Q4 2020 EPR Properties Earnings Call
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Okay.
Hello, Ladies and gentlemen, and welcome to day, Q4, 'twenty and 'twenty EPR properties earnings Conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and.
Instructions will follow at that time.
If anyone should require assistance during the conference. Please press star zero on your Touchtone phone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Mr. Brian Moriarty, Vice President corporate Communications.
Alright, Thank you and hi.
Everybody and welcome thanks for joining us.
For todays fourth quarter and year end 2020 earnings call I will start the call by informing you that this call may include forward looking statements as declined in the private Securities Litigation Act and 1995 identified by such words as will be intend continue believe may expect hope anticipate.
State or other comparable terms and the companys actual financial condition and the results of operations and May vary materially from those contemplated by such forward looking statements.
A discussion of those factors.
That could cause results to differ materially from those forward looking statements are contained in the company's SEC filings, including the company's reports on.
On form 10-K and 10-Q.
Additionally, this call will contain references to several non-GAAP measures, which we believe are useful in evaluating the company's performance.
A reconciliation of these majors.
To the most directly comparable GAAP measures are included in today's earnings release, and supplemental information and furnished and the FCC to the SEC under form 8-K.
And if you wish to follow the law todays earnings release, and supplemental and earnings call presentation are all available on the Investor Center page of the company's website Www EPR Casey Dot com.
Now I'll turn the call over to the company's President and CEO, Greg Silvers.
Thank you Brian Good morning, everyone and thank you for joining us on todays fourth quarter and year end call.
We are happy to be with you as per the calendar to 2021 and I sincerely hope that everyone is staying healthy and safe.
Joining me on the call today are company C. I O, Greg Zimmerman and company's CFO, Mark Peterson I will start the call with an opening statement then turn the call over to Greg and Mark who will provide more detail.
For the overview clearly 2020 was a year. Unlike any other we've experienced since the company was founded and 1997.
Early in the onset of the pandemic, we recognize the need to fortify the company's balance sheet to maintain sufficient liquidity for the long term.
Key among early actions was to defer and anticipated gaming venue investment of approximately 1 billion along with deferring other uncommitted investment spending of approximately 600 million. Additionally.
Additionally, we accessed our unsecured credit facility as a precautionary measure and suspended our monthly dividend to common shareholders.
We determined that these actions were prudent due to the extremely challenging environment and which are tenants had been operating.
As we speak today, our liquidity remains and our strong position with cash on hand, and excess of 500 million.
This large reserve.
Of cash reflects the fact that we had two returned to normalcy, however, as we announced and our quarter to quarterly disclosure on January seven we generated positive cash flow and the fourth quarter and anticipate this trend to continue.
The recent pay down of our credit facility balance reflects this positive momentum and demonstrates our increased confidence.
Throughout 2020, our team was focused on the many challenges brought on by the pandemic, including monitoring tenant performance, assisting and reopening plans and collaborating to develop plans that ensure long term stability and success for both our tenants and EPR properties.
We have seen this and the success of this strength edgy with our non theater tenants were approximately 94 per center open and rent collections have improved materially.
While our properties are still impacted by locally mandated closures and capacity restraints performance and customer to customer demand continued to improve which we believe demonstrates our fundamental thesis on people's desire for experiences.
As Greg will discuss in more detail our theater tenants are still primarily challenged it challenged with limited film product, which should subside as we progress through 2021 and how.
However, early indications from the round the world indicate that when product is available and flowing or is robust consumer demand.
Overall, we are pleased with both the progress and trajectory of our recovery as it is reflected and a continued increase in cash collections as we enter 2021.
Throughout the year, we made continuous progress and as I've stated before I'm very proud of how our team has responded to the substantial challenges that they have faced.
Looking ahead.
As we look forward in 2021, we're encouraged by the accelerated rollout and vaccines, we recognized that the reopening and the U S will continue to be a phased process.
We also believe that as a society, we are built and ready to return to a sense of normalcy.
We also continue to be encouraged by the Brazilian and see displayed by many of our tenants and anticipate that theaters will follow a similar pattern when they open more widely and key titles are consistently release.
As the country begins the recovery process, we look forward to getting back on the path to growth.
This progress process requires continued improvement and stabilization of our cash collections, which will allow us to exit our existing debt covenant waivers.
Upon achieving that goal our focus will turn to reinstituting, a common dividend and re initiating our investment spending program.
The timing of achieving these milestones and highly dependent on a number of variables, including and affect and effective vaccine deployment.
However, as today's results indicate our progress has measurably improved and the early months of 2021, and we are optimistic that our goals are achievable during the second half of 2021.
With that let me turn it over to Greg Zimmerman discussion of our portfolio and its performance Gregg.
Thanks, Greg at the end of the first quarter. Our total investments were approximately $6 5 billion with 356 properties and service and 94, 2% occupied during the quarter. Our investment spending was $22 8 million and was entirely and our experiential portfolio comprising built.
