Q3 2021 EPR Properties Earnings Call
Good day and thank you for standing by welcome to the EPR properties third quarter 2021 earnings Conference call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session chassis question. During the session you will need to press star one on your telephone. Please be advised today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to.
Your speakers today, Brian Moriarty, Vice President of corporate Communications you May go ahead.
Okay, great. Thank you.
Thanks for joining us today for our third 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 will start the call by informing you that this call may include where look.
<unk> statement as defined in the private Securities Litigation Act of $19 95 identified by such words as will be intend continue believe may expect hope anticipate or other comparable terms.
The companys actual financial condition and the results of operations may vary materially from those contemplated by such forward looking statements.
Discussion of these 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 Form 10-K, and 10-Q <unk>.
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 supplemental information.
<unk> furnished to the SEC under form 8-K.
If you wish to follow along today's earnings release 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 will turn the call over to Companys, President and CEO, Greg Silvers. Thank you Brian Good morning, everyone and thank you for joining us on todays third quarter 2021 earnings call and webcast.
Third quarter was highly productive with our strong cash collection results and the meaningful steps, we took to further solidify our balance sheet and strengthen our liquidity, we reinforced our position to pursue to pursue additional investment growth.
We were pleased to report cash collections, which exceeded our expectations driven by the accelerated recovery across our experiential properties.
We believe that increase vaccination levels and new protocols have translated to increased levels of confidence as people are again going out and seeking memorable experiences.
Consumers are returning to the theater in a significant way driven by highly appealing content as studios reestablish a rhythm of releasing major titles in theaters.
Strong momentum has been established with the box office with pandemic area of records being broken.
This demand for the theater experience has also provided studio has much greater clarity around the economic value that box office contributes.
I look forward to seeing this momentum continue as studios have committed to exclusive theatrical releases and a strong slate of titles remain in 2021 and going into 2022.
We are also continuing to see a sustained rebound across our non theatre experiential properties.
From Eaton play to experiential lodging, the common attributes of value and drive to locations provide choice, allowing consumers to spend a few hours or a few days outside the home.
On the capital markets front, we were pleased to once again receive an investment grade rating with a stable outlook from S&P, while Moody's raised its investment grade rating to a stable outlook in October recognizing our meaningful progress.
Additionally, we further solidified our balance sheet as we completed a new $1 billion credit revolving credit facility and $400 million debt issuance. These actions have certainly enhanced our liquidity profile and positions us well to reaccelerate our growth Mark will provide greater detail on this.
All of this progress established a strong backdrop for us to pivot to pursuing growth and we made progress in reestablishing our investment spending momentum.
As Greg will speak to we have re engaged in discussions across many of our experiential property types.
Lastly, I want to bring to your attention our updated company tagline in logo the new tagline. The diversified experiential REIT highlights diversification is an important attribute that we will continue to build on we are migrating from a recovery opportunity to our sustained growth opportunity as it is our strategic intention.
To grow across each of the eight property types as defined in our investor presentation as target experiential property types.
We believe we are uniquely positioned to capture these opportunities we are seeing ample evidence of consumer demand for experiential properties and we have the only team in the industry with proven capabilities across the entire spectrum of experiential concepts.
With this backdrop of demand combined with our team and focus we believe we truly offer a unique alternative for investors to gain diversified exposure to experiential real estate and the experiential economy.
Now I'll turn it over to Greg Zimmerman.
Thanks, Greg at the end of the third quarter. Our total investments were approximately $6 5 billion with 358 properties in service and 96% occupied during the quarter. Our investment spending was $39 3 million, bringing the year to date total through September 30 to $107 9 million.
And each case entirely in our experiential portfolio. The spending included in acquisition build to suit development and redevelopment projects. Our experiential portfolio comprises 284 properties with 43 operators and accounts for 91% of our total investments or approximately five <unk>.
$9 billion of the $6 5 billion and at the end of the quarter was 95% occupied our education portfolio comprises 74 properties with eight operators and at the end of the quarter was 100% occupied.
Now I'll update you on the operating status of our tenants.
