling approximately $100.0 million.

In addition, on May 6, 2020, we announced that we are in the process of negotiating modifications or ~~22% related~~waivers under certain of our debt agreements and, in connection therewith, we are temporarily suspending our cash dividends to

common shareholders and share repurchases. Because certain earnings and other financial covenants under our bank credit facilities and private placement notes are calculated based only on the most recent quarterly net operating income, we expect that we will not be in technical compliance (non-payment related) with such covenants at the end of the second quarter of 2020. Accordingly, we are in discussions with our lenders and private placement note holders to obtain a temporary suspension or modification of these covenants, with some suspended financial covenants expected to extend through the first quarter of 2021. We have received approval from the requisite lenders under our bank credit facilities that the bank lenders will temporarily suspend or modify these financial covenants, subject to our ~~Education segment, $2.1 billion or 32% related~~and such lenders' subsequent execution and delivery of a definitive agreement. As a part of this process, we also will temporarily suspend our monthly cash dividend to common shareholders after the common share dividend payable May 15, 2020 (except as may be necessary to maintain REIT status and to not owe income tax) and will suspend our share repurchase plan upon the effective date of the covenant modification agreements with our bank lenders and holders of our private placement notes, which is expected to occur in the next 30 days. We have determined it is probable that the definitive agreement with our bank lenders will be completed and executed. While not anticipated, events and conditions could influence the timing and completion of this agreement. In addition, there can be no assurances as to our ~~Recreation segment and $179.0 million~~ability to reinstitute cash dividend payments to common shareholders or ~~3% related to our Other segment.~~

share repurchases or the timing thereof.

Operating Results

Our total revenue from continuing operations, net income 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, 2017~~March 31, 2020 and ~~2016~~2019 (in millions, except per share information):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017		2016		Increase		2017		2016		Increase		2020		2019		Change
Total revenue (1)	$	151.4	$	125.6	21	%	$	428.3	$	362.4	18	%
Total revenue from continuing operations													$	151.0	$	150.5	—	%
Net income available to common shareholders per diluted share ~~(2)~~	0.77		0.81		-5	%	2.55		2.35		9	%	$	0.40	$	0.79	(49	)%
FFOAA per diluted share ~~(3)~~	1.26		1.23		2	%	3.73		3.56		5	%	$	0.97	$	1.36	(29	)%

~~(1) Total revenue~~The major factors impacting our results for the three ~~and nine~~ months ended ~~September 30, 2017 versus~~March 31, 2020, as compared to the three ~~and nine~~ months ended ~~September 30, 2016 was favorably impacted by~~March 31, 2019 were as follows:

(2) Net income available to common shareholders per diluted share for the three and nine months ended September 30, 2017 versus the three and nine months ended September 30, 2016 was also impacted by the items affecting total revenue as described above. Additionally, net income available to common shareholders per diluted share for the three and nine months ended September 30, 2017 versus the three and nine months ended September 30, 2016 was favorably impacted by lower transaction costs. Net income available to common shareholders per diluted share for the three and nine months ended September 30, 2017 versus the three and nine months ended September 30, 2016 was unfavorably impacted by increases in interest expense, costs associated with loan refinancing or payoff, general and administrative expense, bad debt expense and common shares outstanding primarily due to shares issued in connection with the transactions with CNL Lifestyle and OZRE. Additionally, net income available to common shareholders per diluted share for the nine months ended September 30, 2017 versus the nine months ended September 30, 2016 was favorably impacted by higher gains on sale of real ~~estate~~estate; and ~~a gain on early extinguishment of debt recognized in 2017. Net~~

income available to common shareholders per diluted share for the nine months ended September 30, 2017 versus the nine months ended September 30, 2016 was unfavorably impacted by a $10.2 million impairment charge recognized in 2017 and anThe increase in ~~income tax expense.~~

(3) FFOAA per diluted share for the three and nine months ended September 30, 2017 versus the three and nine months ended September 30, 2016 was favorably impacted by the effect of investment spending in 2017 and 2016, including our transaction with CNL Lifestyle and OZRE which closed on April 6, 2017, and termination fees recognized with the exercise of tenant purchase options. FFOAA per diluted share for the three and nine months ended September 30, 2017 versus the three and nine months ended September 30, 2016 was unfavorably impacted by increases in interest expense, general and administrative expense, bad debt expense and common shares outstanding ~~primarily due to shares issued in connection with the transactions with CNL Lifestyle and OZRE,~~ as ~~well as property dispositions and note payoffs that occurred in 2017 and 2016. FFOAA per diluted share for the nine months ended September 30, 2016 was favorably impacted by~~ a ~~$3.6 million prepayment fee from the early payoff~~result of ~~a mortgage note secured by a public charter school property.~~new issuances.

For further detail on items impacting our operating results, see 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 section below titled "Non-GAAP Financial Measures."

Critical Accounting Policies

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.~~liabilities and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to ~~consolidation, revenue recognition, depreciable lives of the real estate,~~ the valuation of real estate, accounting for real estate acquisitions, ~~estimating reserves for uncollectible~~assessing the collectibility of receivables and the ~~accounting for~~credit loss related to mortgage and other notes ~~receivable, all of which are described as our critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2016.~~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, 2019. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, there were no changes to critical accounting policies except for that noted in the COVID-19 discussion above and as noted below.

~~Accounting for Acquisitions~~Collectibility of Mortgage and Notes Receivables

~~Upon acquisition~~Our mortgage and notes receivables consist of loans originated by us and the related accrued and unpaid interest income. We regularly evaluate the collectibility of our receivables by reviewing past due balances and considering such factors as the credit quality of our borrowers, historical trends of the borrower, our historical loss experience, current portfolio, market and economic conditions and changes in borrower payment terms. We estimate our current expected credit losses on a loan by loan basis using a forward looking commercial real estate ~~properties,~~forecasting tool. We record credit loss expense and reduce our mortgage note and note receivables balances by the allowance for credit losses on a quarterly basis in accordance with ASC 326. In the event we ~~evaluate~~have a past due mortgage note or note receivable and foreclosure is probable, we measure expected credit losses based on the ~~acquisition~~fair value of the collateral. If foreclosure is deemed probable, and we expect to sell rather than operate the collateral, we adjust the fair value of the collateral for the estimated costs to sell. Prior to 2020, we evaluated the collectibility of our mortgage and notes receivables to determine whether the loan was impaired and if it is a business combination or an asset acquisition. In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-01, Business Combinations (Topic 805): ~~Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance~~was probable that we would be unable to assist entities with evaluating whether acquisitions should be accounted for as business combinations or asset acquisitions. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. We have elected to early adopt ASU 2017-01~~as of January 1, 2017. As a result, we expect that fewer of our real estate acquisitions will be accounted for as business combinations.~~

~~Costs incurred for asset acquisitions and development properties, including transaction costs, are capitalized. For asset acquisitions, we allocate the purchase price and other related costs incurred~~collect all amounts due according to the real estate assets acquired based on recent independent appraisals or methods similar to those used by independent appraisers and management judgment. Acquisition-related costs in connection with business combinations are expensed as incurred. Costs related to such transactions, as well as costs associated with terminated transactions, are included in the accompanying consolidated statements of income as transaction costs.contractual terms.

During the nine months ended September 30, 2017, we prepaid in full nine mortgage notes payable totaling $73.0 million that were secured by nine theatre properties. In addition, we prepaid in full a mortgage note payable of $87.0 million that was secured by 11 theatre properties. In connection with this note payoff, we recorded a gain on early extinguishment of debt of $1.0 million for the nine months ended September 30, 2017. The gain represents the difference between the carrying value of the note and the amount due at payoff as the note was recorded at fair value upon acquisition and was not anticipated to be paid off in advance of maturity.

On May 23, 2017, we issued $450.0 million in aggregate principal amount of senior notes due on June 1, 2027 pursuant to an underwritten public offering. The notes bear interest at an annual rate of 4.50%. Interest is payable on June 1 and December 1 of each year beginning on December 1, 2017 until the stated maturity date of June 1, 2027. The notes were issued at 99.393% of their face value and are unsecured. We used the net proceeds from the note offering to pay down our unsecured revolving credit facility, invest in mortgage notes secured by education properties and for general business purposes.

On August 30, 2017, we refinanced our variable-rate bonds payable totaling $25.0 million which are secured by three theatre properties. The maturity date was extended from October 1, 2037 to August 1, 2047 and the outstanding principal balance and interest rate were not changed.