And the suit development and redevelopment projects that we're committed prior to the COVID-19 pandemic.
For the year, our investment spending was $85 1 billion.
Our experiential portfolio comprises 281 properties with forty-three operators is 93, 8% occupied and accounts for 91% of our total investments or approximately $5 9 billion of the total $6 5 billion, we have three properties under development on.
Our education portfolio comprises 75 properties with 12 operators and at the end of the quarter was 100% occupied.
As the vaccine rollout accelerates people are looking for safe and easily accessible ways to get out of their homes and come back together with friends and our operators are working hard to offer entertainment experiences, which create memories and safe environments, we're seeing that as consumers become increasingly confident and safety measures.
And restrictions on reduced they're returning to our properties.
Now I'll update you on the operating status of arc tenants are deferral agreements and our rent payment timelines sick.
60% of our theaters were open as of February 22nd.
As we have previously noted sent a world made the decision to close all of its U S U K and Ireland theaters because of a lack of tent pole films from Hollywood today, none of our 57th Regal theaters are open.
Orders continue to face significant headwinds from a lack of tent pole films and capacity and concessions restrictions implemented by state and local governments. These challenges will slowly begin to abate during vaccination ramp up and with loosening restrictions throughout the country.
Based on the current vaccine vaccination cadence, we believe major film releases.
And box office will begin to accelerate and the second half of 2021.
2021 film slate was strong before the pandemic because the number of films scheduled for 2020 pushed to 'twenty 'twenty. One we believe that projected film slate will provide a strong content cadence for theaters to ramp up as vaccinations increase normalcy returns and consumers feel more and more comfortable returning to the movies.
2021 tent Poles currently scheduled for release, beginning and May include Black widow, fast and furious nine top gun Maverick jungle cruise death on the Nile, a quiet place part to dune no time to die.
Lessors after life and my seven box.
Box office strength will continue into 'twenty and 'twenty, two with Jurassic World Dominion pushing to mid 'twenty two.
As demonstrated by consumer behavior, and Asia, and the Hollywood release schedule, we do not see evidence of structural changes and theater going habits. As a result of the COVID-19 pandemic.
And Asia, the consumer bounce back quickly Chinese box office continues to perform solidly even and weeks without products.
During the lunar new year holiday Detective Chinatown, three opened with the highest grossing opening day $163 million and opening weekend $398 million and history outpacing Avengers endgame.
Over the lunar new year holiday Detective Chinatown, three and hi, mom each grossed over $620 million.
And January Demon Slayer became Japan's highest grossing movie ever.
Further as provided by the continued recovery and resilience of our other experiential tenants, which I'll discuss in a moment customers still want to engage and entertaining affordable out of home experiences.
Once they know the operator is open and become comfortable with new protocols. We see that they are returning to experiential assets. We are confident the same will hold true for theaters as vaccinations ramp up and normalcy returns as.
As we have said throughout the COVID-19 pandemic the studios decision to push the vast majority of tent poles to theatrical release, and 'twenty and 'twenty and 'twenty and 'twenty. Two is the best evidence of their commitment to the exhibition economic model.
The economics are straightforward.
Whole films cost well over $100 million to produce so the studios need theatrical release to maximize revenue from major pictures.
All the projected top 30 box office films scheduled for release beginning in February 'twenty and 'twenty only six films were moved to non theatrical release and one other wonder woman and 1984 was released simultaneously to theaters and HBO Max.
And uniquely trying times studios took the opportunity to test alternative delivery channels and for those with streaming services to add subscribers.
Even when and parts of the country people could not leave their homes and theaters were either completely shut down or open with capacity and concessions restrictions. These releases had limited success.
After a couple of major test with Wonder woman and 1980 force simultaneous theatrical and HBO Max released and the release of Mulan Trolls World Tour and soul to premium video on demand or streaming video on demand. The studios withheld the vast majority of top films from digital one.
Only distribution to preserve theatrical release and 2021.
On its recent earnings call Disney reaffirmed it will release Blackwood oak theatrically subject to opening cadence and consumer sentiment about going back to the movies proving that all things being equal Disney continues to see the enormous power of theatrical release from major motion Pictures Likewise, Paramount recently publicly can.
Firmed that top gun Maverick will be released theatrically and July again subject to vaccination rollout.
In summary, despite the unique challenges presented by COVID-19, Hollywood continues to recognize that consumers still prefer to see movies on the big screen and don't embrace P. V O D. As a viable value alternative the decision to push the optical release dates for the vast majority of major films.
Even after a unique period of experimentation demonstrates that theatrical exhibition remains the preferred medium for consumers and the best format to deliver returns to the studios from major releases.
I also want to update you on our other major customer groups.
Approximately 94% of our non theater operators are open or for seasonal businesses are closed and the normal course. These businesses continue operating with appropriate safety protocols to comply with state and local requirements performance remains fluid depending on the impact of COVID-19, and each of them.
