Q1 2021 EPR Properties Earnings Call
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Good day and thank you for standing by welcome to the Q1 2021 EPR properties earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need Pizza Press star one on your telephone. Please be advised that today's conference is being recording recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Brad.
Ian Moriarty, Vice President of corporate Communications. Please go ahead.
The certain non-GAAP measures, which we believe are useful in evaluating the company's performance of reconciliation of reconciliation of these measures.
To the most directly comparable GAAP measures are included in today's earnings release and supplemental information first.
Furnished in the SEC to the SEC under form 8-K, if you wish to follow along today's earning to release supplemental and earnings call presentation are all available in the Investor Center of the company's website Www EPS.
Casey Ducked call now I'll turn the call over to the company President and CEO, Greg Silvers.
Thank you Brian Good morning, everyone and thank you for joining us on today's first quarter of 2021, Ernie Paul and webcast.
Against the backdrop of the reopening of the U S. We are seeing consistent improvements in our business fundamentals.
Among these include accelerated cash collection levels and significant progress in our theater portfolio.
Or increase cash collection levels reflect strengthen the businesses and an increasingly more positive environment for the experiences are properties deliberate.
At a <unk> at a macro level with the broad increase of vaccine deployment, we're seeing a meaningful improvement and consumer confidence and stabilization of the economy as is evidenced by employment and GDP data.
Separately, the new protocols from the C. D C for fully vaccinated people reflect the opportunity to achieve increasing levels of normalcy and life as we once knew it.
Across our portfolio consumers have been exhibiting their desire to experience out of home entertainment and our tenants businesses have been beneficiaries of this pent up demand.
In particular during the quarter and continuing through April consumers demonstrated their desire to return the theaters as we achieved new box office high since the onset of the pandemic.
Importantly, this momentum has been established in an environment with capacity constraints limited content and direct to consumer streaming options, which provide the opportunity to view select features at home.
Said, another way, even with the challenges and limitations of the current operating environment. These results indicate that consumers still value of the theater experience for new movie titles.
We look forward to being able to fully maximize the reopening of theater exhibition as we expect that 98 per cent of our theaters will be opened by the end of May and consumers will have the opportunity to see a strong lineup of film titles for the remainder of 2021, many of which have been delayed several times.
San Jose, California, 426.7 million, which was acquired primarily with cash received from top of his payment of a portion of their deferred rent balance effectively we acquired top golf San Jose using a portion of their deferred rent as currency of creative and complimentary outcome from both sides.
Our experiential portfolio comprises 280 properties with 42 operators is 93 per cent occupied and accounts from 91% of our total investments or approximately 5.9 billion of the total 6.5 billion, we have four properties under development.
Our education portfolio comprised of 74 properties with Ada operators and at the end of the quarter was 100 per cent of occupied.
Now I'll update you on the operating status of our tenants are deferral agreements and rent payment timelines.
71 per cent of our theaters were open as of April 30th.
Under Wriggles announced reopening schedule all of our Regal theaters will be open by May 21st and at that point, we anticipate 98% of art theaters will be open.
Of of our theaters remained close because of governmental orders all four of our Canadian theaters are closed at least through may 20th do the governmental mandate and our dining theater in San Francisco as close until July because of the local indoor dining restrictions we have five they can theaters non operated by any of our major exhibit.
Which will you'll really sick and seven close theatres, which were selling six of which are under contract.
Finally, we are continuing to operate two theaters through a third party manager of former a M C in Columbus, Ohio, and the former Goodrich Savoy and Champagne, Illinois.
April of spots off his performance exceeded industry expectations led by King Kong vs. Godzilla Mortal combat and Demon Slayer. The outperformance of all three films drove box office to 189 million for April of 66 in per cent increase from marches hundred.
13 million.
The strong results from these three films show the consumer is eagerly embracing the opportunity to get back to the movies. We are particularly encouraged by these results given that most theaters are still operating under cap capacity restrictions that Regal is still ramping up U S openings and won't be fully open until late may.
<unk> and that less than 20 per cent of Canadian theaters are open with the increasing vaccinations the approach of summer and easing restrictions. The primary challenge for exhibitors now is the lack of film supply.
The remaining film slate of high quality Tentpole films lines up nicely to drive increasing consumer demand through 2021.