~~On September 27, 2017, we amended our unsecured consolidated credit agreement which governs our unsecured revolving credit facility and our unsecured term loan facility.~~

The amendments to the unsecured revolving portion of the credit facility, among other things, (i) increase the initial maximum available amount from $650.0 million to $1.0 billion, (ii) extend the maturity date from April 24, 2019, to February 27, 2022 (with us having the right to extend the loan for an additional seven months) and (iii) lower the interest rate and facility fee pricing based on a grid related to our senior unsecured credit ratings which at closing was LIBOR plus 1.00% and 0.20%, versus LIBOR plus 1.25% and 0.25%, respectively, under the previous terms. In connection with the amendment, $19 thousand of deferred financing costs (net of accumulated amortization) were written off during the three months ended September 30, 2017 and are included in costs associated with loan refinancing. At September 30, 2017, the we had $170.0 million outstanding under this portion of the facility.

The amendments to the unsecured term loan portion of the credit facility, among other things, (i) increase the initial amount from $350.0 million to $400.0 million, (ii) extend the maturity date from April 24, 2020, to February 27, 2023 and (iii) lower the interest rate based on a grid related to our senior unsecured credit ratings which at closing was LIBOR plus 1.10% versus LIBOR plus 1.40% under the previous terms. In connection with the amendment, $1.5 million of deferred financing costs (net of accumulated amortization) were written off during the three months ended September 30, 2017 and are included in costs associated with loan refinancing. At closing, we borrowed the remaining $50.0 million available on the $400.0 million term loan portion of the facility, which was used to pay down a portion of our unsecured revolving credit facility.

In addition, there is a $1.0 billion accordion feature on the combined unsecured revolving credit and term loan facility that increases the maximum amount available under the combined facility, subject to lender approval, from $1.4 billion to $2.4 billion. If we exercise all or any portion of the accordion feature, the resulting increase in the facility may have a shorter or longer maturity date and different pricing terms.

In connection with the amendment to the unsecured consolidated credit agreement, the obligations of our subsidiaries that were co-borrowers under our prior senior unsecured revolving credit and term loan facility were released. As a result, simultaneously with the amendment, the guarantees by our subsidiaries that were guarantors with respect to our outstanding 4.500% Senior Notes due 2027, 4.750% Senior Notes due 2026, 4.500% Senior Notes due 2025, 5.250% Senior Notes due 2023, 5.750% Senior Notes due 2022, and 7.750% Senior Notes due 2020 were released in accordance with the terms of the applicable indentures governing such notes.

In addition, the guarantees by our subsidiaries that were guarantors of our outstanding 4.35% Series A Guaranteed Senior Notes due August 22, 2024 and 4.56% Series B Guaranteed Senior Notes due August 22, 2026 (referred to herein as the "private placement notes") were also released. The foregoing release was effected by us entering into an amendment to the Note Purchase Agreement, dated as of September 27, 2017. The amendment to the private placement notes releases our subsidiary guarantors as described above and among other things: (i) amends certain financial and other covenants and provisions in the Note Purchase Agreement to conform generally to the corresponding covenants and provisions contained in the amended unsecured consolidated credit agreement; (ii) provides the investors thereunder certain additional guaranty and lien rights, in the event that certain subsequent events occur; (iii) expands the scope of the “most favored lender” covenant contained in the Note Purchase Agreement; and (iv) imposes restrictions on debt that can be incurred by certain of our subsidiaries.

On October 31, 2017, we entered into three interest rate swap agreements to fix the interest rate at 3.15% on an additional $50.0 million of our unsecured term loan facility from November 6, 2017 to April 4, 2019 and on $350.0 million of the unsecured term loan facility from April 5, 2019 to February 7, 2022.

~~Issuance of Common Shares~~

During the nine months ended September 30, 2017, we issued an aggregate of 928,219 common shares under the direct share purchase component of our Dividend Reinvestment and Direct Share Purchase Plan ("DSPP") for total net proceeds of $67.9 million. These proceeds were used to pay down a portion of our unsecured revolving credit facility.

~~During the nine months ended September 30, 2017, we also issued 8,851,264 common shares in connection with our transaction with CNL Lifestyle and OZRE.~~

Our investment spending during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and 2019 totaled ~~$1.5 billion, and included investments in each of our four operating segments.~~

Entertainment investment spending during the nine months ended September 30, 2017 totaled $264.9 million, including spending on build-to-suit development and redevelopment of megaplex theatres, entertainment retail centers and family entertainment centers, as well as $154.1 million in acquisitions of six megaplex theatres.

Recreation investment spending during the nine months ended September 30, 2017 totaled $951.6 million, including the transaction with CNL Lifestyle and OZRE valued at $730.8 million discussed below. Additionally, included in recreation investment spending was build-to-suit development of golf entertainment complexes and attractions, redevelopment of ski areas, $51.9 million in acquisitions of five other recreation facilities, and an investment of $10.7 million in a mortgage note secured by one other recreation facility.

On April 6, 2017, we completed a transaction with CNL Lifestyle and OZRE. We acquired the Northstar California Resort, 15 attraction properties (waterparks and amusement parks), five small family entertainment centers and certain related working capital for aggregate consideration valued at $479.8 million, including final purchase price adjustments. Additionally, we provided $251.0 million of secured debt financing to OZRE for its purchase of 14 CNL Lifestyle ski properties valued at $374.5 million. Subsequent to the transaction, we sold the five family entertainment centers for approximately $6.8$41.9 million and ~~one waterpark for approximately $2.5 million. No gain or loss was recognized on these sales. See Note 4 for further information.~~

~~Other investment spending during the nine months ended September 30, 2017 totaled $1.0~~$174.6 million, respectively, and ~~was related to the Adelaar casino and resort project in Sullivan County, New York.~~

~~The following table details our investment spending by category during the nine months ended September 30, 2017 and 2016~~is detailed below (in thousands):

The above amounts include ~~$110~~$5 thousand and ~~$129~~$11 thousand in capitalized payroll, ~~$7.8~~$0.3 million and ~~$8.0~~$3.1 million in capitalized interest and ~~$3.2 million~~$39 thousand and ~~$1.2 million~~$115 thousand in capitalized other general and administrative direct project costs for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. Excluded from the table above is approximately ~~$3.7~~$0.9 million and ~~$3.1~~$6.8 million of maintenance capital expenditures ~~for the nine months ended September 30, 2017~~ and ~~2016, respectively. In addition, excluded from the table above is $17.1 million of infrastructure~~other spending for the ~~Adelaar casino and resort project for the nine~~three months ended ~~September 30, 2016.~~March 31, 2020 and 2019, respectively.

~~Property~~ Dispositions

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, we completed the sale of ~~four entertainment~~two early education properties for net proceeds totaling ~~$72.3~~$2.9 million. In connection with these sales, we recognized a combined gain on sale of ~~$19.4~~$0.2 million.

During the nine months ended September 30, 2017, pursuant to tenant purchase options, we completed the sale of five public charter schools located in Colorado, Arizona and Utah for net proceeds totaling $44.8 million. In connection with these sales, we recognized a gain on sale of $7.2 million. Additionally, we completed the sale of two other education facilities for net proceeds of $9.8 million. In connection with these sales, we recognized a gain on sale of $1.9 million.

~~Mortgage Notes Receivable~~

During the nine months ended September 30, 2017, we received a partial prepayment of $4.0 million on one mortgage note receivable that is secured by the observation deck of the John Hancock building in Chicago, Illinois. In connection with the partial prepayment of this note, we received a prepayment fee of $800.0 thousand, which is being recognized over the term of the remaining note using the effective interest method.

~~Investment in a Direct Financing Lease~~

As previously discussed, we are committed to increasing the tenant diversity of our public charter school portfolio and reducing the concentration with Imagine Schools, Inc. ("Imagine"). As part of this effort, we have engaged various brokers to help in this process and part of their feedback included the need for additional lease term on these assets. During the three months ended September 30, 2017, we entered into revised lease terms with Imagine which reduced rental payments and the lease term on six properties. In exchange for lowering the existing annual cash payments by approximately $0.5 million and reducing the remaining lease term to 10 years, Imagine agreed that upon the sale of these properties, they would enter into new 20-year leases with the buyer(s). While we believe the restructure will aid in the disposition of these assets, the changes resulted in the lease structure no longer being classified as a direct financing lease. Accordingly, we recorded an impairment charge of $9.6 million during the nine months ended September 30, 2017, which included an allowance for lease loss of $7.3 million and an impairment charge of $2.3 million related to the estimated unguaranteed residual value.