Locale, however at a high level, our operators are resilient and performance has generally exceeded their expectations in the face of this lengthy pandemic.
Furthermore, we are seeing the benefit of owning drive to value oriented destinations I'll now provide a brief update on each of our property types.
The ski season is underway all of our ski resorts are open and we're pleased with results to date.
All of our top gun location top golf locations all of our Andretti Karting locations and all of our family Entertainment centers are open.
All but one of our U S. Gyms are open about 61 per cent of our attractions had opened for normal operations prior to normal seasonal shutdowns as we have indicated in past calls a few of our attractions missed all or part of the season due to governmental health and sanitation measures and the financial feasibility of operating with reduced stock.
And you can see and a truncated season.
All of our cultural operators are open.
And separately Cartwright resort and indoor Waterpark all of our experiential lodging, though assets are open core.
Right and remain subject and New York States phased reopening plans and we are planning core Cartwright reopening and summer 2021.
<unk> World Catskills is open.
Finally, turning to our education portfolio all of our early education centers are open we are seeing a steady increase and demand monthly as COVID-19 restrictions ease and parents returned to work.
All of our private schools remain open utilizing a combination of in person online and hybrid instruction models.
Barry and state and local requirements continued to influence each school's instruction model volatility and reopening plans for public school systems has benefited private schools and we believe parents continue to see the value of private school instruction.
We continued progress and executing our strategy to reduce our overall education portfolio in December we sold six private schools and for early childhood education centers for net proceeds of 201 million.
These assets were sold at cash and GAAP cap rates based on base rents of eight 1% and 9% respectively.
Note that over the past two years, we also collected average annual percentage rents of $6 3 million from three of the private schools based on total tuition levels. However, these percentage rents were scheduled to expire over the next few years overall the assets included and this sale where and excellent investment for us.
With an unlevered internal rate of return of 13% over the life of our ownership.
Additionally, we sold four experiential properties and two vacant land parcels for net proceeds of around $23 million total disposition proceeds and the quarter were $224 million.
During the quarter, we terminated all seven of our AMC transition leases and took back the properties. We are executing our plans for each location.
In December we completed the sale of one of the transition lease properties for an industrial use we are in various stages of active negotiation to sell another five.
We anticipate these will result, and various uses including industrial multifamily office retail and theater reuse.
We also took over management of two of our theaters one of the Transocean lease properties and Columbus, Ohio and.
And the former Goodrich civil way and Champaign, Illinois.
We have retained a well respected experienced theater management company to operate both locations on our behalf and both are open for business.
I want to take a moment to update you on the status of our cash collections and deferral agreements cash.
Cash collections have continued to improve in conjunction with re openings tenants and borrowers paid 46% of pre COVID-19 contractual cash revenue for the fourth quarter versus 29% and 43% and the second and third quarters respectively.
As Mark will go over and we expect first quarter cash collections to significantly exceed fourth quarter collections in January we collected 66% and and February collections are currently 64% in each case, a pre COVID-19 contractual cash revenue.
During the quarter due to the continuing impact from COVID-19, We reserve the outstanding principal loan balance of $6 1 million and the unfunded commitment of $12 9 million for one of our attractions operator's customer.
Customers, representing approximately 95% of our pre COVID-19 contractual cash revenue, which includes each of our top 20 customers are either paying their pre COVID-19 contract rent or interest or have deferral agreement in place and those deferral agreements, we have granted approximately 5% of.
Rents and interest payment reductions. However, there can be no assurance that additional permanent rent or interest payment reductions or other term modifications will not occur in future periods in light of the continued adverse effects of the pandemic and financial condition of our customers, particularly with ongoing.
Uncertainty and the theater industry as.
As we've discussed our exhibition partners have faced and continue to face serious headwinds it goes without saying that the lack of product and reopening restrictions have weighed heavily on box office performance since early 'twenty and 'twenty and continue to dramatically impact projected box office performance.
Our goal has been to work diligently with all of our customers to structure appropriate deferral and repayment agreements to facilitate their ability to reopen efficiently and help ensure their long term health, while also protecting our position and rights as landlord, we intended to help them through a period.
Where they have significantly reduced or no cash flow, allowing them to ramp backup to stabilize cash flow.
We individually tailored each deal considering the variables impacting each business and improved our position through various arrangements.
These agreements are generally structured with rent and mortgage payments commencing and ramping up through 'twenty and 'twenty, one and in some cases after 2021.
Repayment of deferred amounts typically commences in 'twenty and 'twenty, one and depending on the deferred amount to allow our customers. Some breathing room. The deferral repayment period generally extends beyond 2021 day.
<unk> majority of our arrangements provide for repayment of all deferred rent as we have stated previously and a few cases, we have provided rent concessions, but we've generally received equal or greater value through additional lease term additional collateral or other benefits in most cases our custom.
<unk> have paid and continue to pay third party expenses, including ground rent and taxes and insurance.