Beginning.
At Memorial day with.
A quiet place for two and following with then let there be carnage dune.
Nope Ah Cruella.
Fast and furious nine black widows suicide squad Shang Chi and the legend of of the Eternal Ghostbuster of after life top gun Maverick Spiderman, No way home, the King's man and matrix Fort.
Studios content providers and the consumer all value of the big screening very experience aprils performance bears that out.
I want to briefly address lessons learned over the past year. The studios decision to delay the release of the vast majority of their 10th pull titles until theaters reopened in 2021 and 2022 is the best evidence of their commitment to the exhibition economic model and the importance of the theatrical.
The cool window as of critical revenue driver for the studios and content providers COVID-19.
COVID-19 Force studios and exhibitors to experiment studios understandably evaluated alternative content delivery options, including premium video on demand P. D. O D subscription video on demand S. B O D hybrid models of theatrical release mixed with P V O D or.
S B O D and selling movies the streaming services, we believe the best indicator of of the results of this experimentation is that the overwhelming majority of Tentpole films scheduled for the optical release pre COVID-19 will be released theatrical theatrically in 2021 or 2020 true.
It made economic sense for the studios to wait until theaters were permitted to reopen throughout the U S and they did.
As of Midnight Sky and the Christmas Chronicles two theatrically the can.
<unk> desire to return to see movies on the big screen is reflected in the surprisingly strong performance of King Kong versus Godzilla, Mortal Kombat and demons layer when.
When theaters were allowed to reopen box office records were set in China, Japan, and Australia, our tenants are coming up with new and better ways to enhance the customer experience from touchless ticketing and concession of ordering to private screenings.
So each of the movie still remains a remarkable value for the out of home consumer experience.
Turning now to our other major customer groups approximately 96% of our non theater operators are open our seasonal businesses are closed in the normal course with increases in vaccinations in the fast approach of summer. We see continued strong performance in our drive to value oriented.
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We are pleased with the results from the ski season people demonstrated they still want to ski, particularly in drive to destinations across the portfolio attendance was in line with three year averages and revenues were down only slightly reflecting the restrictions on food and beverage and many locations.
We continue to see strong performance across eat and play all of our top golf locations, including our recently acquired San Jose locations are open all four of our Andretti Karting locations are open and we're delighted that our fifth in Buford, Georgia will open in May.
All of our gyms are open and attendance continues to increase.
We are seeing very strong pent up demand across our attractions and cultural holdings. We expect this trend to continue throughout the summer as vaccinations increase and restrictions are lifted.
The City Museum, Santa Monica Pier, and our Titanic museums are open.
We expect all of our amusement parks and water parks to open in 2021 seven are currently open five have confirmed may opening dates and we're awaiting dates for the final two subject to state restrictions in California and Washington.
We are likewise seeing strong demand in our experiential lodging portfolio and expect the trend will continue throughout the summer as well.
Except for of the Cartwright resort and indoor Waterpark in the Catskills and the Bellwood Bellwether Beach resort on Saint Pete The Beach, all of our experiential lodging assets or open.
Cartwright remains subject to New York State phased reopening plans for the water parks and we are working toward an opening in the summer of 2021, we are completing a substantial renovation of the bellwether and it will fully reopened by mid June.
Resorts World Catskills opening.
All of our early childhood education centers are open and we are seeing a steady increase in demand monthly as COVID-19 restrictions ease and parents returned to work.
All of our private schools are open utilizing a combination of in person online and hybrid instruction models.
Our primary capital recycling activity has been in the theater category in Q1, we sold one theater property and of vacant non theatre building for net proceeds of $13 $7 million.
We're very pleased with our progress in disposing vacant theaters. Since Q1 Q3 2020, we have sold three theaters and as I mentioned earlier, we have executed contracts for another six.
In Q4, we terminated all seven of our AMC transition leases and took back the properties we're operating one.
In Q4, we sold one for an industrial use.
Haven't executed contracts of the remaining five we also have the former CMS theater, which was rejected in bankruptcy under contract. The six projected sales for industrial multifamily office and theater reuse and we anticipate closing on all six sales throughout 2002.
The one and into 2022.
Finally, I want to update you on the status of our cash collections and deferral agreements.