Additionally, during the nine months ended September 30, 2017, we performed our annual review of the estimated unguaranteed residual value on our other properties leased to Imagine and determined that the residual value on one of these properties was impaired. As such, we recorded an impairment of the unguaranteed residual value of $0.6 million during the nine months ended September 30, 2017.

~~Early Childhood Education Tenant Update~~

As previously disclosed, the cash flow of one of our early childhood education tenants has been negatively impacted by challenges brought on by its rapid expansion and related ramp up to stabilization. We are currently negotiating a restructuring which has been complicated by the impact of recent extreme weather events and the tenant having multiple landlords. However, we believe we have made significant progress. We have accrued rent for this tenant during 2017 at levels that approximate our estimate of the final restructured reduced rent amounts which are expected to be made effective as of the beginning of 2017. Accrued rent and property taxes, less rent payments received, resulted in accounts receivable of approximately $5.4 million at September 30, 2017. Additionally, we have accrued straight-line rent receivable related to this tenant of approximately $9.0 million at September 30, 2017. In October 2017, we terminated nine leases with the tenant, seven of which have completed construction and two of which are unimproved land. There were only $64 thousand outstanding receivables related to these properties and such amounts were fully reserved at September 30, 2017. The tenant continues to operate these properties (other than the two unimproved properties) as a holdover tenant. We will continue to consider whether these and other properties should be leased to other operators based on results of the restructuring process.

Results of Operations

Three months ended ~~September 30, 2017~~March 31, 2020 compared to ~~three months ended September 30, 2016~~

~~Rental revenue was $122.8 million for~~ the three months ended ~~September 30, 2017 compared to $102.3 million for~~March 31, 2019

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

(1) For the three months ended ~~September 30, 2016. This~~March 31, 2020 compared to the three months ended March 31, 2019, the increase in minimum rent resulted ~~primarily~~ from ~~$23.5~~$9.0 million of rental revenue related to property acquisitions and developments completed in ~~2017~~2020 and ~~2016, including our transaction with CNL Lifestyle which closed on April 6, 2017,~~2019. This was partially offset by a decrease of ~~$3.0~~$1.1 million from property dispositions not classified in discontinued operations. In addition, there was a net decrease of $0.2 million in rental revenue on existing properties which included the impact of $1.5 million in rent abatements for certain of our tenants due ~~primarily~~ to ~~property dispositions. Percentage rents of $2.2 million and $1.7 million were recognized during~~ the three months ended September 30, 2017 and 2016, respectively. Straight-line rents of $2.4 million and $4.6 million were recognized during the three months ended September 30, 2017 and 2016, respectively.COVID-19 pandemic.

During the three months ended ~~September 30, 2017, we renewed 19~~March 31, 2020, there were no significant lease ~~agreements~~renewals on ~~approximately 1.6~~existing properties.

(2) The decrease in straight-line rent resulted primarily from write-offs totaling $12.5 million square feet and funded or agreed to fund an average of $22.58 per square foot in tenant improvements. We experienced an increase of approximately 16.43% in rental rates and paid no leasing commissions with respect to these lease renewals.

Other income was $0.5 million for the three months ended September 30, 2017 compared to $2.5 million for the three months ended September 30, 2016. The $2.0 million decrease was primarily due to a gain from an insurance claim recognized during the three months ended ~~September 30, 2016.~~March 31, 2020, which was comprised of $4.5 million of straight-line accounts receivable and $8.0 million of sub-lessor ground lease straight-line accounts receivable due to the COVID-19 pandemic. This was partially offset by an increase in straight-line rent related to property acquisitions and developments completed in 2020 and 2019.

(3) The decrease in tenant reimbursements during the three months ended March 31, 2020 related to a decrease in the gross-up of tenant reimbursed expenses for property taxes at our gaming property as well as our early education properties that were transferred from CLA to Creme as these tenants are now paying these costs directly. In addition, we had lower tenant reimbursements at our entertainment districts and other specialty properties during the three months ended March 31, 2020 compared to three months ended March 31, 2019.

The ~~$7.3 million increase was primarily due to additional real estate lending activities during 2017~~following table summarizes our expenses and ~~2016, including our investment~~other line items (dollars in a mortgage note receivable with OZRE secured by 14 ski properties which closed on April 6, 2017. This increase was partially offset by the sale of nine public charter school properties that were accounted for as direct financing leases during 2016.thousands):



	Three Months Ended March 31,						Change
	2020			2019
Property operating expense (1)	$	13,093		$	15,551		$	(2,458	)
Other expense (2)	9,534			—			9,534
General and administrative expense	10,988			11,710			(722		)
Severance expense	—			420			(420		)
Interest expense, net	34,753			33,963			790
Transaction costs (3)	1,075			5,123			(4,048		)
Credit loss expense	1,192			—			1,192
Depreciation and amortization (4)	43,810			36,002			7,808
Equity in (loss) income from joint ventures	(420		)	489			(909		)
Gain (loss) on sale of real estate	220			(388		)	608
Income tax benefit	751			605			146
Income from discontinued operations before other items (5)	—			10,169			(10,169		)
Gain on sale of real estate from discontinued operations (6)	—			6,716			(6,716		)
Preferred dividend requirements	(6,034		)	(6,034		)	—

~~Our general and administrative expense totaled $12.1 million~~ for the three months ended ~~September 30, 2017 compared~~March 31, 2020 related to ~~$9.1 million~~operating expenses for the Kartrite Resort, as well as the operating expense for a theatre.

~~Costs associated with loan refinancing or payoff for~~ the three months ended ~~September 30, 2017~~March 31, 2019 was ~~$1.5 million and were~~primarily due to pre-opening costs related to the amendment to our unsecured revolving credit facility and term loan. Costs associated with loan refinancing or payoff for the three months ended September 30, 2016 was $14 thousand and related to fees associated with the repayment of secured fixed rate mortgage notes payable.Kartrite Resort, which opened in May 2019.

Our net interest expense increased by $9.9 million to $34.2 million for the three months ended September 30, 2017 from $24.3 million for the three months ended September 30, 2016. This increase resulted from an(4) The increase in ~~average borrowings used to finance our real estate acquisitions and fund our mortgage notes receivable.~~

Transaction costs totaled $0.1 million for the three months ended September 30, 2017 compared to $2.9 million for the three months ended September 30, 2016. The decrease of $2.8 million was due to a decrease in potential and terminated transactions as well as our early adoption of ASU 2017-01.

~~Depreciation~~depreciation and amortization expense ~~totaled $34.7 million for the three months ended September 30, 2017 compared to $27.6 million for the three months ended September 30, 2016. The $7.1 million increase~~ resulted primarily from acquisitions and developments completed in ~~2017~~2019 and ~~2016, including our transaction with CNL Lifestyle which closed on April 6, 2017. This increase~~2020 and was partially offset by property ~~dispositions.~~dispositions that occurred during 2019 and 2020.

(5) Income from discontinued operations before other items for the three months ended March 31, 2019 related to the operating results of public charter school investments disposed in 2019. See Note 13 to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on discontinued operations.

(6) Gain on sale of real estate ~~was $1.0 million~~from discontinued operations for the three months ended ~~September 30, 2017 and related~~March 31, 2019 was due to the ~~exercise~~disposition of atwo public charter schools pursuant to tenant purchase ~~option on a~~options and two other public charter school ~~property. Gain on sale of real estate was $1.6 million for~~properties sold during the three months ended ~~September 30, 2016 and related to the exercise of a tenant purchase option on one of our public charter school properties and the sale of a parcel of land adjacent to one of our megaplex theatres.~~March 31, 2019.

~~Nine Months Ended September 30, 2017 compared to nine months ended September 30, 2016~~

Rental revenue was $349.3 million for the nine months ended September 30, 2017 compared to $292.1 million for the nine months ended September 30, 2016. This increase resulted primarily from $58.4 million of rental revenue related to property acquisitions and developments completed in 2017 and 2016, including our transaction with CNL Lifestyle which closed on April 6, 2017, partially offset by a decrease of $1.2 million in rental revenue due primarily to property dispositions. Percentage rents of $4.7 million and $2.7 million were recognized during the nine months ended September 30, 2017 and 2016, respectively. Straight-line rents of $11.4 million and $10.9 million were recognized during the nine months ended September 30, 2017 and 2016, respectively.

During the nine months ended September 30, 2017, we renewed 26 lease agreements on approximately 2.2 million square feet and funded or agreed to fund an average of $27.20 per square foot in tenant improvements. We experienced an increase of approximately 15.23% in rental rates and paid no leasing commissions with respect to these lease renewals.