Mark will provide additional color on our revenue recognition and cash collections implications for the first quarter of 2021, I now turn it over to him for a discussion of the financials.
Thank you Greg today, I will discuss our financial performance for the quarter and year, which continued to be impacted by the disruption caused by COVID-19.
And update on our balance sheet and strong liquidity position and close with some estimated forward information.
<unk> as adjusted for the quarter was <unk> 18 per share versus $1 26, and the prior year and a F. F O for the quarter was 23 per share compared to a $1 25 and the prior year.
Note that the operating results for the prior year included the public Charter school portfolio, which was sold during the fourth quarter of 2019 and are included in discontinued operations.
Total revenue from continuing operations for the quarter was 93.4 million versus 170 $370.3 million and the prior year.
This decrease was due to the accounting for the various agreements with customers as a result of the COVID-19 impact similar to what we discussed last quarter.
During the quarter, we wrote off 2.4 million and receivables related to putting two additional customers on a cash basis of accounting.
Bringing the total for the year for such write offs of $65 1 million, including $38 million of straight line rent.
Additionally, due primarily to the Cartwright resort indoor Waterpark remaining closed or closed due to COVID-19 restrictions, we had lower other income and lower other expense of 7.4 million and $8 7 million respectively.
Percentage rents for the quarter totaled $3 million for $6 4 million and the prior year.
This decrease related primarily to the closure of properties due to COVID-19 restrictions.
I would like to point out as I did last quarter that we are defining percentage rents here as amounts due above fixed rent and not payments and Lou a fixed rent based on a percentage of revenue.
Therefore, AMC and other theater tenants that were in the fourth quarter, making cash payments based on a percentage of their revenue against contractual rents are recognized as minimum rent.
Property operating expense.
Property operating expense of $16 4 million for the quarter was up slightly versus prior year.
But it was up about $2.5 million from last quarter due to increased vacancy, including the terminated AMC leases that Greg described.
Transaction costs were point 8 million for the quarter compared to $5 8 million and the prior year. The decrease is related primarily to lower costs incurred related to the transfer of early education properties to crumble a crime.
Interest expense increased by seven point and $9 million from prior year to $42 8 million. This increase was primarily due to the precautionary measure we took last march to draw $750 million on our $1 billion revolving credit facility, which provided us with additional liquidity during this uncertain time.
Due to stronger collections and significant liquidity, including 224 million and net proceeds received from property dispositions and the fourth quarter, we reduced the outstanding balance by $160 million to $590 million at year end.
Subsequent to year to year, and we used a portion of our cash on hand to further reduce this balance by $500 million.
Resulting in a current balance of $90 million on our revolver.
As I noted last quarter. We are we are also paying higher rates of interest on our bank credit facilities as well as our private placement notes during the covenant relief period.
The next slide lays out fourth quarter results, reflecting the impact of the receivable write offs I discussed earlier. These write offs totaled <unk> <unk> per share for the quarter and 80 686 cents per share for the year.
During the quarter, we had other items that are excluded from <unk> as adjusted.
Dana on sale of real estate was $49 9 million and gain on share insurance recovery, which is included in other income was <unk> 8 million.
We recognized a total of $22 8 million and impairment charges because of shortening our expected hold periods on four theaters as we expect to sell each of these properties.
In addition, we recognized net credit loss expense of $23 million that was due primarily to fully reserving the outstanding principal balance and unfunded commitment related and notes receivable from one borrower as Greg discussed.
We also recognized severance expense of 2.9 million due to the retirement of and executive as previously announced.
Our results for the full year 2020 were clearly impacted by COVID-19, as <unk> as adjusted per share was $1 43 versus.
$5 44, and the prior year and <unk> per share was $1 89 versus $5.44 and the prior year.
Note again that the prior period results included the public Charter school portfolio that was sold during 2019 and those results, including $24 1 million and termination fees are included in discontinued operations.
As discussed last quarter, we have classified our tenants and borrowers into categories based on how we accounted for them and the context of our annualized pre COVID-19 contractual cash revenue level of $624 million, which consists of cash rent, including tenant reimbursements and percentage rents and interest payments.
This annualized cash revenue excludes properties under properties operated under a Trs structure.
The changes of these classifications from last quarter were not very significant but include a new category to reflect sold properties most of which was previously classified under the first category titled No payment deferral.
There was also a slight increase and the new vacancies category, primarily as a result of the terminated AMC leases.
Now, let's move to our balance sheet and capital markets activities.
Our debt to gross assets was 40% on a book basis at December 31.
At year end, we had total outstanding debt of $3 7 billion of which $3 1 billion of fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately four 6%. Additionally.
Additionally, our weighted average debt maturity is approximately five years and we have no scheduled debt maturities until 2022, when only our revolving credit facility matures.