Without the COVID-19 pandemic, our number one priority was to work proactively and diligently with our customers to structure appropriate deferral and repayment of agreements we tailored each deal to give them the right amount of breathing room to reopen efficiently and help ensure their long term health all of.
While protecting and improving our position and rights of landlord.
We wanted to and have helped them through a period, where they had significantly reduced or no cash flow, allowing them to ramp back to a stabilized cash flow.
Our agreements are generally structured with rent and mortgage payments, including deferred amounts commencing in ramping up through 2021 and in some cases after 2021 cash collections continue to improve in conjunction with reopening.
Tenants and borrowers paid 72% of contractual cash revenue for the first quarter and 77% in April.
We're seeing results from these efforts and I want to share of two examples of this win win approach.
First as noted earlier in my remarks, we are delighted to of acquired the brand New top golf, San Jose, which opened on April 16th using a portion of their deferred rent is currency.
San Jose is top of second location in California, It's an outstanding location and a compelling DNA.
The transaction reflects our long and valued partnership with top golf and our creative approach throughout the pandemic to work with our tenants to address difficult issues.
Second as noted the <unk>. The ski season was strong early in the pandemic before anyone knew what the ski season would look like we worked with camelback to ensure they had sufficient cash to weather what we all feared it could be of rough winter because ski season was strong in April camelback repay.
<unk> its entire deferred balance six months early.
Again, this demonstrates our commitment to taking the long view of our customers' ability to perform informed by the underlying strength of our underwriting and real estate.
Finally customers representing substantially all of our contractual cash revenue, which includes each of our top 20 customers are either paying their contract rent or interest or have a deferral agreement in place and those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions.
Mark will provide additional color on the revenue recognition and cash collection implications for the second quarter of 2021, I'll 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 provide an update on our balance sheet and strong liquidity position and close with some estimated forward information I am pleased that he'll be briefer than it had been in the past few quarters.
<unk> as adjusted for the quarter was <unk> 48 per share versus 97 cents from the prior year and <unk> of for the quarter was <unk> 52 cents per share compared to $1 14 in the prior year.
Total revenue from continuing operations for the quarter was $111 8 million versus $151 million in the prior year. This decrease was due primarily to the accounting for restructured agreements with various customers and revenue from certain tenants, which continue to be recognized on a cash basis. Both as a result of the COVID-19 impact.
This decrease was also due to property dispositions and an increase in vacancies. Additionally, we had lower other income and lower other expense of $6 9 million to $7 million, respectively. Due primarily to the Cartwright resort indoor Waterpark remaining closed due to COVID-19 restrictions.
Percentage rents for the quarter totaled $2 million for $2 8 million in the prior year. This decrease related to lower percentage of rents from tenants due to the impact of COVID-19 on their operations as well as our disposition disposition of certain private schools in December of 2020.
This decrease was partially offset by additional percentage rent from an early education tenant due to a restructured agreement I would like to point out as I did last quarter that we are defining percentage rents here as the amounts due above base rent and not payments in lieu of base rent based on a percentage of revenue.
Property operating expense of $15 3 million for the quarter was about $2 2 million was up about $2 2 million from prior year due primarily to increased vacancy.
Interest expense increased by $4 4 million from prior year to $39 2 million.
This increase resulted in part from a higher weighted average amount outstanding on our $1 billion revolving credit facility.
As you may recall at the end of the first quarter of 2020, we borrowed $750 million as a precautionary measure to provide us with additional liquidity during the uncertainty caused by COVID-19.
At December 31, 2020, due to stronger collections and significant liquidity, including proceeds from dispositions.
We reduced the outstanding balance of the $590 million and then further reduced the balance of the $90 million in January of 2021.
Subsequent to quarter end, we used a portion of our cash on hand to pay off the remaining balance.
Adding to the increase in interest expense, we continue to pay higher rates of interest on our bank credit facilities and private placement notes during the covenant relief period.
Of about 100 basis points of 125 basis points respectively.
We also earned less interest income from short term investments from the first quarter as we used cash on hand to pay down the revolver and deposit rates were also lower than last year.
Lastly, during the quarter, we reduced our allowance for credit loss on our mortgage notes the notes receivable, which resulted of the credit loss benefit of $2 8 million per.