Other income was $2.5 million for the nine months ended September 30, 2017 compared to $5.8 million for the nine months ended September 30, 2016. The $3.3 million decrease was primarily due to a higher gain from an insurance claim recognized during the nine months ended September 30, 2016.

Mortgage and other financing income for the nine months ended September 30, 2017 was $65.0 million compared to $52.9 million for the nine months ended September 30, 2016. The $12.1 million increase was primarily due to additional real estate lending activities during 2017 and 2016, including our investment in a mortgage note receivable with OZRE secured by 14 ski properties which closed on April 6, 2017. This increase was offset by a $3.6 million prepayment fee we received in conjunction with the full prepayment of one mortgage note receivable during the nine months ended September 30, 2016, as well as the sale of nine public charter school properties that were accounted for as direct financing leases during 2016.

Our property operating expenses totaled $18.8 million for the nine months ended September 30, 2017 compared to $16.7 million for the nine months ended September 30, 2016. These property operating expenses arise from the operations of our retail centers and other specialty properties. The $2.1 million increase resulted primarily from an increase in bad debt expense, as well as higher property operating expenses at our multi-tenant properties.

Our general and administrative expense totaled $33.8 million for the nine months ended September 30, 2017 compared to $27.3 million for the nine months ended September 30, 2016. The increase of $6.5 million primarily related to an increase in payroll and benefits costs, including share based compensation, as well as an increase in professional fees.

Costs associated with loan refinancing or payoff for the nine months ended September 30, 2017 was $1.5 million and related to the amendment to our unsecured revolving credit facility and term loan and the prepayment of secured fixed rate mortgage notes payable. Costs associated with loan refinancing or payoff for the nine months ended September 30, 2016 was $0.9 million and related to fees associated with the repayment of secured fixed rate mortgage notes payable and the write off of prepaid mortgage fees in conjunction with our borrowers' prepayment of two mortgage notes receivable.

Gain on early extinguishment of debt for the nine months ended September 30, 2017 was $1.0 million and related to a note payoff in advance of maturity that was initially recorded at fair value upon acquisition. There was no gain on early extinguishment of debt for the nine months ended September 30, 2016.

Our net interest expense increased by $27.6 million to $97.9 million for the nine months ended September 30, 2017 from $70.3 million for the nine months ended September 30, 2016. This increase resulted from an increase in average borrowings as well as an increase in the weighted average interest rate used to finance our real estate acquisitions and fund our mortgage notes receivable.

Transaction costs totaled $0.4 million for the nine months ended September 30, 2017 compared to $4.9 million for the nine months ended September 30, 2016. The decrease of $4.5 million was due to a decrease in potential and terminated transactions as well as our early adoption of ASU 2017-01.

Impairment charges for the nine months ended September 30, 2017 totaled $10.2 million and related to six charter school properties previously included in our investment in a direct financing lease. There were no impairment charges for the nine months ended September 30, 2016. See Note 6 for further information.

Depreciation and amortization expense totaled $95.9 million for the nine months ended September 30, 2017 compared to $79.2 million for the nine months ended September 30, 2016. The $16.7 million increase resulted primarily from acquisitions and developments completed in 2017 and 2016, including our transaction with CNL Lifestyle which closed on April 6, 2017. This increase was partially offset by property dispositions.

Gain on sale of real estate was $28.5 million for the nine months ended September 30, 2017 and related to the sale of four entertainment properties, the exercise of five tenant purchase options on public charter school properties and the sale of two other education properties. Gain on sale of real estate was $3.9 million for the nine months ended September 30, 2016 and related to the exercise of two tenant purchase options on public charter school properties and the sale of a parcel of land adjacent to a megaplex theatre.

Income tax expense was $2.0 million for the nine months ended September 30, 2017 compared to $0.6 million for the nine months ended September 30, 2016 and related primarily to Canadian income taxes on our Canadian trust and Federal income taxes on our taxable REIT subsidiaries, as well as state income taxes and withholding tax for distributions related to our unconsolidated joint venture projected located in China. The $1.4 million increase in expense related primarily to the reversal of a valuation allowance associated with the taxable REIT subsidiaries, deferred tax assets recorded in the nine months ended September 30, 2016, as well as higher deferred tax expense in 2017 related to our Canadian trust.

Liquidity and Capital Resources

Cash and cash equivalents were ~~$11.4 million~~$1.2 billion at ~~September 30, 2017.~~March 31, 2020. In addition, we had restricted cash of ~~$24.3~~$4.6 million at ~~September 30, 2017.~~March 31, 2020. Of the restricted cash at ~~September 30, 2017, $20.6~~March 31, 2020, $4.1 million related to cash held for our borrowers’ debt service reserves for mortgage notes receivable or tenants' off-season rent reserves and ~~$3.6~~$0.5 million primarily related to escrow deposits held for potential acquisitions and redevelopments. ~~The remaining $0.1 million was required in connection with our debt outstanding and related to debt service, payment of real estate taxes and capital improvements.~~

Mortgage Debt, Senior Notes, ~~and~~ Unsecured Revolving Credit Facility, Unsecured Term Loan Facility and ~~Equity Issuances~~Share Repurchase Program

At ~~September 30, 2017,~~March 31, 2020, we had total debt outstanding of ~~$3.0~~$3.9 billion of which 99% was unsecured.

At ~~September 30, 2017~~March 31, 2020, we had outstanding ~~$2.1~~$2.4 billion in aggregate principal amount of unsecured senior notes (excluding the private placement notes discussed below) ranging in interest rates from ~~4.50%~~3.75% to ~~7.75%~~5.25%. 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 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.

~~On September 27, 2017, we amended and restated our unsecured revolving credit and term loan facilities. We also amended our private placement notes. See "Recent Developments" for further discussion.~~

At ~~September 30, 2017,~~March 31, 2020, we had ~~$170.0~~$750.0 million outstanding under our $1.0 billion unsecured revolving credit facility ~~with $830.0 million of availability and~~ with interest at a floating rate of LIBOR plus 100 basis points, which was ~~2.24%~~1.77% at ~~September 30, 2017.~~March 31, 2020.

At ~~September 30, 2017,~~March 31, 2020, the unsecured term loan facility had a balance of $400.0 million with interest at a floating rate of LIBOR plus 110 basis points, which was ~~2.34%~~2.12% at ~~September 30, 2017, and $300.0 million~~March 31, 2020. As of March 31, 2020, all of this LIBOR-based debt ~~has been~~was fixed with interest rate swaps ~~at a blended rate of 2.64% through April 5, 2019. The loan matures on February 27, 2023.~~

On October 31, 2017, we entered into three interest rate swap agreements to fix the interest rate at 3.15% on an additional $50.0 million of the unsecured term loan facility from November 6, 2017 to April 4, 2019 and on $350.0 million of the unsecured facility from April 5, 2019 to February ~~27, 2022.~~7, 2022 at 3.15% for $350.0 million of borrowings and 3.35% for the remaining $50.0 million of borrowings.

At ~~September 30, 2017,~~March 31, 2020, we had outstanding $340.0 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 bearing interest at 4.35% and due August 22, 2024, and $192.0 million bearing interest at 4.56% and due August 22, 2026.

Our unsecured credit facilities and the private placement notes contain financial covenants or restrictions that limit our levels of consolidated debt, secured debt, investment levels outside certain categories 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. Additionally, these debt instruments contain cross-default provisions if we default under other indebtedness exceeding certain amounts. Those cross-default thresholds vary from $25.0 million to, in the case of the note purchase agreement governing the private placement notes, $75.0 million. We were in compliance with all financial covenants under our debt instruments at ~~September 30, 2017.~~March 31, 2020.

Our principal investing activities are acquiring, developing and financing ~~entertainment, education~~Experiential and ~~recreation~~Education properties. These investing activities have generally been financed with ~~mortgage debt and~~ 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.~~acquisitions or incur new mortgage debt on existing properties. We may also issue equity securities in connection with acquisitions. Continued growth of our ~~rental property~~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.

Certain of our other long-term debt agreements contain customary restrictive covenants related to financial and operating performance as well as certain cross-default provisions. We were in compliance with all financial covenants at ~~September 30, 2017~~.March 31, 2020. As discussed above, our operations have been negatively impacted by the COVID-19 pandemic. In addition, we expect that we will not be in technical compliance (non-payment related) with certain earnings and other financial covenants under our bank credit facilities and private placement notes at the end of the second quarter of 2020 because such covenants are calculated based only on the most recent quarterly net operating results. Accordingly, we are in discussions with our lenders and private placement note holders to obtain a temporary suspension or modification of these covenants, with some suspended financial covenants expected to extend through the first quarter of 2021. We have received approval from the requisite lenders under our bank credit facilities that the bank lenders will temporarily suspend or modify these financial covenants, subject to our and such lenders' subsequent execution and delivery of a definitive agreement. We have determined it is probable that the definitive agreement with our bank lenders will be

completed and executed. While not anticipated, events and conditions could influence the timing and completion of this agreement. In addition, nor can there be any assurances that we will be able to continue to comply with any modified financial covenants in future periods.

