Q2 2021 EPR Properties Earnings Call
[music].
Yeah.
Good morning, ladies and gentlemen, and welcome to the Q2.2021 E. P. Our 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 then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to turn the conference over to your host Brian Moriarty VP of corporate communications.
Great.
Hi, everybody and welcome thanks for joining us today for our second quarter 2021 earnings call and webcast.
Participants on today's call are Greg Silvers, President and CEO, Greg Zimmerman Executive Vice President and CIO, and Mark Peterson Executive Vice President and CFO I'll start.
Thanks, all by informing you that this call may include forward looking statements as defined by the private Securities Litigation, Eric Covid 1995 identified by such words as will be intend continue believe may expect hope anticipate or other comparable terms the company's actual financial conditions.
And the results of the operations may vary materially from those contemplated by such forward looking statements.
Discussion of these factors that could cause results to differ materially from these forward looking statements are contained in the company's SEC filings, including the company's reports on form 10-K and 10-Q.
Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance a reconciliation of these measures.
To the most directly comparable GAAP measures are included in today's earnings release and simple supplemental information.
<unk> furnished to the SEC under form.
Condition K, if you wish to follow along today's earnings from today's earnings release supplemental and earnings call presentation are all available on the Investor Center page of the company's website at Www EPR Casey Dot com.
Now I'll turn the call over to the company's President and CEO, Greg Silvers.
Thank.
Brian Good morning, everyone and thank you for joining us on today's second quarter 2021 earnings call and webcast.
During the quarter, we continued to make significant strides as we announce that cash collection levels exceeded the high end of our guidance and that nearly all of our properties are open.
Fueled by.
These strong fundamentals, we achieved a critical milestone and subsequent to quarter end, we announced the early termination of our covenant relief period.
Importantly, this milestone is a turning point to allow us to return value to shareholders and pursue external growth.
I'm also pleased to have announced the resumption of our monthly dividends.
Dividend to common shareholders, which we anticipate continuing to increase alongside earnings growth over time.
I'm very thankful to our employees partners and shareholders, who have supported our efforts in achieving this milestone and in navigating these unprecedented times.
Throughout the U S. We're seeing consumers drive.
Driving the experiential recovery haven't.
Having been cloistered in their homes for months consumers have an even greater appreciation for the experiences that our properties offer.
As we've stated consistently consumer demand has not been an issue.
This has most recently been highlighted by the response of the movie going.
But as delayed releases have finally begun to come to theaters.
Even with certain same day in home streaming alternatives, we continue to see new post pandemic box Office Records.
We've also seen strong performance across our non theatre portfolio with several tenants outpacing 2019 levels.
While we recognize that we're still in a fluid environment. We believe the experience economy has proven to be increasingly important to consumers and we remain highly confident in our central thesis of investing in properties, which support this economy.
Additionally, we believe that high performing properties will remain strong as lower.
We're performing locations potentially close and customers are displaced.
Upon achieving our goals of exiting the covenant relief and resuming our dividend. We are now focused on deploying our capital increasing our earnings and growing our dividend.
Lastly, we are restarting our annual GAAP earnings guidance, which will provide greater clarity.
<unk> of our conviction for the year.
Now I'll turn the call over to Greg Zimmerman to discuss the business in greater detail.
Thanks, Greg at the end of the second quarter. Our total investments were approximately $6.5 billion with 357 properties in service and 95% occupied during the quarter our.
Our investment spending was $16.5 million, bringing the total investment for the first half of the year to $68.6 million in each case entirely in our experiential portfolio. The spending included build to suit development and redevelopment projects. Our experiential portfolio comprises 283 properties with.
With 42 operators and accounts for 91% of our total investments or approximately $5.9 billion of the $6.5 billion, we have 4 properties under development.
Our education portfolio comprises 74 properties with Ada operators and at the end of the quarter was 100% occupied.
Now I'll update you on the operating status of our tenants are deferral agreements and rent payment timelines.
99% of EPR theatres were opened as of July 26, based on relaxation of provincial restrictions are 4 theaters in Canada reopened at reduced capacity in mid July we.
We continue to operate 2 theaters through a third party manager in Columbus, Ohio, and Champaign, Illinois.
In Q1, I noted, we had 5 unleash theaters, which were vacant, but which we plan to release, none of which were operated by major exhibitors I am pleased to report that we have executed leases for all 5 theaters.
<unk> and we anticipate they will reopen this year all of our theaters, which will continue as cinemas are leased.
As previously reported we have recaptured 6 theaters, which we are marketing for sale, including 2 with executed contracts.
Starting in March as the country began returning to normal studio.