First of all of loss of $1 2 million in the prior year. This benefit resulted from changes in the macro environment due to the signs of recovery from the pandemic, which reduced the allowance calculated using our third party model note that this benefit is excluded from <unk> as adjusted.
Now, let's turn to our balance sheet and capital markets activities.
Our debt to gross assets was 39% on a book basis at March 31.
At quarter end, we had total outstanding debt of $3 2 billion of which $3 1 billion is either fixed rate debt or debt that has been fixed through interest rate swaps with the blended coupon of approximately four 7%.
Additionally, our weighted average debt maturity of approximately five years.
We have no scheduled debt maturities until 2022, when only our revolving credit facility matures, which currently has a zero balance.
As previously discussed due to the impact of COVID-19 on our near term financial results. During 2020, we amended our bank credit facilities and private placement notes to waive certain covenants through the end of 2021 subject to certain conditions. This provides us additional time and flexibility to work with our customers note that.
Can elect to get out of the covenant relief period early subject to certain conditions.
We had $538 1 million of cash on hand at quarter end and as I mentioned, we paid down our revolver to zero in April.
Cash collections from customers continued to improve from where approximately 72% of contractual cash revenue or $98 1 million for the first quarter and 77% for April.
During the quarter, we also collected $29 5 million of deferred rent and interest from accrual basis tenants and borrowers, including the payment received from top golf that was used to purchase at San Jose location.
And the deferred rent and interest receivable balance on our books at March 31 was $59 million.
Subsequent to the end of the of the quarter in April we received an additional $10 5 million of such deferral payments, bringing the year to date total to $40 million.
We expect to continue to collect deferred rent and interest from accrual basis of tenants and borrowers primarily over the next 36 months.
We are encouraged by the positive signs we are seeing in our customers businesses and we anticipate the positive trajectory of cash collections to continue over the remainder of 2021 and into 2022.
As previously announced due to the uncertainties created by the COVID-19 disruption, we are not providing any forward earnings guidance.
However, we would like to update you on the expected ranges of contractual cash revenue that we expect of recognized in our financial statements for the second quarter of 2021.
As well as our expected collections of that relate to that same period.
The expected range, we expect to recognize in Q2 2021 of such contractual cash revenue of $109 million to $116 million or $80 to 85% of.
Additionally, the expected range, we expect to collect of such contractual cash revenue in Q2 of 'twenty one.
As of $102 million to of $109 million or <unk>, 75% to 80%.
Differences from the full amount of contractual cash revenue relate to deferrals granted and the associated accounting accounting.
As well as abatements.
Now with that I'll turn it back over to Greg for his closing remarks.
Thank you Mark.
As evident from our discussion today, we are very pleased with our results and the trajectory of the recovery.
The continued success of the King deployment should further strengthen the momentum of experiential assets.
As we've discussed previously and today, we do not have a consumer demand issue, but rather of restricted environment and as these restrictions continue to be relaxed our properties and tenants will benefit from this pent up demand.
Why don't I open it up for questions Alicia.
As a reminder to ask a question you will need to press star one on your telephone line to.
To withdraw your question press the pound key please standby, while we compile the Q&A roster.
And your first question comes from the line of Katy Mcconnell of Citi.
Hi, everyone. This is that part of the training on for Katy.
Thanks for taking the question I guess the first of all when I had was just so I can understand more about the ramp up of content.
Do you think that Theres, a chance that some of this new content actually pulls up as more theaters we opened.
I think the 66% increase in box office revenues helped.
But do you think that Theres, just the chance that that comes up and it pulls up.
Over the next couple of months.
I think theres, a chance, but I would I would say and I'll ask Greg to join in I think most of the dates are fairly settled now people I mean, we saw but I mean, a quiet place two pulled up into memorial day weekend, but I think now with things kind of.
Settling down and people see the trajectory the weekends are kind of of allocated.
Allocated if it occurred I would say it would be something in the fourth quarter right now, but Greg maybe you have some thoughts.
Our degree of Greg and I think actually we view as a positive the stabilization of the schedule because it was moving around a lot of theaters, where reopening and now we have some clarity on it and there's a fairly nice cadence through the end of the year.
Got it.
And then if I can just ask one more just about you guys feeling how is the how comfortable do you guys feel about investing additional capital in some of these new development opportunities are.