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, our Board of Trustees approved a share repurchase program to which we ~~issued an aggregate~~may repurchase up to $150.0 million of ~~928,219~~our common shares. The share repurchase program is scheduled to expire on December 31, 2020; however, we will suspend the program upon the effective date of the covenant modification agreements as discussed above. Under the share repurchase program, we may repurchase our common shares in the open market, through block trades, in privately negotiated transactions, pursuant to a trading plan separately adopted in the future, or by other means, in accordance with federal securities laws and other applicable laws. The actual timing, number and value of common shares repurchased under the share repurchase program will be determined by management at its discretion and will depend on a number of factors, including, but not limited to, the market price of our common shares, general market and economic conditions, our financial condition, and applicable legal requirements. We are not obligated to repurchase a minimum number of common shares under the ~~direct~~ share ~~purchase component of our DSPP for total net proceeds of $67.9 million. These proceeds were used~~repurchase program, and we may modify, suspend or terminate the share repurchase program at any time without prior notice. Subsequent to ~~pay down a portion of our unsecured revolving credit facility.~~

~~During the nine months ended September 30, 2017,~~March 31, 2020, we ~~issued 8,851,264~~repurchased 1,116,643 common shares ~~in connection with~~under the ~~transactions with CNL Lifestyle and OZRE. See Note 4~~share repurchase program for ~~further information.~~approximately $22.9 million. The repurchases were made under a Rule 10b5-1 trading plan.

Liquidity Requirements

Short-term liquidity requirements consist primarily of normal recurring corporate operating expenses, debt service requirements and distributions to ~~shareholders.~~shareholders and, to a lesser extent, share repurchases. We ~~meet~~have historically met these requirements primarily through cash provided by operating activities. ~~Net~~The table below summarizes our cash provided by operating activities was $300.3 million and $215.8 million for the nine months ended September 30, 2017 and 2016, respectively. Net cash used by investing activities was $635.1 million and $415.3 million for the nine months ended September 30, 2017 and 2016, respectively. Net cash provided by financing activities was $326.7 million and $202.6 million for the nine months ended September 30, 2017 and 2016, respectively. flows (dollars in thousands):

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

As discussed above, we have agreed to defer rent and mortgage payments on a month-to-month basis for substantially all of our customers that did not pay rent in April 2020 as a result of the COVID-19 pandemic. Accordingly, in the near term, we expect to fund our short-term liquidity requirements primarily with cash on hand, including funds borrowed under our unsecured revolving credit facility (assuming the covenant modifications discussed above are obtained).

As of ~~September 30, 2017,~~March 31, 2020, we had 10 development projects with commitments to fund an aggregate of approximately $202.4 million of commitments to fund development projects including 34 entertainment development projects for which we had commitments to fund approximately $97.0 million, nine education development projects for which we had commitments to fund approximately $40.9 million and six recreation development projects for which we had commitments to fund approximately $64.5$89.1 million, of which approximately ~~$65.9~~$49.4 million is expected to be funded in ~~2017 and the remainder is expected to be funded in 2018.~~2020. 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.

Additionally, as of September 30, 2017, we had a commitment to fund approximately $155.0 million over the next three years, of which $22.3 million had been funded, to complete an indoor waterpark hotel and adventure park at the Adelaar casino and resort project in Sullivan County, New York. We are also responsible for the construction of the casino and resort project common infrastructure. In June 2016, the Sullivan County Infrastructure Local Development Corporation issued $110.0 million of Series 2016 Revenue Bonds which is expected to fund a substantial portion of such construction costs. We received an initial reimbursement of $43.4 million of construction costs during the year ended December 31, 2016 and an additional reimbursement of $23.9 million during the nine months ended September 30, 2017. We expect to receive an additional $21.0 million of reimbursements over the balance of the construction period. Construction of infrastructure improvements is currently expected to be completed in 2018.

We have certain commitments related to our mortgage ~~note~~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 its direct control. As of ~~September 30, 2017,~~March 31, 2020, we had ~~eight~~two mortgage notes ~~receivable~~ with commitments

totaling approximately ~~$25.7~~$21.1 million. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

We have provided guarantees of the payment of certain economic development revenue bonds totaling $24.9 million related to two theatres in Louisiana for which we earn a fee at annual rates of 2.88% to 4.00% over the 30-year terms of the related bonds. We have recorded $10.4 million as a deferred asset included in other assets and $10.4 million included in other liabilities in the accompanying consolidated balance sheet as of September 30, 2017 related to these guarantees. No amounts have been accrued as a loss contingency related to these guarantees because payment by us is not probable.

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, 2017,~~March 31, 2020, we had ~~six~~two surety bonds outstanding totaling ~~$24.3~~$31.6 million.

~~In analyzing our liquidity,~~As noted above, we ~~expect that our cash provided by operating activities will meet our normal recurring operating expenses, recurring debt service requirements and distributions to shareholders.~~

~~We have no debt balloon payments coming due for the remainder of 2017. Our sources of liquidity as of September 30, 2017 to pay the above 2017 commitments include the remaining amount available~~had $750.0 million outstanding under our unsecured revolving credit ~~facility~~facility. We borrowed these funds on March 20, 2020 as ~~well as~~a precautionary measure to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets due to the COVID-19 pandemic. In addition, we deferred our anticipated gaming venue investment and all other uncommitted investment spending due to unfavorable market conditions. We believe our increased unrestricted cash ~~on hand~~position of ~~$11.4 million. Accordingly, while there can be no assurance, we expect that~~approximately $1.2 billion will strengthen our ~~sources~~balance sheet and aid us in this time of ~~cash will exceed our existing commitments over the remainder of 2017.~~market disruption.

We ~~also~~have no scheduled debt payments due until 2022. We currently believe that we will be able to repay, extend, refinance or otherwise settle our debt maturities ~~for 2018 and thereafter~~ 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.~~us, particularly in light of the current 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 (assuming the covenant modifications discussed above are obtained), 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.~~conditions, which have been negatively impacted by the COVID-19 pandemic. If we borrow the maximum amount available under our unsecured revolving credit facility or fail to obtain the covenant modifications discussed above, 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 EBITDA 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.

We expect to maintain our net debt to adjusted EBITDA ratio over the long-term between 4.6x to 5.6x. Our net debt to adjusted EBITDA ratio was ~~slightly above this range at 5.66x~~5.1x and our net debt to gross assets ratio was 38% as of ~~September 30, 2017~~March 31, 2020 (see "Non-GAAP financial measures" for ~~calculation)~~calculations). Because adjusted EBITDA as defined does not include the annualization of adjustments for projects put in service or acquired during the quarter, dispositions and other items, and net debt includes the debt provided for build-to-suit projects under development that do not have any current EBITDA, we also look at a ratio adjusted for these ~~items, which was within the range at September 30, 2017.~~items. The level of this additional ratio, along with the timing and size of our equity and debt offerings as well as dispositions, may cause us to temporarily operate outside our stated range for the net debt to adjusted EBITDA ratio of 4.6x to 5.6x. In addition, the COVID-19 disruption may also cause us to operate outside of this range for a period of time.