Q3 theater headlines were extremely positive Q3 total box office was one $3 7 billion major film poorer lease customers returned to theaters and box office results steadily improved the first 100 million $1 three day weekend and the pandemic era wasn't until July.
Since then North American box office has exceeded 100 million four three day weekend five times, Shane Chi and the legend of the 10 rings put an exclamation point on the quarter, establishing an all time for day Labor day box office record at $94 7 million.
Then let there be carnage delivered the highest grossing opening three day weekend during the pandemic era at $90 million.
Box office momentum continues as we roll into Q4, North American box office through this past weekend is 3 billion compared to $2 1 billion for all of 2020, we.
We believe Q4 performance will deliver around $2 billion.
And instructive metric to evaluate box office recovery is to compare 2021 monthly grosses to the same month in 2019, which adjust for the seasonality of the film schedule Q2 box office growth was around 25% of 2019. Since then box office has consistently approve.
<unk> month over month, when compared to the 2019 comparable period.
July was at 45% August at 50% September at 53% and when final October numbers are in we expect grosses will exceed $622 million or around 80% of 2019, the highest monthly gross since February 2020.
Additionally, the number of films released two exhibition is steadily increasing and should drive continued box office recovery.
During 2018 in 2019, there were around 560, new titles released theatrical exhibition annually in 2020, there were 327 or 42% decrease through September 30th there have been 285, we anticipate that number will grow to it.
Round 400 by the end of the year. The release cadence will continue to grow in 2022 increased product will drive continued box office recovery.
The remaining Q4 film slate is strong internals Ghostbusters afterlife West side story Spiderman, No way home, the King's man and matrix Resurrection.
The 2022 film slate is compelling with the potential for 'twenty titles to gross $100 million are more up approximately 50% from 2021 anchored by two Tom Cruise Pictures top gun Maverick and mission impossible seven three Marvel Universe films and several highly.
Anticipated sequels, including Aquaman to Avatar, two John Wick, four the Batman and Jurassic World.
Finally, the impact of premium video on demand and streaming on the theatrical window and exhibition and theatrical exhibition is clearer after the day and date hybrid release of Black widow Disney announced the remainder of its 2021 film slate will have an exclusive theatrical release.
And her brothers had already committed to an exclusive theatrical release for 2022.
The results of day and date premium video on demand and streaming demonstrated the best way for studios to maximize revenue through a multi pronged approach anchored by the theatrical exhibition.
Exclusive window the exclusive theatrical window is generally settling around 45 days with some variability for individual titles and exhibitors historically the majority of box office growth occurred in the first 45 days.
The reduction of the exclusive theatrical window will lead to more streaming services releasing more films theatrically.
More content in theaters is a positive for consumers. This is already happening in May Netflix released army of the dead theatrically in select theaters, including 600 Cinemark theaters for one week prior to its availability on Netflix Netflix is continuing its experimentation in <unk>.
Q4, it will release 10 titles to theatrical exhibition before released a streaming it won't be a 45 day window, but netflix understands the importance of theatrical release for both revenue generation and word of mouth marketing. This.
This is reinforced by the recent announcement that Netflix will operate the base theater in Pacific Palisades.
Turning now to an update on our other major customer groups. We see continued positive performance across all segments of our drive to value oriented destinations the fewer the COVID-19 restrictions the better their performance.
Across all segments, our customers found many ways to improve their profitability despite fewer guests.
Consumers want to engage in social activities, we're seeing excellent performance across eat and play throughout the country with attendance approaching or exceeding 2019 levels and continued margin improvement in profitability.
We saw a recovering demand across our attractions and cultural holdings throughout the summer attractions with fewer COVID-19 restrictions performed well and several were significantly ahead of 2019 levels.
Others were negatively impacted by ongoing COVID-19 restrictions with performance improving as restrictions were relaxed and eliminated and the impact of fewer group in school events. We anticipate continued growth in demand in 2022, assuming no material COVID-19 restrictions.
There is high demand across our experiential lodging portfolio with strong occupancy and ADR growth.
The Cartwright resort and indoor water Park reopened on July one and ramped up through the summer we're pleased with our progress.