The other acquisitions not necessarily like the top golf acquisition, but.
Most of our just putting capital to use prior to coming out of the covenant relief period of reinstating the dividend.
Well I think we've said pretty consistently debt.
We're going to be limited in what we in the covenant relief period.
But.
As you can see from the tone and tenor.
We feel our trajectory is really good and we've said all along that the second half of the year is probably where we're really going to be gearing up for capital deployment and I think nothing to kind of change that trajectory for US right now I think now.
It's about building the pipeline for execution in the second half of the year.
Okay. Thanks, guys.
Thank you. Thank you.
Your next question comes from the line of Anthony per loan of J P. Morgan.
Thanks, and good morning.
Just as you think about the theaters reopening of the portfolio can you put some brackets around.
Where.
I guess attendance needs to be perhaps unlike of percentage basis or something that would get your theatres to a level, where they can cover contractual rents.
Well I think Tony we've done some work on.
Kind of things of that nature of it it's probably.
We could sustain a.
And Mark I know, we worked in the somewhere probably 35% to 45% reduction in revenue to get to a one O. So.
It could be substantial reduction and I think <unk>.
In 2000.
The capacity so given the the ability to you know take revenue I guess down you know 35 40 per cent of whatever it ends up being like are the.
Capacity restraints are they a big limiting factor in the theaters.
You know get back to the level of that make some sense, even with some of these restraints in place.
They can I mean, and and all of that break the the the challenge that we always have had in the theater industry is the capacity is looked at on the seven day week and we drink from of fire from Friday Saturday and Sunday. So we are operating even now with some of the titles that Greg mentioned where Sally.
Out of all shows on the weekend and.
To date, we we still don't see people transferring to Monday and Tuesday.
So if you looked at of capacity.
You you would say now on a full seven day you have the capacity if everybody balance themselves out, but still people are focused kind of on that weekend activity, where the capacity constraints really kind of come into play, but Greg maybe you have some additional thoughts.
Yeah I agree of Greg the other the other thing I would say is that most of the most of our theaters have enough houses that we can actually show the film on multiple screens at the same time to take up some of the capacity.
Okay, I see and then as we think about just the remainder of deferred rent.
They had mentioned this but is there a dollar amount right now or should we look at your account receivables, which I think were 90, some odd million dollars and think of you know.
What that should be on of normalized basis, and that's the difference being what's the rector to correct.
Yeah, Tony It's Mark first of all you Gotta take straight line out of that which is about 36 million R. R. A R was about 60 ish call in the the the deferred number was about 59 million. So typically we don't have that much I or we have some maybe a couple of million.
So it's it's high because we have deferred accounts receivable on our books that as I mentioned will get paid over the next roughly 36 months most of it so.
We expect that number to come down.
Quarter, because we're still differing some of them are collected some but we're collecting more than we're deferring and that that number will ultimately the the referral number of ultimately should go so essentially zero roughly in the next 36 months.
Because typically we just don't carry that much kind of traditionally are of course, the balance will still be total balance will still be up there because of straight line as well.
Got it I understand and then last question just on the dividend any thoughts on how you.
We need to be under 60% the way it's measured in the agreement debt to total asset value. So that's really the main were really good on the coverage ratios and so forth.
It's really that one being the tightest and as Greg said, we expect to hopefully come out of the Covenant relief period early given the ramp we're seeing in our operations sometime during the second half of the year.
Okay. So it's not a June 30 percentage, it's more likely to be September end of September type of thing before realistically you can get there.
Could be could be the end of it could be the end of second quarter could be it could be June 30, which means we would finish the quarter.
The file our compliance and then sometime in July in theory, we could be out of the covenant relief period. That's the earliest that could happen. If it doesn't happen. In Q2, then yes, then we'd be looking to possibly at the end of Q3.
Okay.
It's Greg I think what we tried to say it clearly we don't know all of this as it plays out but.
I think if we hit the upper end of all of our collection guidance debt debt.
Second quarter could be a realistic option for us.
Okay. That's very very helpful. Thank you and then.
When you look at stuff like the top golf and the Andretti, where does utilization today versus pre pandemic and how significant.
Are there of any food and beverage restrictions there there is sort of limiting their revenues.