With more and better film product and month over month box office began to improve march's $114 million box office growth was our first time box office exceeded $100 million in a month since March 2020 box office jumped to $190 million during April and increased again to.
<unk> 9 million from May driven by a quiet place part 2 and F..9 June box office bolted to $399 million. We anticipate July box office will finish the month over $500 million of 25% increase over June just as important the growth is.
200 by Tentpoles together with the solid performance of smaller films as of the past weekend year to date box office growth exceeds $1.5 billion versus $2.1 billion for all of 2020. We are excited by the positive trend of month over month box office growth.
We.
We expect this momentum to continue the film slate for the remainder of the year is very strong since Hollywood delayed the release of many tentpole titles to capture greater theatrical box office growth as the country recover Disney.
Disney's Jungle cruise this weekend as an example of a highly anticipated title, which had its release date.
Driven need until theatrical exhibition began its recovery from the pandemic jungle cruise will be released simultaneously on Disney plus Premier access premium video on demand and is as of now the last film Disney has announced that will be simultaneously released to <unk>.
The slate for the remainder of the.
The year includes the suicide squad free Guy Shang Chi and the legend of the 10 rings venom, let there be carnage dune no time to die Eternal Ghostbusters afterlife top gun Maverick Spiderman, no way home that King's man and matrix for.
Disney's Marvel.
<unk> Studios Black widow was released on July 9th simultaneously in theaters and on Disney plus Premier access <unk>.
In its opening weekend, it grossed $80 million, which approached pre pandemic attendance levels and exceeded F. <unk> opening weekend by $10 million.
Disney reported that black widow growth, an additional $60 million worldwide on opening weekend through Disney plus Premier access <unk> through this past weekend. After 17 days in theaters Black widow has growth to $155 million, which is a robust number.
For the remainder.
The year Disney is employing varying release strategies as noted jungle cruise will be simultaneously released in theaters and on Disney plus Premier access <unk>.
The other 2 Marvel Studios releases Shang Chi and the legend of the 10 rings and eternal are currently scheduled for theatrical release only beef.
Before.
Availability on Disney plus likewise, the King's Man is also currently scheduled for theatrical release only before available availability on Disney plus <unk>.
<unk> results and Disney's evaluation in multiple strategies underscore a couple of points first wide theatrical release.
Used to be an essential element for studios to drive revenue and second studios will continue to experiment with windows <unk> and streaming as they seek to optimize their revenues, but in all cases theatrical exhibition remains an important element.
As box office recovers.
Continuous with amenities recliners premium large format screens, including IMAX and enhanced food and beverage, including alcohol offerings are demonstrably outperforming theaters with limited amenities. This.
This trend is true for our portfolio, we own 3% of the theaters, but produce.
8% of the box office and 96% of EPR theaters are in the top 50% of theaters. It has become clearer and clearer that the investments we've made over the past several years to add amenities to our theaters are driving results nearly 60% of our theaters have 1 or more houses with recliners.
Minor seating nearly 60% of our theaters have at least 1 premium large format screen and nearly 80% of our theaters have either enhanced food and beverage <unk> alcohol are centering our cinema portfolio is well positioned to outperform.
Turning now to an update on our.
Other major customer groups are 100% of our non theatre operators and 100% of our education portfolio are now open our seasonal businesses are closed in the normal course.
We are seeing continued positive performance across all segments of our drive to value oriented destinations.
Ski attendance was 2% ahead of 3 year averages and revenues were down only slightly reflecting restrictions on food and beverage in many locations, perhaps more important we saw an increase in new skiers, which bodes well for an expanding customer base.
We're seeing excellent performance across eat and play with the <unk>.
At or above 2019 levels, we're very pleased with the performance of the new top golf, San Jose, which we acquired in May our fifth Andretti Karting location in Buford, Georgia opened in May and is also performing well, we expect demand to remain robust throughout this summer.
We are seeing strong pent up demand across our attractions and cultural holdings and expect the trend to continue throughout the summer several of our attractions are significantly ahead of 2019 attendance levels.
We are also seeing high demand in our experiential lodging portfolio and again expect the trend will continue throughout.
Out the summer day.
Cartwright resort and indoor water Park reopened on July 1 the renovation of the Bellwether Beach Hotel in St. Petersburg was substantially completed in the quarter joining the renovated Beachcomber Beach Resort Our award winning Margaritaville Nashville Hotel will benefit from.
Ill get real Big Machine Music City Grand Prix Indy car race in downtown Nashville in early August.
Finally, our beautiful brand new camp Margaritaville, RV resort and Lodge in Pigeon Forge opened in June.