Our net debt (see "Non-GAAP Financial Measures" for definition) to gross assets ratio (i.e. net debt to total assets plus accumulated depreciation less cash and cash equivalents) was 44% as of September 30, 2017. Our net debt as a percentage of our total market capitalization at September 30, 2017 was 35%. We calculate our total market capitalization of $8.5 billion by aggregating the following at September 30, 2017:

~~Common shares outstanding of 73,664,933 multiplied by the last reported sales price of our common shares on the NYSE of $69.74 per share, or $5.1 billion;~~

~~Aggregate liquidation value of our Series C convertible preferred shares of $135.0 million;~~

~~Aggregate liquidation value of our Series E convertible preferred shares of $86.2 million;~~

~~Aggregate liquidation value of our Series F redeemable preferred shares of $125.0 million; and~~

~~Net debt of $3.0 billion.~~

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 available to common shareholders, computed in accordance with GAAP, excluding gains and losses from ~~sales~~disposition of ~~depreciable operating properties~~real estate and impairment losses ~~of depreciable~~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 (gain) associated with loan refinancing or payoff, net, transaction costs, ~~retirement~~ severance expense, preferred share redemption costs, termination fees associated with tenants' exercises of public charter school buy-out options ~~impairment of direct financing lease (allowance for lease~~and credit loss ~~portion)~~expense and ~~provision for loan losses and~~ subtracting ~~gain on early extinguishment of debt, gain (loss) on sale of land, gain on insurance recovery and~~ deferred income tax ~~benefit (expense).~~(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;~~net and tenant allowances; and subtracting maintenance capital expenditures (including second generation tenant improvements and leasing commissions), straight-lined rental revenue, 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 a supplemental measure to GAAP net income 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, 2017~~March 31, 2020 and ~~2016~~2019 and reconciles such measures to net income available to common shareholders, the most directly comparable GAAP measure (unaudited, in thousands, except per share information):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
FFO:
Net income available to common shareholders of EPR Properties	$	57,003		$	51,575		$	179,550		$	148,986		$	31,084		$	59,315
Gain on sale of real estate (excluding land sale)	(997		)	(549		)	(28,462		)	(2,819		)
Gain on sale of real estate													(220		)	(6,328		)
Real estate depreciation and amortization	34,457			27,147			95,243			77,870			43,525			39,514
Allocated share of joint venture depreciation	55			56			163			174			383			555
Impairment of direct financing lease - residual value portion (1)	—			—			2,897			—
FFO available to common shareholders of EPR Properties	$	90,518		$	78,229		$	249,391		$	224,211		$	74,772		$	93,056

FFO available to common shareholders of EPR Properties	$	90,518		$	78,229		$	249,391		$	224,211		$	74,772		$	93,056
Add: Preferred dividends for Series C preferred shares	1,941			1,941			5,823			5,823			1,939			1,939
Add: Preferred dividends for Series E preferred shares													1,939			1,939
Diluted FFO available to common shareholders of EPR Properties	$	92,459		$	80,170		$	255,214		$	230,034		$	78,650		$	96,934
FFOAA:
FFO available to common shareholders of EPR Properties	$	90,518		$	78,229		$	249,391		$	224,211		$	74,772		$	93,056
Costs associated with loan refinancing or payoff	1,477			14			1,491			905
Gain on insurance recovery (included in other income)	—			(1,825		)	(606		)	(3,837		)
Transaction costs													1,075			5,123
Severance expense													—			420
Termination fee included in gain on sale	954			549			6,774			2,819			—			5,001
Gain on early extinguishment of debt	—			—			(977		)	—
Transaction costs	113			2,947			388			4,881
Gain on sale of land	—			(1,066		)	—			(1,066		)
Deferred income tax expense (benefit)	227			(44		)	911			(664		)
Impairment of direct financing lease - allowance for lease loss portion (1)	—			—			7,298			—
Credit loss expense													1,192			—
Deferred income tax benefit													(1,113		)	(609		)
FFOAA available to common shareholders of EPR Properties	$	93,289		$	78,804		$	264,670		$	227,249		$	75,926		$	102,991
FFOAA available to common shareholders of EPR Properties	$	93,289		$	78,804		$	264,670		$	227,249		$	75,926		$	102,991
Add: Preferred dividends for Series C preferred shares	1,941			1,941			5,823			5,823			1,939			1,939
Add: Preferred dividends for Series E preferred shares													1,939			1,939
Diluted FFOAA available to common shareholders of EPR Properties	$	95,230		$	80,745		$	270,493		$	233,072		$	79,804		$	106,869
AFFO:
FFOAA available to common shareholders of EPR Properties	$	93,289		$	78,804		$	264,670		$	227,249		$	75,926		$	102,991
Non-real estate depreciation and amortization	237			454			676			1,352			285			229
Deferred financing fees amortization	1,598			1,187			4,579			3,522			1,634			1,502
Share-based compensation expense to management and Trustees	3,605			2,778			10,566			8,282
Share-based compensation expense to management and trustees													3,509			3,177
Amortization of above and below market leases, net and tenant allowances													(152		)	(59		)
Maintenance capital expenditures ~~(2)~~(1)	(1,125		)	(805		)	(4,316		)	(3,805		)	(928		)	(297		)
Straight-lined rental revenue	(2,357		)	(4,597		)	(11,417		)	(10,950		)	9,708			(2,414		)
Non-cash portion of mortgage and other financing income	(905		)	(962		)	(2,361		)	(2,907		)	(91		)	(1,014		)
Amortization of above and below market leases, net and tenant improvements	(55		)	42			(41		)	138
AFFO available to common shareholders of EPR Properties	$	94,287		$	76,901		$	262,356		$	222,881		$	89,891		$	104,115
AFFO available to common shareholders of EPR Properties	$	94,287		$	76,901		$	262,356		$	222,881
Add: Preferred dividends for Series C preferred shares	1,941			—			5,823			—
Diluted AFFO available to common shareholders of EPR Properties	$	96,228		$	76,901		$	268,179		$	222,881

FFO per common share:
Basic													$	0.95		$	1.25
Diluted													0.95			1.23
FFOAA per common share:
Basic													$	0.97		$	1.38
Diluted													0.97			1.36
Shares used for computation (in thousands):
Basic													78,467			74,679
Diluted													78,476			74,725

Weighted average shares outstanding-diluted EPS													78,476			74,725
Effect of dilutive Series C preferred shares													2,232			2,145
Effect of dilutive Series E preferred shares													1,664			1,622
Adjusted weighted average shares outstanding-diluted Series C and Series E													82,372			78,492

Other financial information:
Dividends per common share													$	1.1325		$	1.1250

Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of income and comprehensive income included in this Quarterly Report on Form 10-Q. See Note 13 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information related to discontinued operations.

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 conversion of the 5.75% Series C cumulative convertible preferred shares and the 9.00% Series E cumulative convertible preferred shares would be dilutive to FFO and FFOAA per share for ~~the~~ three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019. Therefore, the additional ~~2.1 million and 2.0 million~~ common shares that would result from the conversion and the corresponding add-back of the preferred dividends declared on those shares are included in the calculation of diluted FFO and ~~diluted~~ FFOAA per share for the three and nine months ended September 30, 2017 and 2016, respectively. The effect of the conversion of our 9.0% Series E cumulative convertible preferred shares do not result in more dilution to per share results and are therefore not included in the calculation of diluted per share data for the three and nine months ended September 30, 2017 and 2016.these periods.

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 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.

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, 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 (gain) 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.

Management uses Adjusted EBITDA in its analysis of the performance of the business and operations of the Company. Management believes Adjusted EBITDA 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 EBITDA as ~~net income available to common shareholders~~EBITDAre (defined above) for the quarter excluding costs associated with loan refinancing or payoff, interest expense (net), depreciation and amortization, equity in (income) loss from joint ventures, gain (loss) on the sale of real estate, gain on early extinguishment of debt, gain on insurance recovery, income tax expense (benefit), preferred dividend requirements, the effect of non-cash impairment

~~charges, retirement~~ severance expense, ~~the provision for loan losses and~~credit loss expense, transaction costs ~~(benefit),~~ and ~~which~~prepayment fees. This number for the quarter is then multiplied by four to get an annual amount. For the three months ended March 31, 2020, Adjusted EBITDA was further adjusted to reflect the write-offs of straight-line rent receivables against rental revenue of $12.5 million related to the impact of the COVID-19 disruption.

Our method of calculating Adjusted EBITDA may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. Adjusted EBITDA 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 ~~for~~or any other GAAP measure as a measurement of the ~~purpose~~results of ~~evaluating the Company's performance~~our operations or to cash flows or liquidity as ~~a measure of liquidity.~~defined by GAAP.