The Margaritaville Nashville hotel in downtown Nashville is benefiting from Nashville's rebound to its typical diverse and robust event calendar, including live performances at the Ryman Auditorium, Tennessee Titans in Nashville predators games, and an Indycar race.
The RV portion of our camp Margaritaville RV resort and Lodge in Pigeon Forge, Tennessee opened in June we saw a strong demand through the summer and into the fall foliage season, which draws visitors to great Smoky Mountains National Park. The most visited National Park in the country with over 12 million visitors in 2020.
The lodge will be completed in Q4 <unk>.
Despite the impact of reduced cruise business on Alaska Alyeska resort benefited from increased air lift and ground tours to Alaska and is performing well our Nordic Spa will open Q4, and St. Petersburg or reposition bellwether Beach resort is completely renovated with all rooms in venues open.
Driving ADR increases were completing the second phase of the redevelopment at the Beachcomber.
Heading into winter, we expect strong demand for our drive to value oriented ski destinations as evidenced by vales increased epic pass sales for 2021 22.
<unk> recently announced $320 million capital plan will improve four of our properties.
Our education portfolio continues to perform well.
After a challenging 16 months, we are returning to growth and actively pursuing deals in all our experiential verticals other than theaters in Q3, we acquired the Jelly Stone Park camp resort and warns Wisconsin for $25 2 million and an unconsolidated joint venture of which we own 94.
5% this iconic family campground RV Park features numerous experiential amenities, including a water park and a water slide along with camp Margaritaville. The jelly stone acquisition demonstrates our belief in the growth opportunities in the experiential RV Park space the remainder of the quarter.
We investing spending was in build to suit development and redevelopment projects in our Eaton play and experiential lodging categories.
Our primary capital recycling focus remains on our vacant theaters and we're pleased with the progress since Q3 2020, we've sold five vacant theaters for various uses including one that closed yesterday for approximately $6 8 million at a slight gain.
We have five remaining vacant theaters three or under executed contracts for sale and we're marketing the remaining two with multiple expressions of interest in the third quarter. We also completed the sale of two land parcels at.
At the end of October we sold our wisp in Wintergreen ski resorts to our tenant for $48 million or about a 9% cash cap rate with a gain on sale of $15 4 million. This was a strategic decision to improve our portfolio and our credit profile located in Maryland and Virginia.
They were the farthest south ski locations in our portfolio and other than alyeska. They were our only ski resorts not operated by Vale.
Finally, I want to update you on the status of our cash collections cash collections continue their upward trajectory tenants and borrowers paid 90% of contractual cash revenue for the third quarter.
In addition, we collected a total of $11 3 million of deferred rent and interest during the quarter as well as $5 3 million on a previously reserved note receivable.
Through September 30, we have collected a total of $59 $5 million of deferred rent and interest from accrual in cash basis customers.
Mark will provide additional color on revenue recognition and cash collections for the third quarter and the remainder of the year. We are excited by the prospect of each metric approaching 100% in the fourth quarter I'll now turn it over to Mark for a discussion of the financials. Thank you Greg today, I will discuss our financial performance for the quarter.
And provide an update on our capital markets activities and strong balance sheet and close by reviewing our increase in 2021 earnings guidance.
<unk> as adjusted for the quarter was <unk> 86 per share versus a loss of <unk> 16 in the prior year and <unk> for the quarter was <unk> 92 per share compared to <unk> in the prior year.
Total revenue for the quarter was $139 6 million versus $63 9 million 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 over previously receiving abatements as well as less receivable write offs than in prior year.
I will have more on collections later in my comments.
Scheduled rent increases as well as acquisitions and developments completed over the past year also contributed to the increase.
This increase was partially offset primarily by property dispositions.
Additionally, we had higher other income and other expense of $7 9 million and $5 2 million, respectively. Due primarily to the reopening of the Cartwright resort and indoor Waterpark after being closed due to COVID-19 restrictions COVID-19 restrictions.
As well as the operations from two theater properties.
Percentage rents for the quarter totaled $3 1 million first $1 3 million in the prior year.
This increase related to higher percentage rents from an early education tenant due to a restructured agreement.