Our education portfolio continues to perform well.
Our primary.
Primary capital recycling activity continues to be in theaters in Q2, we sold 1 theater property for net proceeds of $14.9 million and recognized a gain on sale of a half a million dollars.
We're pleased with our progress in disposing vacant theaters. Since Q2.2020, we have sold 4 theaters and have executed.
The <unk> contracts for 2 more as I noted above we are marketing the remaining 4.
After a challenging 16 months, we are excited about the prospect of returning to growth our investment professionals are back on the road and looking at new opportunities and all of our experiential categories other than theaters.
Finally.
<unk> I wanted to update you on the status of our cash collections and deferral agreements cash.
Cash collections continue their upward trajectory tenants and borrowers paid 85% of contractual cash revenue for the second quarter, including approximately $1 million and deferred rent from cash basis tenants and from tenants for which the deferred.
We're not previously recognized as revenue in.
In addition year to date through July 26 collections of deferred rent and interest from accrual basis tenants totaled $48.9 million.
Customers, representing substantially all of our contractual cash revenue which includes each.
Payment and top 20 customers are either paying their contract rent or interest or of a deferral agreement in place in those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions.
Mark will provide additional color on revenue recognition and cash collections for the second quarter.
Each of our remainder of the year, we are excited by the prospect of each metric approaching 100% by the fourth quarter 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 by introducing 2000.
And our revenue.
<unk> as adjusted.
For the quarter was <unk> 68 per share versus <unk> 41 in the prior year and <unk> for the quarter was <unk> 71 per share compared to 44.44 in the prior year.
Total revenue for the quarter was $125.4 million versus $106.4.
In the prior year. This increase was due primarily to improved collections and revenue from certain tenants, which continued to be recognized on a cash basis.
I'll have more on collections later in my comments.
Additionally, scheduled rent increases as well as acquisitions and developments completed over the past year contributed to the increase this increase was.
Partially offset by property dispositions and to a lesser degree an increase in vacancies.
Percentage rents for the quarter totaled $2 million versus $1.5 million in the prior year.
This increase related to higher percentage rents from an early education tenant due to a restructured agreement and was partially offset by the disposition of certain price.
Private schools in December of 2020.
I would like to point out as I did last quarter that we are defining percentage rents here as amounts due above base rents and not payments in lieu of base rent based on a percentage of revenue.
During the quarter, we reduced our allowance for credit loss in our mortgage notes and notes receivable, which resulted in a credit loss.
Profit of $2.5 million versus a loss of $3.5 million in the prior year.
This reduction was due to a partial repayment by a borrower on a fully reserved note due to us due to stronger than expected performance as well as positive changes in the macro environment, which reduced the allowance calculated using our third party model.
Note.
It's been a benefit is excluded from <unk> as adjusted.
Lastly income tax expense was 398000 for the quarter versus a benefit of $1.3 million in the prior year. This variance related to the full valuation allowance recognized in all deferred tax assets during the third quarter of 2020, which effectively eliminated the impact of.
Note that this income taxes after that time.
Now, let's turn to our balance sheet and capital markets activities.
Our debt to gross assets was 39% on a book basis at June 30.
At quarter end, we had total outstanding debt of $3..2 1 billion all of which is either fixed rate debt or debt that has been fixed through.
Interest rate swaps with a blended coupon of approximately 4.6%.
Additionally, our weighted average debt maturity is approximately 5 years and we have no scheduled debt maturities until 2022, when only our revolving credit facility matures, which currently has a zero balance.
As.
Deferred easily announced due to the favorable performance this quarter and the expectation of continued improvement going forward, we were able to elect an early termination of the covenant relief period that had been in place under certain of our credit facilities until the end of the year.
As a result effective July 13th 2021 day interest rates on our revolver and 400.
As premium dollars term loan were reduced by approximately 100 basis points.
And the interest rates on our $316.2 million of private placement notes were reduced by 125 basis points in each case in each case based on our current unsecured debt ratings.
Note that of the approximately $2.3 million in immediate.
<unk> quarterly cash run rate savings, we will realize going forward as a result of this change.
Only about $1.6 million reflected as a reduction of quarterly GAAP interest expense as the premium paid during the covenant relief period on the private placement bonds continues to be amortized over the remaining terms.
Of course all of.
<unk> hundred $3 million quarterly cash run rate savings will be will be reflected in <unk> going forward.
Upon termination of the Covenant relief period, where we're also released from certain restrictions, including restrictions on investments capital expenditures and currencies of that stock repurchases and payment of dividends.