Net Debt to Adjusted EBITDA Ratio

Net Debt to Adjusted EBITDA Ratio is a supplemental measure derived from non-GAAP financial measures that we use to evaluate our capital structure and the magnitude of our debt against our operating performance. We believe that investors commonly use versions of this ratio in a similar manner. In addition, financial institutions use versions of this ratio in connection with debt agreements to set pricing and covenant limitations. Our method of calculating Net Debt to Adjusted EBITDA may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

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

September 30,
2017 2016
Net Debt:
Debt $ 2,987,925
$ 2,248,576
Deferred financing costs, net 33,951
18,885
Cash and cash equivalents (11,412 ) (7,311 )
Net Debt $ 3,010,464
$ 2,260,150

Three Months Ended September 30,
2017 2016
Adjusted EBITDA:
Net income available to common shareholders of EPR Properties $ 57,003
$ 51,575
Costs associated with loan refinancing or payoff 1,477
14
Interest expense, net 34,194
24,265
Transaction costs 113
2,947
Depreciation and amortization 34,694
27,601
Equity in income from joint ventures (35 ) (203 )
Gain on sale of real estate (997 ) (1,615 )
Income tax expense 587
358
Preferred dividend requirements 5,951
5,951
Gain on insurance recovery (1) —
(1,825 )
Adjusted EBITDA (for the quarter) $ 132,987
$ 109,068

Adjusted EBITDA (2) $ 531,948
$ 436,272

Net Debt/Adjusted EBITDA Ratio 5.66
5.18

(1) Included in other income in the accompanying consolidated statements of income. Other income includes the following:
Three Months Ended September 30,
2017 2016
Income from settlement of foreign currency swap contracts $ 520
$ 643
Gain on insurance recovery —
1,825
Fee income 1
—
Miscellaneous income 1
8
Other income $ 522
$ 2,476

~~(2) Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount.~~



	March 31,
	2020			2019
Net Debt:
Debt	$	3,854,062		$	3,045,742
Deferred financing costs, net	35,933			32,838
Cash and cash equivalents	(1,225,122		)	(11,116		)
Net Debt	$	2,664,873		$	3,067,464


Gross Assets:
Total Assets	$	7,255,340		$	6,431,231
Accumulated depreciation	1,023,993			920,409
Cash and cash equivalents	(1,225,122		)	(11,116		)
Gross Assets	$	7,054,211		$	7,340,524

Net Debt to Gross Assets	38		%	42		%

	Three Months Ended March 31,
	2020			2019
EBITDAre and Adjusted EBITDA:
Net income	$	37,118		$	65,349
Interest expense, net	34,753			33,826
Income tax benefit	(751		)	(605		)
Depreciation and amortization	43,810			39,743
Gain on sale of real estate	(220		)	(6,328		)
Equity in loss (income) from joint ventures	420			(489		)
EBITDAre (for the quarter)	$	115,130		$	131,496

Severance expense	—			420
Transaction costs	1,075			5,123
Credit loss expense	1,192			—
Straight-line rental revenue write-offs (1)	12,532			—
Prepayment fees	—			(900		)
Adjusted EBITDA (for the quarter)	$	129,929		$	136,139

Adjusted EBITDA (2)	$	519,716		$	544,556

Net Debt/Adjusted EBITDA Ratio	5.1			5.6

Amounts above include the impact of discontinued operations, which are separately classified in the consolidated statements of income and comprehensive income included in this Quarterly Report on Form 10-Q.

(1) Included in rental revenue from continuing operations in the accompanying consolidated statements of income and comprehensive income. Rental revenue includes the following:
	Three Months Ended March 31,
	2020			2019
Minimum rent	$	138,219		$	130,497
Tenant reimbursements	3,698			6,102
Percentage rent	2,757			1,355
Straight-line rental revenue	2,824			2,245
Straight-line rental revenue write-offs	(12,532		)	—
Other rental revenue	77			93
Rental revenue	$	135,043		$	140,292

(2) Adjusted EBITDA for the quarter is multiplied by four to calculate an annual amount.

Total investments is a non-GAAP financial measure defined as the sum of the carrying values of ~~rental properties~~real estate investments (before accumulated depreciation), land held for development, property under development, mortgage notes receivable (including related accrued interest receivable), ~~investment in a direct financing lease, net,~~ 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):



	April 6, 2017
Rental properties, net	$	481,006
Mortgage notes and related accrued interest receivable	251,038
Tradenames (included in other assets)	6,355
Below market leases (included in accounts payable and accrued liabilities)	(7,611		)
Total investment	$	730,788

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		Additional paid-in capital		Treasury shares			Accumulated other comprehensive income (loss)			Distributions in excess of net income			Total
Balance at December 31, 2018	77,226,443	$	772	14,841,431	$	148	$	3,504,494	$	(130,728	)	$	12,085		$	(521,748	)	$	2,865,023
Restricted share units issued to Trustees	1,156	—		—	—		—		—			—			—			—
Issuance of nonvested shares, net of cancellations	197,755	2		—	—		4,831		(403		)	—			—			4,430
Purchase of common shares for vesting	—	—		—	—		—		(9,499		)	—			—			(9,499		)
Share-based compensation expense	—	—		—	—		3,177		—			—			—			3,177
Share-based compensation included in severance expense	—	—		—	—		103		—			—			—			103
Foreign currency translation adjustment	—	—		—	—		—		—			3,810			—			3,810
Change in unrealized gain on derivatives	—	—		—	—		—		—			(7,498		)	—			(7,498		)
Net income	—	—		—	—		—		—			—			65,349			65,349
Issuances of common shares	1,064,600	11		—	—		78,982		—			—			—			78,993
Stock option exercises, net	111,815	1		—	—		5,543		(6,276		)	—			—			(732		)
Dividends to common shareholders ($1.125 per share)	—	—		—	—		—		—			—			(84,343		)	(84,343		)
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, 2019	78,601,769	$	786	14,841,431	$	148	$	3,597,130	$	(146,906	)	$	8,397		$	(546,776	)	$	2,912,779



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
Issuance of nonvested 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 loss on derivatives	—	—		—	—		—		—			3,931			—			3,931
Credit loss expense for implementation of Current Expected Credit Loss standard	—	—		—	—		—		—			—			(2,163		)	(2,163		)
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



	September 30, 2017			December 31, 2016
Receivable from tenants	$	15,977		$	7,564
Receivable from non-tenants	128			497
Receivable from insurance proceeds	27			1,967
Receivable from Sullivan County Infrastructure Revenue Bonds	10,808			22,164
Straight-line rent receivable	73,657			67,618
Allowance for doubtful accounts	(1,384		)	(871		)
Total	$	99,213		$	98,939



	September 30, 2017			December 31, 2016
Total minimum lease payments receivable	$	113,956		$	215,753
Estimated unguaranteed residual value of leased assets	47,000			85,247
Less deferred income ⁽¹⁾	(103,258		)	(198,302		)
Less allowance for lease losses	—			—
Investment in a direct financing lease, net	$	57,698		$	102,698



	Amount
Year:
2017	$	1,545
2018	6,301
2019	6,490
2020	6,685
2021	6,885
Thereafter	86,050
Total	$	113,956



	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Income (numerator)			Shares (denominator)	Per Share Amount		Income (numerator)			Shares (denominator)	Per Share Amount
Basic EPS:
Income from continuing operations	$	62,954					$	197,405
Less: preferred dividend requirements	(5,951		)				(17,855		)
Net income available to common shareholders	$	57,003		73,663	$	0.77	$	179,550		70,320	$	2.55
Diluted EPS:
Net income available to common shareholders	$	57,003		73,663			$	179,550		70,320
Effect of dilutive securities:
Share options	—			61			—			65
Net income available to common shareholders	$	57,003		73,724	$	0.77	$	179,550		70,385	$	2.55



	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Income (numerator)			Shares (denominator)	Per Share Amount		Income (numerator)			Shares (denominator)	Per Share Amount
Basic EPS:
Income from continuing operations	$	57,526					$	166,841
Less: preferred dividend requirements	(5,951		)				(17,855		)
Net income available to common shareholders	$	51,575		63,627	$	0.81	$	148,986		63,296	$	2.35
Diluted EPS:
Net income available to common shareholders	$	51,575		63,627			$	148,986		63,296
Effect of dilutive securities:
Share options	—			120			—			97
Net income available to common shareholders	$	51,575		63,747	$	0.81	$	148,986		63,393	$	2.35



Exercise price range	Options outstanding	Weighted avg. life remaining	Weighted avg. exercise price		Aggregate intrinsic value (in thousands)
$ 19.02 - 19.99	11,097	1.6
20.00 - 29.99	—	—
30.00 - 39.99	1,428	2.3
40.00 - 49.99	86,863	4.3
50.00 - 59.99	75,939	6.1
60.00 - 69.99	81,036	7.4
70.00 - 76.63	2,215	9.4
	258,578	5.7	$	51.80	$	4,654



Balance Sheet Data:
	As of September 30, 2017
	Entertainment		Education		Recreation		Other		Corporate/Unallocated		Consolidated
Total Assets	$	2,343,778	$	1,489,459	$	2,057,172	$	193,766	$	48,835	$	6,133,010

	As of December 31, 2016
	Entertainment		Education		Recreation		Other		Corporate/Unallocated		Consolidated
Total Assets	$	2,168,669	$	1,308,288	$	1,120,498	$	202,394	$	65,173	$	4,865,022