As well as stronger performance than expected at two attraction properties and one ski property.
This was partially offset by the disposition of certain private schools in December of 2020.
I would like to point out as I have in recent prior quarters that we are defining percentage rents here is the amount to do above base rent and not payments in lieu of base rent based on a percentage of revenue.
Costs associated with loan refinancing or pay off for the quarter of $4 $7 million related to the write off of fees and termination of interest rate swaps related to the repayment of our $400 million unsecured term loan facility during the quarter.
Interest expense net for the quarter decreased by $5 2 million compared to prior year due to reduced borrowings offset by lower interest income on short term investments.
In addition to the repayment of the term loan we had no balance on our revolving credit facility. During the quarter you may recall that in prior year, we had drawn $750 million on our revolving credit facility as a precautionary measure which provide us with additional liquidity during the early days of the pandemic.
During the quarter, we continued to see improvement in the credit profile of our mortgage notes and notes receivable, resulting in a credit loss benefit of $14 1 million versus a loss of $5 7 million in the prior year.
The primary reason for the benefit this quarter was stronger than expected performance by our borrower, resulting in a partial repayment of $5 3 million on a fully reserved note.
And the release from an additional $8 5 million in funding commitments that also had been previously reserved.
Note that this benefit is excluded from <unk> as adjusted.
Lastly income tax expense was 395000 for the quarter versus $18 4 million in the prior year. This variance related to the full valuation allowance recognized on all deferred tax assets during the third quarter of 2020.
Which effectively eliminated the impact of deferred income taxes after that time.
Now, let's move to our capital markets and balance sheet.
We had a very productive quarter related to financing activities that resulted in several improvements in our balance sheet and a lower cost of capital for EPR.
As mentioned earlier, we repaid our $400 million unsecured term loan on September 13th and following this repayment we received an investment grade rating from S&P on our unsecured debt with a stable outlook.
Which added to the existing investment grade rating from Moody's. Additionally, Moody's raised its outlook to stable during October.
On October six we amended and restated our $1 billion revolving credit facility to extend the maturity to October 2045 with extensions at our option for a total of 12 additional months subject to conditions.
We are pleased that the new facility has the same pricing terms and financial covenants as the prior facility with improved valuation of certain asset types.
On October 27th we closed on $400 million of new 10 year senior unsecured notes at a coupon of three 6% the lowest in the company's history.
The offering was over four five times subscribed, which allowed us to significantly tightened pricing and achieve a negative five basis points new issue concession.
As previously announced the proceeds from this offering will be used in part to redeem all $275 million of our 5.25% senior unsecured notes at the make whole amount on November 12.
Our net debt to gross assets was 38% on a book basis at September 30.
Pro forma for the bond transactions, we will have total outstanding debt of approximately to $2 8 billion, all of which will be either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately four 3%.
Additionally, our weighted average debt maturity will be approximately six five years with no scheduled debt maturities until 2024.
We had $144 4 million of cash on hand at quarter end.
Which is expected to increase by approximately $95 million with the issuance of the new 10 year bonds net of the redemption of the 2023 bonds and we have nothing drawn on our $1 billion revolver.
We continue to be encouraged by the positive signs we are seeing in our customers businesses and the resulting positive trajectory we are experiencing in cash collections cash.
Cash collections from customers continue to exceed expectations and were approximately 90% of contractual cash revenue or $124 5 million for the third quarter. This is this amount is more than the high end of the guidance range. We had previously provided.
It was primarily driven by additional collections from cash basis customers.
During the quarter, we also collected $7 7 million of deferred rent and interest from accrual basis tenants and borrowers.
And the deferred rent and interest receivable on our books at September 30 was $40 9 million, which we expect to collect primarily over the next 27 months.
Additionally, during the quarter, we collected $3 $6 million in deferral repayments from cash basis customers.
That were recognized as revenue when received at.
At September 30, we had about $126 million of deferred rent and interest owed to us not on the books.
We anticipate collecting some of this amount over the next two quarters. However, most of this amount is scheduled to begin to be collected over about 60 months beginning in may of 'twenty 2022.