Coming out of the Covenant relief period, we were also pleased to resume our monthly cash dividend to our shareholders of <unk> 25 per common share with the first payment beginning in August.
This represents an annualized dividend of $3 and a yield on our current stock price of about 5.7%.
We had.
$509.8 million of cash on hand at quarter end, we paid down our revolver to zero in April.
We are pleased to note that from a liquidity perspective, we went into the pandemic with about $500 million of cash on hand, and nothing drawn on our revolver.
And we are now coming out of the pandemic at the same levels.
We are also encouraged by the positive signs we are seeing in our customers businesses and the resulting positive trajectory we are experiencing in cash collections.
As I mentioned earlier cash collections from customers continued to improve from where approximately 85% of contractual cash revenue or $115.7 million for the second.
This amount is in excess of the high end of the guidance range. We had previously provided and it was driven by additional collections.
Certain eton play and attractions tenants.
In addition, during the quarter, we collected $16.3 million of deferred rent and interest.
From accrual basis tenants and borrowers.
In the.
A deferred rent and interest receivable on our books at June 30, 30 was $51.9 million, which we expect to collect primarily over the next 30 months.
Subsequent to the end of the quarter, we collected an additional $3.1 million of such deferrals, bringing the year to date total through July 2006 to $48.9 million.
Quarter. In addition, we have about $116 million of deferred rent and interest owed to us not on the books related to cash basis customers and from tenants, which deferred payments were not previously recognized as revenue.
While some of this amount is scheduled to be collected beginning in the second half of 'twenty..1 most of this amount is.
It'd be collected over 60 months beginning in July 2022.
Collection of $116 million, certainly has more risk associated with it than the receivables on the books and as a result in 2 of these customers returned to accrual accounting income will only be reported as the cash is received.
It is important to note once again that <unk>.
Schedules from both of these groups of deferrals are in addition to the quarterly collection rates that we have been reporting on and provide us with additional growth capital.
We are pleased to be introducing guidance for 2021 <unk> as adjusted per share of $2.76 to $2.86, we believe it is important.
Collection, and lessors to understand the run rate of our existing portfolio and therefore have elected not to provide investment spending guidance for 2021, as we ramp up our investment pipeline.
The guidance for 2021 <unk> as adjusted per share includes only previously committed additional investment spending of approximately $20 million for the.
The last 6 months of this year.
As we have done in previous quarters. We would also like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the third and fourth quarters of 'twenty 1.
As well as our expected collections that relate to those same periods.
The expected range.
Range, we expect to recognize in Q3 of 'twenty, 1 and Q4 of 'twenty 1 of such contractual cash revenue was $117 million to $122 million or <unk>, 84% to 88% and 132 to $100.838 million or <unk>, 95% to 99% respectively.
Additionally, the expected range we expected.
To collect of such contractual cash revenue in Q3 of 'twenty, 1 and Q4 of 'twenty..1 is 114 to 120 million or <unk>, 82% to 86% and $130 million to $135 million or <unk>, 93% to 97% respectively.
Differences from the full amount of contractual cash revenue related.
To deferrals granted and the associated accounting as well as abatements.
Please note that the definition of contractual cash revenue continues to exclude percentage rents straight line and.
In other noncash revenue and revenue related to managed properties.
Details regarding all of our 2021 guidance can be found.
On page 22 of our supplemental non with that I'll turn it back over to Greg. Thank you Marc as.
As you've heard today, we've made significant progress on all fronts and are pleased with that progress. However, we are not done.
With more than $500 million in cash and an undrawn revolver, we are focused on deploying capital.
Capital to drive earnings growth and increased tenant diversity.
I want to say again, how proud I am of the entire team in realizing these goals early and we look forward to more accomplishments as we move throughout the balance of the year.
With that why don't I open it up for questions.
Ladies and.
If you have a question at this time. Please press the Star then the number 1 key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question is from the line of Katy Mcconnell with Citi.
Gentlemen, thank you and good morning, everyone.
Can you give more color on net.
The 1 data assets.
Just as far as pricing and buyer demand and then the same for an update on the steps that you have in process now.
Greg do you want to.
Sure.
We sold 4.
Over the past year as I mentioned since Q3.
<unk> has been for industrial a couple from multifamily and 1 was for a retail use this theater will be for multifamily.
The contracts we have include 1 for industrial.
4 we're marketing or for various opportunities non industrial office retail potential multifamily.
As we've said before Katie will provide an update on the cap rate and other information related to the sales once we get through selling most of these assets later in the year or early next year.
Theater.
Okay. Thanks, and then now that you have the ability to Cristina external investment more in the near term can you update us on the types of opportunities, you're seeing and whether you're targeting more 1 off assets.