As previously announced due to the continued pressure on near term quarterly results as a result of the impact of COVID-19 during the quarter. We further amended our bank credit facilities and private placement notes to obtain and extension through the end of 2021 subject to certain conditions of the waivers of the same core covenants temporarily suspended.
On June.
This amendment provides us additional time and flexibility to work with our customers during this period of uncertainty.
Note that we can elect to get out of the covenant relief period early subject to certain conditions and there was no change and the interest rate schedules from that agreed to previously.
We believe we have sufficient liquidity and see us through the market disruption caused by COVID-19, we had over $1 billion of cash on hand at year end cash.
Cash flow from operations was positive for the fourth quarter at approximately $6 million.
And we expect our operating cash flow to be substantially higher as we move into 2021.
This positive trajectory and our substantial liquidity gave us confidence and our decision and subsequent to year end.
And to pay down our $1 billion on a credit to $90 million, while still maintaining about $500 million of cash on hand.
In addition, and subsequent to year and we reduced the balance outstanding on our private placement notes by $23 8 million to $316 2 million.
As a result of certain property sales and in accordance with the recent amendment to those notes there was no prepayment penalty on this paydown.
As previously announced due to the uncertainties created by the COVID-19 disruption, we are not providing forward earnings guidance.
However, we would like to update you on the expected ranges.
Of contractual cash revenue and we expect to recognize on our financial statements for the first quarter of 2021 as well as our expected collections for the same period.
Because there have been changes and the portfolio due to permanent rent reductions acquisitions, and dispositions changes and the occupancy occupancy levels and other items.
We are moving away from reporting against pre Covid contractual cash revenue to current contractual cash revenue per purposes of our guidance and future reported.
This slide shows the reconciliation of those amounts, which begins with pre COVID-19 contractual cash revenue, including percentage rents for both the quarter and annualize of $156 million and $624 million respectively.
And then subtract out pre COVID-19 percentage rents of $4 million and $15 million respectively.
From there we make the additional adjustments to the portfolio I just described to come to the current contractual cash revenue amount of $136 million for the first quarter and $545 million annualized note that both of these amounts are before the impact of any temporary abatements or deferrals.
Accordingly, the expected range, we expect to recognize and Q1 of 'twenty one is.
And he is 98 million to 105 million or <unk>, 72% to 77% of such contractual cash revenue. Additionally, the expected range. We expect to collect in Q1 of 2021 is 87 million to 93 million or <unk>, 64% to 68% of such contractual cash revenue.
Francis from the full amount of contractual cash revenue relates to deferrals granted and the associated accounting as well as abatements.
Now with that I'll turn it back over to Greg for his closing remarks.
Thank you Mark.
And you can see from our presentation today, the trends remain positive and we're optimistic about the continued recovery as we progress throughout 2021.
No one is happier than EPR to put 2020 behind us and we look forward like many consumers to begin again enjoying the experiences that our properties offer.
With that what and I open it up for questions.
Ladies and gentlemen, if you have a question at this time.
If I start and <unk>.
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If your question has been answered or you wish to remove yourself from the queue. Please press the pound.
And first response expense.
And Kim choice.
Go ahead.
Thanks, and good morning.
So good job on getting the collections up to 66%.
And obviously and plans that you are getting a good degree of rents from your movie theater tenants.
Could you just help us better understand what the collection trends are within theater versus non theaters.
Sure.
And the fourth quarter, we reported 46% and theaters or about 21% and non theaters and was about 71% in January and February.
That's moved significantly theatres are up to in the Forty's, 49% for January and the other was 84%. So we're seeing an increase in both categories, but particularly in the theater category.
And maybe a 5% to 7% haircut when all is said and done how much of that is dialed into the $5 45 at this point versus you know what what may happen.
And it would be a true yep sure so that that five to seven per cent. We've been referencing is based on that 609 million kind of a number without percentage rents there and you see 24 million of permanent rents that's about 4% of 609, and then theres. Another 1% that was that is now in vacancies.
Remember, we terminated we gave a haircut on.
On the transitional leases for AMC and now none of those are vacant so theres another 1% of cuts that are sitting on the 17th so the 5% to answer your question is and the 545 million and that's what's happened to date.
Its in two places on the scheduled permanent rent cuts, 4%, there and another 1% and vacancies. So that's where we stand today and over 95 per cent through our deferral agreements.
And we feel we feel good about where we are.
We've talked about.
5% to 7%.
But we're through like I said 95 per cent and feel pretty good about that and then we'll see if any other cuts are necessary you know sitting here today, we think we're in pretty good shape.
Okay and then.
And the Opex piece, I think we've running give or take $60 million.
And how should we think about that against the $5 45 is there any change on that side.
There's a little bit of change as we sell properties you saw a bit of and elevation in our property operating expenses and it was kind of running around 14, and then it went to 16 here and the fourth quarter.
As we and.
Greg.
And mentioned as we sell those properties that should come back down.