Condensed Consolidating Balance Sheet As of September 30, 2017

	EPR Properties (Issuer)		Wholly Owned Subsidiary Guarantors		Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Rental properties, net	$	—	$	3,640,225	$	895,769	$	—		$	4,535,994
Land held for development	—		12,402		21,272		—			33,674
Property under development	—		236,916		47,295		—			284,211
Mortgage notes and related accrued interest receivable	—		963,738		8,633		—			972,371
Investment in a direct financing lease, net	—		57,698		—		—			57,698
Investment in joint ventures	—		—		5,616		—			5,616
Cash and cash equivalents	8,788		1,472		1,152		—			11,412
Restricted cash	395		23,599		329		—			24,323
Accounts receivable, net	675		89,230		9,308		—			99,213
Intercompany notes receivable	—		179,589		—		(179,589		)	—
Investments in subsidiaries	5,892,529		—		—		(5,892,529		)	—
Other assets	26,485		32,417		49,596		—			108,498
Total assets	$	5,928,872	$	5,237,286	$	1,038,970	$	(6,072,118	)	$	6,133,010
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	58,308	$	65,910	$	16,364	$	—		$	140,582
Dividends payable	30,997		—		—		—			30,997
Unearned rents and interest	—		69,615		15,583		—			85,198
Intercompany notes payable	—		—		179,589		(179,589		)	—
Debt	2,951,259		—		36,666		—			2,987,925
Total liabilities	3,040,564		135,525		248,202		(179,589		)	3,244,702
Total equity	2,888,308		5,101,761		790,768		(5,892,529		)	2,888,308
Total liabilities and equity	$	5,928,872	$	5,237,286	$	1,038,970	$	(6,072,118	)	$	6,133,010

Condensed Consolidating Balance Sheet As of December 31, 2016

	EPR Properties (Issuer)		Wholly Owned Subsidiary Guarantors		Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Rental properties, net	$	—	$	3,164,622	$	431,140	$	—		$	3,595,762
Land held for development	—		1,258		21,272		—			22,530
Property under development	1,010		247,239		48,861		—			297,110
Mortgage notes and related accrued interest receivable	—		612,141		1,837		—			613,978
Investment in a direct financing lease, net	—		102,698		—		—			102,698
Investment in joint ventures	—		—		5,972		—			5,972
Cash and cash equivalents	16,586		1,157		1,592		—			19,335
Restricted cash	365		8,352		1,027		—			9,744
Accounts receivable, net	556		89,145		9,238		—			98,939
Intercompany notes receivable	—		179,589		—		(179,589		)	—
Investments in subsidiaries	4,521,095		—		—		(4,521,095		)	—
Other assets	21,768		23,068		54,118		—			98,954
Total assets	$	4,561,380	$	4,429,269	$	575,057	$	(4,700,684	)	$	4,865,022
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	63,431	$	52,061	$	4,266	$	—		$	119,758
Dividends payable	26,318		—		—		—			26,318
Unearned rents and interest	—		46,647		773		—			47,420
Intercompany notes payable	—		—		179,589		(179,589		)	—
Debt	2,285,730		—		199,895		—			2,485,625
Total liabilities	2,375,479		98,708		384,523		(179,589		)	2,679,121
Total equity	2,185,901		4,330,561		190,534		(4,521,095		)	2,185,901
Total liabilities and equity	$	4,561,380	$	4,429,269	$	575,057	$	(4,700,684	)	$	4,865,022



Nine Months Ended September 30, 2017
Operating Segment	Total Investment Spending		New Development		Re-development		Asset Acquisition		Mortgage Notes or Notes Receivable
Entertainment	$	264,889	$	48,180	$	55,549	$	154,144	$	7,016
Education	238,667		104,842		—		38,293		95,532
Recreation	951,574		146,530		585		531,638		272,821
Other	1,002		1,002		—		—		—
Total Investment Spending	$	1,456,132	$	300,554	$	56,134	$	724,075	$	375,369

Nine Months Ended September 30, 2016
Operating Segment	Total Investment Spending		New Development		Re-development		Asset Acquisition		Mortgage Notes or Notes Receivable
Entertainment	$	198,228	$	24,512	$	25,710	$	126,006	$	22,000
Education	187,305		167,747		—		8,379		11,179
Recreation	140,017		90,505		1,836		—		47,676
Other	1,313		1,313		—		—		—
Total Investment Spending	$	526,863	$	284,077	$	27,546	$	134,385	$	80,855


~~(1)~~	Impairment charges recognized during the nine months ended September 30, 2017 total $10.2 million and related to our investment in a direct financing lease, net, consisting of $2.9 million related to the residual value portion and $7.3 million related to the allowance for lease loss portion. See Note 6 for further information.


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



	September 30,
	2017			2016
Net Debt:
Debt	$	2,987,925		$	2,248,576
Deferred financing costs, net	33,951			18,885
Cash and cash equivalents	(11,412		)	(7,311		)
Net Debt	$	3,010,464		$	2,260,150

	Three Months Ended September 30,
	2017			2016
Adjusted EBITDA:
Net income available to common shareholders of EPR Properties	$	57,003		$	51,575
Costs associated with loan refinancing or payoff	1,477			14
Interest expense, net	34,194			24,265
Transaction costs	113			2,947
Depreciation and amortization	34,694			27,601
Equity in income from joint ventures	(35		)	(203		)
Gain on sale of real estate	(997		)	(1,615		)
Income tax expense	587			358
Preferred dividend requirements	5,951			5,951
Gain on insurance recovery (1)	—			(1,825		)
Adjusted EBITDA (for the quarter)	$	132,987		$	109,068

Adjusted EBITDA (2)	$	531,948		$	436,272

Net Debt/Adjusted EBITDA Ratio	5.66			5.18

(1) Included in other income in the accompanying consolidated statements of income. Other income includes the following:
	Three Months Ended September 30,
	2017			2016
Income from settlement of foreign currency swap contracts	$	520		$	643
Gain on insurance recovery	—			1,825
Fee income	1			—
Miscellaneous income	1			8
Other income	$	522		$	2,476



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
January 1 through January 31, 2020 common shares	95,616	(1)	$	70.65	—	$	—
February 1 through February 29, 2020 common shares	—		—		—	—
March 1 through March 31, 2020 common shares	687	(1)	20.78		—	150,000,000

Total	96,303		$	70.29	—	$	150,000,000



10.1	Second Amended, Restated and Consolidated Credit Agreement, dated as of September 27, 2017, among the Company, as borrower, KeyBank National Association, as administrative agent, and the other agents and lenders party thereto,2020 Long Term Incentive Plan, which is attached as Exhibit 10.1 to the Company's Form 8-K (Commission File No. 001-13561) filed on ~~September 27, 2017,~~February 26, 2020, is hereby incorporated by reference as Exhibit 10.1.
10.2	~~First Amendment, dated as~~Form of ~~September 27, 2017, to Note Purchase~~Performance Shares Awards Agreement ~~dated as of August 1, 2016, by and among~~under the ~~Company and the institutional investors party thereto,~~2020 Long Term Incentive Plan, which is attached as Exhibit 10.2 to the Company's Form 8-K (Commission File No. 001-13561) filed on ~~September 27, 2017,~~February 26, 2020, is hereby incorporated by reference as Exhibit 10.2.
~~12.1~~10.3*	~~Computation~~Form of ~~Ratio of Earnings to Fixed Charges~~Restricted Shares Award Agreement under the 2020 Long Term Incentive Plan, which is attached ~~hereto~~ as Exhibit ~~12.1.~~10.3 to the Company's Form 8-K (Commission File No. 001-13561) filed on February 26, 2020, is hereby incorporated by reference as Exhibit 10.3.
~~12.2~~31.1*	~~Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends is attached hereto as Exhibit 12.2.~~
~~31.1~~*	Certification of Gregory K. Silvers pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 31.1.
31.2*	Certification of Mark A. Peterson pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 31.2.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32.1.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 32.2.
101.INS*	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema
101.CAL*	Inline XBRL Extension Calculation Linkbase
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase
104*	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)



		EPR Properties

Dated:	~~November 8, 2017~~May 11, 2020	By	~~/s/~~/s/ Gregory K. Silvers
			Gregory K. Silvers, President and Chief Executive Officer (Principal Executive Officer)

Dated:	~~November 8, 2017~~May 11, 2020	By	~~/s/~~/s/ Tonya L. Mater
			Tonya L. Mater, Vice President and Chief Accounting Officer (Principal Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

o ~~(Do not check if a smaller reporting company)~~
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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. o☐