Fully npls at this point.
Again, what we've said we've been pretty clear about.
The fact that we want to grow our tenant diversity. So we've said, we're not looking to grow our theater portfolio, but our other areas of experiential as far as whether that's 1 off our portfolios given our cash balance we're open to all of those all of the above.
I think.
We have to recognize that.
Yes.
We are actively building that pipeline.
It's it's already half of the year. So any larger transactions are probably going to take time and be towards the end of next year.
This year or towards the beginning of next year, but.
I know, Greg and his team are actively out there pursuing kind of large and small transactions and it just feels really good not only for <unk>.
Ourselves, but our team to get back in that involvement and I know our tenants greatly appreciate it as they look to expand their.
In response that they've got a capital partner ready willing and able to go forward with them.
Okay, great. Thank you.
Your next question is from the line of Anthony Pallone with J P. Morgan.
Okay. Thanks, good morning.
My first question.
<unk>.
With the 5% vacancy.
In the.
Portfolio does that how does that tie with some of the leasing it sounds like you did on the theaters.
Again I think.
Our overall, 5% vacancy is really go ahead, Mark you guys. I think we've got some properties. We are marketing for sale and I think thats included in vacancy because they are being marketed for sale.
The ones that Gregg said, all the ones that we expect to lease our lease had been leased but we still.
Have some theaters as Greg mentioned that we're marketing for sale that are making on the experiential side and then just.
Relatively small number but we do have some entertainment retail centers that may have on it.
Small shop vacancy, but which we bought assets is open cash consistent with us exactly.
Okay.
5.
Elyse that's included already when you're in those sort of agency numbers.
Basically not in there because they are leased.
They are in there and then we've got the vacancy is really stemming from the.
Like I said, the vacant theaters that we plan to sell and a little bit of the retail.
That Greg mentioned at our entertainment retail centers so.
That we've already got that another way to say it at 95% does include all the ones that we expect to lease are in that number then we just that that number will go up as we sell these properties and then they'll always be some vacancy due to that.
Entertainment retail centers.
Likely yes.
Got it.
You are it seems like the run rate revenue run rates been in that $554 million.
Range as you've laid out sort of your expectation for collections and so forth.
What do these theater leases add to that.
When when they are up and running or commence.
Well I think right now for the rest of the year. The theater leases are more on a percentage rent deals. So they're really kick in more next year and they probably won't open until later in the year. Some of them have to have a little bit of renovation done they were close to a year and a half we're hoping to get them all.
Open at least by Q4.
I think more than anything Tony I think and I'll ask Greg to comment that these we've re lease these.
At or about.
The range of where they release that before pre pandemic, which I think bodes well.
Quality of the theaters that we have given our ability to to change operators and achieve lease levels that are very similar to what we had before.
In this environment.
And just in terms of dollars I think those are probably worth a little over 3 million Bucks yet.
$3 million in.
Our mental guidance or net out here.
Okay got it that's helpful and then just.
Other question I had was.
As you look to make investments again can you maybe put some numbers around where cap rates are for the various segments in which you'd like to deploy capital.
Rather than breakdown every 1 of them I think what we've said is that and I'll ask Greg to come in somewhere around the mid <unk>.
Where were we think.
Opportunity and deployment is available so and as I said, it's going to be in areas that we would say.
Our experiential other than kind of the theater segment.
Okay and do you think that's I think on the.
Casino deal you all were close to.
Previously it sounded like that was maybe up.
Mid high Sevens kind of number but theres been a lot of liquidity in that space do you think that number would.
All told if you went back to a transaction of that nature or do you think thats compressed at all.
We're going to have to see again, there is no doubt that there has been transactions that have occurred but even to date.
Those have been more.
Kind of Vegas focused but Greg maybe.
You had the 1.
1 major non Vegas focused was the Springfield transaction with MGM and <unk> and that was a 7.5 cap.
Okay, great. Thanks for the color.
Thanks, Tony Thanks, Dan.
Your next question is from the line of Todd Thomas with Keybanc capital markets.
Hi, Thanks. Good morning, just first question I just wanted to follow up there on investments and end the call.
A comment about revisiting the gaming assets that you are pursuing before the pandemic can you talk about that specifically and perhaps provide an update on that on that process.
Just curious whether.
Potential for something to happen.
You know in 'twenty, 1 or whether that might be something more for 'twenty 2 as you've exited the covenant relief period and look to pursue growth.
Todd.
We've talked about and expressed our continuing interest in <unk> and think it fits.
It's a logical fit to our portfolio I don't know that it makes sense for us to comment on a potential deal.