So we think it's kind of a temporary inflated but that kind of gives you a sense that it's a little bit high and the fourth quarter, but should come back down as we go into 'twenty one.
Okay, and then just lastly item item around.
Dispositions D five theaters that it sounds like you have and the market per sale.
Can you give us some sense as to maybe what what proceeds could be from those and then also anything else of size that you think.
You might look to sell this year.
Yes, and I'll jump in on that I think the what we can reference is the one that sold and I'll ask Greg to comment I think of the of the seven net we bridge and we sold one.
Thank and Greg Correct me, if I'm wrong on that that's sold for a six cap.
Correct Yep indoor.
Industrial use and as Greg said I think there's the other we have thought of the other remaining six under.
And LOI or contract and we'll see how those progress throughout the year now.
The thing about it is and I think that the positive reflection that we've seen is that we own quality real estate.
And that there's going to be a very domain and for this.
And as Greg mentioned, whether that's industrial multifamily differ.
Different different uses.
And they're all not going to be six caps, but we think overall.
Moving to have a good good reuse of our properties and that's kind of what these are.
And was part of Greg strategy, and and our asset management team. So I again, I don't think we're going to comment about the other ones other than to say that we have there are either under contract or under LOI and that gave us the confidence to go ahead and terminate the AMC leases.
But we will see how and how those play out but Greg do you have anything else to add to that.
Yeah, Tony the only other thing I would add is that and each of the instances we've had multiple offers to choose from so this.
It's been pretty fulsome, and we're very pleased with the response and as Greg said I think it really demonstrates the quality of our real estate.
Okay and anything else from size. This year do you think you'll do not at this time that we're talking about I mean, you know we're always looking at as we did with our with you.
Some of our education assets, but nothing too.
Talk about now.
Okay. Thank you.
Yeah.
Thank you. Your next response is from Rob Stevenson of Janney. Please go ahead.
Hi, good morning, guys.
To follow up on on.
On the last question that six cap rate based on pre Covid NOI, our current NOI what is that based on.
And what was a pre COVID-19 NOI that's based on the number that was part of that sits on that.
Okay, and then what does it look like just in terms of.
You sort of rough dollar value in terms of what does it look like price wise the solid theater for industrial use in general versus where you could have sold that theater.
Pre COVID-19 as a theater I mean is it basically simple pretty similar or are you taking much of a hit and you actually making more money because of the demand for industrial and infill locations what is that sort of look like.
I would say and and using and Greg I'll ask you to come in but using kind of these these first six as an example, I would say, it's it's really location dependent I mean again I would say industrials are probably clearly selling four above kind of.
Theater cap rates, but I would say if you blended it all it's probably at or near kind of where theaters, we're selling on a pre COVID-19 basis, Greg maybe you have some thoughts.
And I would agree on that would also say I think multiple multifamily and certain locations as is strong right now as well, but generally agree with what you said yep.
Okay, and then you guys continue to sell the education segment down how low does that exposure go and you know if.
And if you're a hazard a guess as EPR and that business three five years from now is this just a temporary thing for source of capital and where you could sell the assets and once the acquisitions and start ramping back up again, and it's going to be a disproportion amount of education or is education sort of winding down as a major investment for you.
Ms.
Yeah, I would say as a major investments youre correct. It I mean, when we did.
<unk> determined to focus on experiential.
We announced that.
And we werent growing that area and then over time, we could sell out of that.
No I I would say you know there's no there's no rush to do it I mean this was a tenant exercised the option to purchase these assets, so I, but I wouldn't see us.
Assets being any material part of our portfolio.
Look out over the medium to longer term.
Okay, and then last one from me as you.
You and the board, Greg think about getting back to and acquisition environment is there anything the tap anything that's occurred over the last year that would dampen the enthusiasm to move.
And to the casino business and a.
A significant way.
Relative to where your desires where call. It you know.
13 months ago.
Rob I would say if anything it's kind of proving out our thesis.
We talked about when we looked at the space that we like the regional plays and the drive to destinations and I think if you see the trends and how that business has responded I think we would we.
We would still.
Very interested in that space.
Okay. Thanks, guys I appreciate it.
Yeah.
Your next response is from.
And the economy.
Go ahead.
Great. Thanks, good morning.
And you've got the new vacancy component and the revenue bridge that you provided what are your thoughts around and backfill prospects on that vantage on look like they're based on any relief and progress you've made so far.
I think and Mark and then I'll, let you comment I think in that vacancy are you you know the five properties that I just mentioned that we have.
Contract, so theres going to be.
A significant amount of those.
Part of capital recycling and there will be some re leasing but I do think right now the majority of that are our properties that that I think we are evaluating whether we're going to release that or or or kind of dispose of those assets, but mark maybe you have more color.
No I'd agree.
And that vacancy increase was those terminated the leases and I think as Greg said five of those are under contract or LOI. So we expect that really to result in sales and and vacancies will go down because of the properties will be sold.