Yeah, I'll, let Greg add more color on this but what were seeing now is for those type of businesses. They are approaching 2019 kind of number so their businesses the bounce back.
But those two seem to be the the biggest and then although we don't have a water park there I I think anything in Canada right now, they're they're really challenged and in fact is Greg noted how bout of mandatory locked out right now so all kind of assets are being adversely impacted their but Greg.
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Yeah, I'm kind of a pet.
That's the way what Greg said about food and beverage you know there are many of the states that I don't I don't need the list for you that have lifted restrictions completely secondly, I would say that our operators have out of year to get ready for this so you know they're the to the extent there are capacity of restrictions, they're working around them and working through it.
Again, the demand is there so we're comfortable that there'll be a good summer.
Okay. Thanks, guys I appreciate it thank.
Thank you up.
Your next question comes from eight am Ken of E. P. R.
Alright is that does that neat can you hear me.
Yes, that's.
The Sun cause keven, yeah, so [laughter] I figured working about what I'm sure.
Can you just talk about the the revenue run right here I know there are some negotiations and rent cars and you know rent's on a percentage basis and like all the the from one of them.
Uhm pieces as we get back to normal and I guess you can assume you know in a fully post cause of the road all the things are open what does the revenue run right look like going forward.
I'm, just having captured with the feeling of.
Well the contractual cash revenue today at 100 per cent of 136 million cash contractual cash revenue.
So we expect to get to that mostly through the bath towards the end of this year and but there is some additional ramping into 2022, so to get back to the contractual cash of of course anything we acquire AD. So that number or dispose of course takes away from that number of we expect that ramp to happen over the rest of of this year.
Here, primarily and then there is some additional ramp particularly in the attraction area that happens in 2022 do we get back to the full run right.
And at 136 does that include the mortgage interest or is that it.
Yes that does include the mortgage interest it does not include.
Percentage rents.
True percentage of rents rents over base amounts.
But yes and it doesn't include obviously.
Forward acquisitions, and so forth, but yes. It does include mortgage interest. It also includes Cam.
Got it and.
When you the.
Talk about you guys collecting 77 per cent of contractual rent in April.
I mean, some of the deals are on a percentage basis. So how does so is that 77%.
But it's not as that including some.
Some deals where it's on a percentage basis, so even though you're collecting I just really not a full of rent is that the the right way to think about it.
Yeah, it's the <unk>.
Good way to say it does have some variable rent in there. What we have is certain tenants are on a base rent and if their sales are better they pay additional rent and that really happened.
With some somewhat of of from our outperformance in Q1.
So, but I will say most of that rent that we're collecting is really fixed right outside of the margin. We're getting additional amounts over over kind of of base, there's not a whole lot of especially moving in the second quarter. That's.
The 100 per cent variable, there's generally of bass and then there's in some cases and outperformance closet of sales are great of the X you'll pay additional rent over that percentage of all of those are payments towards that based on are included in that 77 per cent.
Got it.
And the the last question for me as the debt.
I guess the.
Due to the the covenant waivers that you received I know that came with a higher interest cost of it so.
As that goes away like what kind of interest expense savings should we expect.
Well on the line of credit, which doesn't have anything outstanding right now it's about 100 basis points and then we have a term loan $400 million. That's about 100 basis points and then the two private placement issues. The total of $345 million is the 125 basis points. So it kind of goes back to the what it was before based on our rating.
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But the kind of 100, <unk> 100 basis points on the $400 million and then the 125 basis on about $340 million. So we would expect that benefit going forward.
Okay. Thank you.
Keeping.
Your next question comes from the line of Michael Carroll of RBC capital markets.
Yeah. Thanks can we talk a little bit of voucher ranked collection trends.
It looks like you've been heading in the right direction and you expect I think you've collected 77 per cent in April but you only expect to collect 75, the 80 per cent in two Q. Overall. So is that just is too I guess why are we assuming a continuation of that uptake if you're already 77 per cent in April.
Would that be the bottom end of the range.
Well again I just like it I'll go ahead and Mark No go ahead, I said of it could it could potentially be better, but a lot of the things kind of ramp up quarterly. So we did see of nice increase from Q1 percent of April of 77% of our guidance 75 to eight per cent obviously implies.