So I'd rather leave it at there we've been pretty straightforward about the fact that it's an area that we think we're going to pursue and think it makes sense to add to our portfolio, but Greg maybe you have anything more to add.
Okay and then.
Thinking about sort of shifting the offense and deploying capital Mark can you talk about.
Leverage today sort of coming out of the pandemic and remind us of the company's long term leverage target long term.
<unk> leverage targets and whether thats changed at all or perhaps discuss where you expect to be.
At year end or heading into 'twenty 2.
Sure Yes. The good news is by the end of the year, we should be back in sort of that mid 5 range that we target.
And that's where we've kind of always operated around the mid fives that.
Net to EBITDA so.
As we go into next year.
Ex ex transactions that number actually will probably dropped slightly because we've got additional cash flow and so forth coming in next year. So.
The good news is in here in the near term, we're back to kind of that investment grade metric of mid fives that we've always operated at.
Okay, and just 1 question on guidance.
Can you provide an update on Cartwright I think you said it opened July July 1st can you just walk through the financial model impact there and the contribution from that asset.
That's embedded in the guidance and.
Early reads since to reopen there.
We're not giving specific guidance on Cartwright I will say just opening its going to take some ramp time. So we're not expecting large contribution over the remainder of the year.
As it's ramping back up the sales and marketing expenses to get going again et cetera. So we're not.
Not anticipating in our guidance significant contribution it will be some contribution but that really should come more into play next year. When we got a you know a full season and another you know it's been open this year and then you have a full season next year.
And I would say from an operations perspective, you know, it's only been opened for 3 weeks. So we'll.
And then the eating up after being closed for a year and a half but the early results. We're pleased with.
It's in line with what we expected.
Okay alright, thank you.
Thanks.
The next question is from the line of Rob Stevenson with Janney.
Hi.
Good morning, guys can.
Can you talk about what youre seeing in the marketplace on <unk>.
Good performing theater valuations today versus pre pandemic I assumed cap rates are still tricky given NOI, but on a per screen or seat valuation or are these things not trading and the only things that are trading here are the scrapes and adaptive free.
She uses.
I would say and I'll, let Greg comment I mean.
I don't think we can be much clearer I don't think we are in the market for looking at theaters. So we haven't been looking at transactions involving the operating theatres.
As far as what we're seeing it's you really hit it it's adaptive reuse.
I think it's.
We're just in a little bit different place right now Rob so.
We're not we're not really as I said looking at theaters to grow that portfolio of it Greg I think that's exactly right and I think you summarized it Rob.
Okay, because I was just.
Not so much.
But if you wanted to market 1 of your say top 20 AMC locations for sale today versus July 2019, just trying to triangulate here what type of pricing differential.
We're looking at because it seems like a lot of people are sitting on.
Other than you guys are sitting are also sitting on.
Theaters and maybe they don't want.
To sell now because I think valuations are depressed, but it looks like either 2022 or early 2023, there might be a wave of these things is people want to get out of them and just wanted to sort of understand what was going on pricing wise here. Its a great question I just don't think there's a lot of.
Realization of that right now.
I don't think Theres a lot.
A lot of transactions so it's it's difficult to.
To give you an answer Rob Okay, and then Greg can you talk about how the board settled on the $3 annual dividend what the discussions were about possibly setting it lower and then increasing it on a quarterly basis.
With delta or other variance might shut things down or limit capacity in some manner again.
Cause some disruption there maybe when you look at it your backend guidance on an <unk> basis is somewhere around $161.70, which is call. It a high <unk> low 90% <unk> payout.
Just how are you.
Thought about that.
Sure Great question and Rob It really was to deal with taxable income.
This year, so that was the discussion.
There really wasn't a.
Risk discussion or Delta Varian or anything it really was to do based upon taxable income but there.
There was a view that that is.
Our.
Actions continue to hold up that it would allow for a meaningful increase next year, because we have additional normalization that fully happens in 'twenty 2.
Next year, so that would allow for growth while still maintaining a relatively.
Low <unk> payout.
All right.
So mark I guess the question then winds up being is if youre looking at your sort of fourth quarter sort of revenue collection and the implicit guidance that that factors I mean does that basically assume.
By your statement there that as we head into 2022, all else being equal and there is no disruptions in the revenue keeps coming back.
Back et cetera that this is going to also force you to raise your dividend in 2022 as well from a taxable standpoint, yes.
So all things equal just because we haven't yet we're not quite at 100% and then hopefully next year as we go into 'twenty, 2 we'll be at 100% of.
100% revenue recognition.
We will drive greater taxable income so yes, it would imply a dividend increase to cover that.