Okay. Thanks, and then can you talk about and how traffic and sales trended and point here relative to pre COVID-19 levels from the market play and theaters happening out there and so far and how impactful do you think they react and they have not to.
If you guys could be on that portfolio.
Greg do you want and it takes that since.
Yeah, obviously I think the trends, both with New York reopening and with vaccinations ramping up are good we're feeling very positive that the release schedule will hold and cautiously optimistic that black widow, and fast and furious nine will drop and May and I think as we've said.
Net all along what we need is continued product and the ability for our exhibition partners to open and remain open.
Without having to go into further locked down so we see a lot of positive trends, particularly when you look at what's happened in China I think people are.
There's a lot of pent up demand to get back and do things so.
And I would I would add onto that and it's just kind of and indications just because its time.
And I think if you look at kind of our.
<unk> coming into the ski season, and talking with our operators I would say that the.
Across the board they've exceeded expectations as far as concern.
Consumer demand coming back to the to the product so.
And it's across all of our experiential properties when available to operate the consumer is speaking with their feet and returning and and strong numbers.
And and I would add to that is very much impacted by the fact that we are drive to value destination. So we're just not being negatively impacted by air travel constraints.
Okay. Thank you.
Thank you. Your next response is from Joshua.
Please go ahead.
Hey, good morning, guys.
And I was looking at page 2090, or so where you have minimum rent and percentage rent and then I guess.
Revenues total there.
Just wanted to clarify is that minimum rent a cash number or GAAP.
Yeah.
On page 20 on we're reconciling GAAP revenue there.
GAAP revenue okay.
I guess my question around this.
It related to how to think about that and minimum rent going forward or we kind of on X crop there and then.
And how to kind of think about that percentage Brad.
And I know you have a lot more percentage right and going forward with the AMC restructure and so I'm just kind of trying to frame all that you've been really helpful.
Well you know the AMC was and percentage rent per their contract and fourth quarter and their contract moves away from percentage rent and more to fixed rent so with respect to AMC secondly.
The rent that theaters are paying.
One is on a percentage rent basis, that's not what we're calling percentage rent here, we're defining percentage rent here as amounts over base right. So if theyre paying some portion of their minimum rent through kind of a variable arrangement based on sales and we're not we're not deeming that percentage rent and now that said percentage rent. This year I think was around <unk>.
Eight points I think it was $6 million.
And can they required.
Sorry, eight point it was 8.8 dollars 6 million for this year as a whole.
Next year, we do expect per cent address but a lot of that $8 six and 2020 and was driven by private schools right. They had we had significant percentage rents and <unk>.
Gregg said and average of over 6 million and the last two years. So that'll drop at the same time, we do have and early Ed tenant that's paying a base amount and then paying percentage rents over that base amounts on that will go up so.
Long story short I think percentage rents.
No.
And it's fairly similar but for different reasons I think there is potential upside for that to that just because of as.
Certain of our attraction properties get back to normal they could hit percentage rent limits, but it's hard to say right now.
But so anyway percentage rents and keep in mind is over base amounts is not and and then like I said with respect to AMC, they've really transitioned.
Transitioned per their agreement that we went over from a percentage rent or a variable rent basis to a fixed basis.
No.
Okay. Okay. So it was a little bit different than what I was thinking okay. Yes, I appreciate that.
Audio before thanks.
Thank you. Your next response is from John.
And I still call of Ladenburg Thalmann and go ahead.
Good morning.
Great.
And then building a little bit on that last comment I mean, as AMC paying their full contractual rents as of kind of current and <unk> 21.
You know John we don't comment on any particular tenant what we will say is that all of our tenants are paying and conformance with agreements that we've entered into.
And and our cash collections reflect that.
Okay.
And do this right.
And then you also kind of mentioned in the prepared remarks, the stickier and taken over operations at a couple of theater can you maybe provide some color on why you decided to do that and if there may be maybe more of that going forward.
Again, and I'll, let Greg comment on this after I think part of the issue was.
And.
When we began this clearly there was more concern about some theater tenants and their ability to to withstand the pressures of COVID-19. So we felt the need to create a its not for lack of a better term a backstop that that we knew we had good.
And we knew that this business would return so we felt the need to create the ability to operate our properties through management companies and if necessary and so we we have taken what we think are too good performers and we've set that up to.
And to allow not only.
On ourselves to understand that we can do this if necessary, but also to give confidence to investors that.
Not in a position to where if theater companies are saying you have to take my terms no. No. We don't we have the we have the capability and we have the resources.
Core good properties to make these work and so when we were negotiating with people and and EBIT net to you yet.
The transit transition leases I mean, this one of the theaters that that we took over and Greg can come and as is probably a top 100 theater and the country.
And so we.
We wanted to demonstrate that we're going to approach. This from a position of strength and I think you will you will see that and our negotiations with Greg and I don't know if you have anything else to comment on that no I think you've covered it I mean, obviously those theatres are strong and their markets and.