Increase from what it wasn't Q1 and there is a chance that that number is at the high end of course at 80%. So I think I think.
That's really it has a lot of these agreements kind of ramp quarterly.
Over time.
Yeah, I'd say, Michael kind of go into March earlier comment, we kind of have been stepping people up and they're paying a per cent of their base rent and then the the.
Potentially some kickers so we have a view as we in April we knew we were going up.
So it's it's it's the the performance Kickers really don't know I mean, those are the kind of the unknown but.
All along what we've said we've tried to move away from pure percentage rent to base rent and gradually move them up as we ramp up so we do have.
Moved into April we knew it was going up because we were stepping people up as a per cent of their contractual fixed route that they were paid.
Just to add okay. Most of that inquiry most of that increase is going to be in the theater area.
We have a strong collection around 90% of the non theater side and we see theaters ramping from what was about 50% of roughly in Q1 to something closer to 70 per cent in in the second quarter. So of nice really theaters are driving that increase in queue too.
Okay and the can you talk about the expectations within I guess the film slate I know you're kind of highlighted some.
There are some beating the expectations for a couple of of the movies, but what about like bond and Black widow, I mean, what type of box office numbers, who would be looking at I mean, what would be a success for those films.
I I think.
I'll like Greg way in as well, but I I think as we move into the fall.
And to look for numbers that would have been similar to what we saw prepaid demo.
And if you look at kind of mortal combat and demon Slayer, which I'm sure. It was on everybody's top of their wish list to go out and seek over the last two weeks, but their numbers of.
Broached, what they are pre pandemic expectation level of what.
So.
Again, it would it would be I I think we will be looking at like a bond.
As a post 100 million dollar film.
And we we think that that's the way the studios are looking at it but Greg maybe.
Bold colors, yeah, Michael the other thing I would add is you know it's it's all it's a moving target obviously based on on the performance on a weekly basis, but I think most analysts think that the box for the <unk> for the entire year of wind up between four and 5 billion and we're at about 450 plus.
Minus million right now so the the second half of the year should be very strong.
Okay and the great maybe on those can you talk a little bit about the capacity of restraints on those films I think that you were saying earlier that they were showing them in more screens.
So I guess was the capacity constrained a big issue for those specific film titles I guess I understand it the constraints for the overall box office, but what about those films specifically.
I don't know of it again, we're gonna be those films a lot of those are in the in the latter part of the year. So we don't know kind of weird those constraints will be after but as Greg spoke about earlier one of the benefits that we have right now.
Is the fact that we we have less spelled content. So we can play it in more houses, but the reality of as we move into the fall we're getting a more robust film really schedule. So we will have more content and the ability of the operator to play of film and.
Seven or eight houses problems will go away just because of the content calendar will be full and you'll be back to a more traditional playing it in two to four houses.
Okay, Great and then can you talk on the bed.
Oh, I'm, sorry, I just wanted to get to give you a couple of date of I mean right. Now there are nine states with zero capacity of restrictions basically I mean, some social distancing, but no capacity the restrictions and only seven states have less than 50 per cent capacity. So we're moving toward full of <unk>.
Pasty as of the year of progressive.
Okay, and then can you talk about the type of investments said you are looking at right now I know that you kind of highlighting that you're ramping up your pipeline, but what type of deals and segments within the portfolio of missed interesting.
I I I think it's always I mean, what we can say generally is we're we're trying to well we're not going to raise our theater exposure and looking to raise and our other areas.
Again, you know we were pretty upfront is when we came into the pandemic that we were looking at gaming I'm sure. We're gonna revisit that but I think Greg and his team of looking whether that attraction eating play.
Like the entertainment all of those other areas. So what I can tell you is it won't be in theaters, but it it will it will broad lately and our other areas of experiential.
Okay, great. Thank you. Thank you Michael.
Your next question comes from the line of John Osaka of Ladenburg Thalmann.
Good morning more.
The morning of January.
So may be following up on that last question as you'd like to build out the pipeline of potential transactions, maybe two eight what does the cash right environment look like for those types of the entertainment assets.
I kind of free pandemic.
Yeah, I mean, I think Greg I, let Greg talked about it but I think still we're kind of <unk>.
Mid seventies, the low H, but I I think those that that's a pretty.