<unk> liability.
Okay, great. Thanks, guys appreciate the time.
Thanks, Rob Thanks, Paul.
Your next question is from the line of Michael Carroll with RBC capital markets.
Thanks.
Can you talk a little bit about the gaming transactions that are available.
I guess, what other opportunities are out there outside the 1 that you had under contract pre COVID-19.
Yes, Greg correct me, if I'm wrong, but the thought was that EPR could complete with $6 million to $800 million of these types of deals a year. Obviously you gave.
That number I guess pre COVID-19 is that still a good, albeit long term target with these types of properties.
Yes.
We're going to be able to compete.
<unk>.
Again.
We will have to see how the valuation is I mean, we never saw ourselves Michael is.
Somebody.
Who is going to compete on 4 billion dollar deals.
Some of the large Vegas.
Properties, but we do think there will be opportunities that will allow us to play in this space and add meaningfully to our diversity, but right now I think thats right and we still.
Have a strong belief in the value of.
Regional casino assets.
Okay, and then can you talk a little bit about I guess, where are these transaction valuations are going and I did it did I hear you correctly that you thought gaming cap rates have compressed more meaningfully on vegas deals versus a regional deals in there as those opportunities for these regional deals.
We're still in those mid 7% type ranges.
Well I think what we said Michael is that if you look at the data.
Data indicates that there clearly is still a premium that is associated with.
Premier Vegas assets and the transactions that we've seen.
Market, whether that be Vg's, Venetian transaction or the recently announced black.
Blackstone deal.
The only data point.
During the pandemic that we have for our regional assets with <unk> acquisition of Springfield, which was done at a 7 and a half.
I think as with any and all of the experiential assets I think as.
Normalization comes back, we'll see where cap rates go.
And we will see about our opportunity to play in that but right now the data would indicate that there is still a very attractive option.
For EPR.
Okay, Great and then last 1 from me I think last quarter, you highlighted that the studios and exhibitors for theatrical releases, we're still targeting about a 45 day window.
Has that changed over the past few months.
Given the releases.
<unk> occurred in the results that the studios and exhibitors and salt.
The may and June type releases.
I don't think Thats kind of if anything again I would make my comment and then I'll ask Greg.
I think there is still.
A greater recognition of the value.
Of theatrical exhibition windows to the total value of a movie title.
I would I would direct if you haven't to the comments of Imax's CEO.
Their earnings call, who directly took on the issue.
Disney has their opinion is that there.
There they realize that.
The best way to maximize revenue dollars is to have an exclusive theatrical exhibition window.
We may see some more experiments as we work through the year on what the actual right number of days on that is but I think there is.
<unk> agreement on not only the need for a theatrical window, but standardizing that to where it maximizes revenues across the entire spectrum, but I think that's right and as I mentioned.
Disney only has 1 more that it's dropping simultaneously.
As for the rest of the year jungle cruise this week.
Okay, great. Thank you.
Your next question is from the line of John <unk> with Ladenburg Thalmann.
Good morning.
Good morning.
So.
Question on guidance.
I just noted the lower bound of kind of a Q3 cash rent collection guidance with 82% and just kind of stood out giving you collected.
85% in Q is that just conservatism or is there something kind of tangible maybe driving that reduction.
The low end versus what was actually came from <unk>.
Yes, so mid point 84, we collected 85%, it's really because in the second quarter. We had a couple of tenants pay us unexpectedly actually because of outperformance and so they paid us more.
It may continue we're just being a little bit.
More conservative.
They're going to pay outside of their deferral agreement, if thats going to happen again.
In Q3, it could happen, we're just being a little bit more conservative. There. We also had 1 tenant who pays according to Theres a base and then they pay.
Relative to their normal rats also a percentage rent based on performance.
So we're being a little more conservative there, but it could happen very similarly, I think what's going to happen going forward is.
While we have non theaters kind of going down a little bit in Q3 for conservatism theaters will start to go up in Q3, and then really go up in Q4 is really what's driving the kind of a forward.
Q3 is pretty similar to Q2, when you kind of cut through it all and then Q4 is where the big increases.
Okay.
And then it looks like Regal will kind of pain parcel rent in <unk> 'twenty, 1 if my math is right.
Is that in line with deferral agreement with them.
And if so can.
Can you provide any color as to when that would potentially end.
We don't speak to any particular agreement.
Agreement, what we could tell you John is that everyone is paying in accordance with their deferral agreement or their contractual lease.
And that short of and Mark.
Mark I would comment on this but short of.
Maybe.
1 attraction tenant.