And we're learning a lot and we will also be able to make sure that we're getting reasonable rents as they turn in turn back into operating theatres and with someone else and the future.
Yeah, and I think as Greg pointed out there John I think the long term our long term objective would be.
No.
As we get back to normalcy will find somebody who lease these properties, but it will not be at some draconian cut that that people may think they had leverage to do and we will we will get them back to what we think are very reasonable and respectable rent levels.
Very helpful. And then one last detail one in terms of the collection and I know the guidance is based on the new.
On a base rent number, but where the reported January and February collections also based on that number.
Yeah, and I'll, let mark comment on this but the 66 and 64 I think our apples to apples and what you saw the 46 that set a first statement mark yeah. The only the only change there as we adjusted per sales because obviously, we have sold the spring portfolio, but we didn't adjust for permanent rent cuts and vacancy and so forth like we did and.
New contractual so 68, 66 and 64 as Greg said are essentially on a pre COVID-19 basis only adjustment there was really for net activity, which is really the sales.
For the education portfolio, primarily.
And then the new the new basis is based on a 545 annualized or quarterly amount is net.
And $64 68 per cent is based on the new basis.
So basically we go through the work and try to get what it would be on the new basis. It would just be take out that sales component, but everything else is.
Well its effectively that bridge I showed so to get to the new basis. So let me be clear and 46% was pre COVID-19 really didnt have sales to deal with it. We then sold right at the end of the year, the spring portfolio and when we say pre COVID-19 and the press release, and we say, 66% and 64, it's effectively pre COVID-19 nothing to do.
And with permanent rent cuts and nothing to do with vacancies as pre COVID-19 and that so that's consistent when you move to the new now we're just talking about guidance now and we give a range of $64 and 68% that is now off that revised new contractual amount and it does take into account and not only disposition activity, but the other things their vacancy and.
And so forth, so that's really and the bridge effect.
Effectively the like I said 66, 64 old basis, only adjusted for sales of properties, whereas now we're bridging to our new contractual amount and it doesn't make sense for us to be quoting forever pre COVID-19, if we've given permanent rent cuts and if we kept saying pre COVID-19, we never get to 100% because we gave permanent rent reductions we want.
And the same thing with vacancies, we needed to take that into account.
Going forward and our guidance and we'll kind of have and that's why we establish this new kind of current contractual revenue.
Okay very helpful. That's it from me, thank you very much and stuff.
On the strength.
And next response is from Todd Thomas with Keybanc capital. Please go ahead.
Okay.
Hi, Thanks, and good morning, just circling back to the theaters.
I was just curious how should we think about the risk of future rent reductions or deferrals and general for the theaters at this point do you think that that that risk is largely off the table or is there or is there still some potential risk there moving further into 'twenty one.
Again, Todd I I think what I can say is and.
We've entered into agreements with most well with all of our major theater tenants.
And and so.
We feel pretty good about about where we're at now and again now and you get into the Crystal ball and and how how the rest of the year and vaccine deployment and and how quickly it ramps up.
I think the day.
We don't know I mean, what I can tell you that where we sit right now and we feel pretty good about where we positioned ourselves with a with a major.
Theater tenants and.
We will have to go from there from where we're at but Greg I don't know if you want to add anything to that.
And I think he covered it Greg.
Okay, and then I'm sorry, if I missed this but do you have any visibility on the reopening of your Regal theaters do you have a sense for what the timeline is like at this point for them to reopen their theaters.
I think Todd, it's going to flow with product flow.
As we see in the second and third quarter products start to flow I mean, they've been fairly consistent with their comments that if theres product, they're going to open up I think they mentioned they could be opened within two weeks when product begins to flow. So I think they're they've just made the decision up to now that from a cost effect.
The endpoint, it's cheaper for them to be closed without product and and respond very quickly. So I think as Greg pointed out we see that that product begin to flow and spring.
Consistent with kind of dates kind of firming, and and hardening up and down and I think you'll see them kind of respond to that with opening schedule.
Okay.
And then Mark I think you said Cartwright scheduled to open this summer I think previously the open.
And intended to be around April one can you just provide an update there is there anything concrete at this point that you can share.
Greg Zimmerman, who want to take that one I think what it's moved from April and the kind of more of a June type of a kind of early summer, but Greg on I can comment on that yeah. That's right probably June and it's almost all related to the pace of the reopening schedule and New York State.
So that's that's what we're planning on.
Okay.
Alright, great. Thank you.
Thanks.
I'm showing no further questions at this time I went on and I'd like to turn the call back over to Greg Silvers.
Thank you all for joining us today are again as I said earlier, we're really excited about 2020 behind US we look at where were enthusiastically enthusiastic and optimistic about 'twenty 'twenty, one and we look forward to talking to you at on our completion of our first quarter and I'm talking about our results and then.
So everyone stay safe and healthy and healthy. Thank you bye bye.
Okay.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
Okay.
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