That's gonna be driven by credit.
And the quality of the operator and the property it's always.
California real estate in eastern Seaboard is always a little more valuable, but Greg what do you think of those considering I think that's right I think that's right and again given the given the strong performance of some of these assets I don't think there's been a lot of change in the Kathryn.
Okay, but I don't know maybe.
Compression for some of the more pandemic resistance entertainment assets are we.
We may of we may see some of that again.
We're just kind of beginning to to build up and kind of try to see what's out there, but it's the these.
Again, I I think you clearly obscene the reverse of that in the theater space, but that's not an area that we're we're looking to deploy capital into I think you've seen yeah. Yeah, you know some degree of of.
Discussion of of gaming assets, but I think overall debt range is still pretty solid.
Okay, and then uhm switching gears, a little bit it seemed like earlier comments in in the AMC kind of revenue percentage of numbers indicated that your tenants are still paying in conformance with the kind of agreements that are in place as of the case in the one Q I'm I'm thinking about that correctly and I guess also were there any notable change.
This to the pro agreements or kind of rent levels or anything like that in the corner.
No I I think we could say, yeah, I think Greg said.
Are kind of pain in conformance with their agreements and we feel it yet you know as you mentioned earlier, we we we set those up to be the make of chili beneficial I I wanted to take the opportunity to commend our team for being creative in this I mean, what like what they did with pop golf an attorney.
The third grit and two of quality asset is is kind of first rate and and allows us to be.
Very thoughtful about how we how we approach this but I think we structured agreements Ah people are honoring those agreements and we feel good about the trajectory of where we're going from here.
Okay and then.
Quick one I know it was relatively small, but what drove the slight decline in occupancy this quarter with the just the.
Peter bankruptcy or something else.
Yeah, John we had unfortunately, we had a small chain of new England, where the the operator passed away unexpectedly and so they're chattering of the business and where we are going to release the theaters, but that was a large part of it [laughter].
Okay.
That's it for me. Thank you all very much.
Thanks, John.
Final question comes from the line of Joshua went dinner line of <unk>.
[noise] of America.
Yeah, everyone kind of.
Huh.
Just kind of curious on the the.
Is it to kind of growth going forward.
How we should think about your appetite for for gaming assets going forward I know of.
For the before the pandemic you guys had announced the.
Of pending acquisition curious if that's spelled potentially on the table and then just still how are you thinking of all that sector yeah.
Yeah, I mean again, Josh I think we'd like the sector will have to see if that transaction is still available. We I mean, I think we know it hasn't transacted yet so it's.
It's something that that that could available we liked the sector in the sense of our underwriting kind of proved how it how it kind of performed in and we we think there's there's value there and it's consistent with our strategy of becoming the most diverse of.
Five experiential read for investors to have an op net investing it we feel like.
You know, it's part of our strategy as we move forward that.
People want exposure to experiential they just don't want one category and we're gonna be able to give them a fully diversified option as we move forward. So I would expect us to aggressively look at gaming we spend a lot of time on it beforehand.
And I don't see anything that would change that but Greg maybe you have some thoughts.
Nope I agree and of the other thing I would say is you know we've kind of of said we've been focused on regional gaming because we liked the resiliency and we liked the concept of the drive to value Entertainment, which is the the bulk of our portfolio.
And the pandemic has proved out that for sure is Greg said.
Yeah.
Maybe one of follow up for me granted you mentioned kind of diversifying the portfolio.
At.
Intel kind of just throwing the asset base of away from the theaters or do you think we'll we'll see.
I have the or dispositions on that front, so you get more diversification.
Josh there's no doubt that we've spoke publicly about that we would like the lower our concentration of theaters again, we would like to try to get a closer to reflect.
Yeah, our portfolio reflect the opportunity set of experiential <unk>, we have two large of of theater exposure now whether that we modify that through growing the other things are selling things I'm sure. We'll we will explore all of those options.
[noise], great case of the color.
Thanks, a lot.
Yeah No further questions at this time do we have any closing remarks.
Sure I just wanted to thank everyone I appreciate your time and attention and as soon as we can see we look forward to talking to you next quarter and hopefully continuing this moment of.
Of what we've established here so everyone have a great day, and we'll talk soon thanks.
Sitting all you may now disconnect.
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