I think everyone is pretty much back to their full contractual revenue by the beginning of 2022, but I think everyone is just that.
1 of them is a cash basis, so it would be more seasonal in terms.
How we get that but everyone's back to a 100% I mean, John to answer your question.
Everyone's preferring performing according to the deferral agreement plus because we were $10 million over the midpoint of $10.2 million over the mid point. So I'd say, yes. It was planned what happened during the second quarter as planned and then we got some unplanned due to outperformance.
And so I think things are actually happening better than we had anticipated.
Okay.
You're going to collect at the high end kind of 99% of revenue recognition in Q4, I guess, maybe as we think about the range in that kind of Q4 collection. Given what you are saying is that is that based on kind of conservatism in your maybe some.
6 months out kind of maybe just taking a little bit of.
The leeway for any kind of credit events or anything like that.
From our Q4 cash collection guidance correct.
Correct, Yes, the 95 to 9 Oh, that's revenue 95 to 90 on revenue recognition over the 93 to 97 cash collection.
Yes, yes so.
It jumps up a lot primarily driven by theaters on both sides of that equation and then there's just there's a couple of tenants that have deferrals through and it's not many through that go into the into Q4 and they will fully normalized in next year.
So in 'twenty, 2 we'll be at 100%.
Yeah.
There is.
Small amount of tenants that aren't quite at the 100% revenue recognition at the end of Q4.
Let's maybe kneel down my question, though like that 99% revenue recognition that assumed everyone continues to pay per their deferral agreements right.
If they do that.
Net revenue recognition.
Our guidance is 95% to 97.
For Rev Rec for the last quarter right. So if everyone paid 97% and then.
If there is a possibility of going above that if we get.
These cash basis guys to pay in some cases they are paying early.
Percentage could continue so it could be could start to approach, 100% by the end of the year, but our guidance is <unk> 95 to 97.
And then just bigger picture.
Lets say theoretically that kind of simultaneous streaming or <unk>.
Becomes.
It becomes industry standard.
And how are you thinking about coverages for your theater properties.
I guess, what you continue to kind of have robust enough coverage given the kind of leases that are in place. If you are seeing some of that box office may be siphoned off.
Into a Disney plus premier access or kind of equivalent.
Streaming service from 1 of the other studios.
Yes, I mean again I think first of all we would based on what we said earlier, we've challenged that assumption.
Yes.
Moving more and more evidence whether it's.
MGM from HBO, Max or Disney.
This is the last 1 that that there really is it that market for premium video on demand. So I think first of all we challenged that proposition, but as we talked about we have.
Some of the best of the best theatres out there and there.
Now we're again.
We think our theaters are going to perform EBIT.
If box office is.
Ends up normalizing to a lower level there may be some of that lower half of the country theaters that close and we will have to see how that redirects the consumer.
I mean, we could come out of this even on a lower box office with the exact same coverages because those consumers are redirected into our surviving theaters, but what and.
The reason that we kind of gave you kind of the information we did to day is to talk about the productivity of our theaters and how well.
How confident we are that they are going to sustain and be a part of any solution involving theatrical exhibition as we go forward.
Hey, John.
Hey, John I, just wanted to say 1 thing I was saying, 95% to 97 for revenue recognition right at 95% to 99 my comments still hold what I said, but you.
You're right it is 95% to 99% so we're approaching 100% some.
There is still some deferral into Q4 fully normalizes next year, but the high end is 99% for Rev. Rec Youre right.
Understood.
And then just.
Quick 1 on the last question do you have any visibility into that.
The theater portfolio.
Well cover just today kind of broader coverage today.
Our ability to cover now that we kind of have pretty much fully opened portfolio.
Again, it's very difficult to look at it today I think again, if you just look at kind of a big picture.
Items if you.
You look at and I'll ask Greg to comment on this if you'd think about.
2019 being a.
Kind of a $11.512 billion from 11.11, 3 coming through sorry, sorry.
A number and you would think we were around the 2 low and you've got as he set a 5.
$500 million month, if you project $500 million months on a standardized basis, you get back close to those kind of numbers. So now the reality is not all months are equal but.
We are we are up we are at or approaching a run rate to wear.
The the theaters are cash flow neutral to beginning to be cash flow positive positive on a.
Per unit basis right.
Okay.
Very helpful. Thats. It from me thanks, very much for taking my questions.
Thanks, Sean.
I'm showing no further questions at this time I will turn the call back to the speakers for closing remarks.
Thank you Whitney and thank you all for joining us today, and we look forward to talking to you.
Our third quarter call. Thanks, everyone. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participate.
<unk> you may now disconnect.
Okay.
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