Revenue will continue to be recognized on these amounts when the cash is received.
Finally as discussed previously we also received a note repayment from a cash basis customer of $5 3 million.
Which resulted in credit loss recovery that is excluded from <unk> as adjusted.
Adding this all together as you can see on the slide we collected more than 100% of contractual cash revenue for the quarter.
We are pleased to be increasing guidance for 2021, <unk> as adjusted per share from a range of $2 76 to $2 86 to a range of $2 95 to 301.
The guidance for 2021 <unk> as adjusted per share includes only previously committed additional investment spending of approximately $6 million for the last three months of 2021 guide.
Guidance for <unk>.
Disposition proceeds has also been increased from $40 to $50 million to $93 million to $103 million primarily to reflect the sale of the two ski properties that Greg discussed.
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 fourth quarter of 'twenty one as.
As well as our expected collections that relate to those same periods.
The range, we expect to recognize in Q4 of such contractual cash revenue of $133 million to $138 million or <unk>, 96% to 99%.
Additionally, the expected range, we expect to collect of such contractual cash revenue in Q4 is $131 million to $135 million or 95% to 97%.
Differences from the full amount of contractual cash revenue relates to deferrals granted and the <unk>.
And the associated accounting.
Please note that the definition of contractual cash revenue continues to exclude percentage rents straw.
Straight line and other noncash revenue and revenue related to managed properties.
I would also like to note that beginning in 2022, we expect both current quarter collections and revenue recognition to be at 100% of contractual cash revenue and we expect.
To continue to collect deferrals deferral amounts from prior periods.
Finally.
I thought it'd be helpful to provide a bridge from the midpoint of our previous <unk> as adjusted per share guidance of $2 81.
To the midpoint of our increased guidance of $2 98.
Hi, Thanks. Good morning first question I, just wanted to talk about acquisitions, you talked about being in a position to begin.
You know deploying capital here and I think there's been focus on gaming when we think about investments for EPR here, but I'm just curious.
Just.
Around other potential acquisitions that you might be looking at and contemplating I think you mentioned that you know everything sort of on the on the table outside of theaters can you just discuss sort of where you are seeing.
Attractive investment returns and opportunities.
Elsewhere and across the board across the landscape a bit.
Sure Todd and I'll, let Greg add some more to this I think.
One of the things that this quarter has to reflect if we look back in the third quarter. Remember. This is also the period of time, where the Delta variant very much reared its head there were quite a bit of concerns about what we'd be back into shutdowns.
We took a very conservative kind of view of that.
What we had experienced so we probably kind of took the took the.
Foot off the accelerator a little bit as we let that play out to kind of see.
Clearly as I said the consumer.
Wasn't as affected by that Fortunately we saw.
Strong demand on that and I would anticipate that we would see our investment volumes are growing as we move through upcoming quarters, but as to where those were at Greg.
I look to you and you could give us some insight Greg I agree the investment cadence will certainly start to pick up we're seeing opportunities and experiential lodging for sure we're seeing opportunities in attractions and eat and play and we are actually actively looking at projects in all of the verge.
<unk> on our web site other than theaters.
And again gaming does remain a focus for us.
Okay and.
Can you provide a little bit more detail around the joint venture acquisition.
That was that you completed during the quarter the experiential lodging property in Wisconsin.
And is there an investment yield that you can share just a little bit more color on that investment.
So with respect to the joint venture we partnered with an operator that has substantial experience in the RV Park business.
So we actually own it in the joint venture and they will manage it for us.
We thought it was a great opportunity the park has been around for 30 years or 40 years.
We felt like there were there were a lot of opportunities to improve it.
And we've already started to see the results of that since we took ownership.
And labor day.
I would say from a yield standpoint, I think we think that's a low type.
Type return Todd.
Okay, that's helpful and.
And Mark the increase in percentage rent I think you mentioned a couple of attraction tenants.
Ski property, perhaps whats the outlook for percentage rent throughout the balance of the year and do you expect percentage rents too.
To continue to remain elevated in 2002.
Yeah, you noticed we increased the midpoint of our guidance by $2 3 million as you mentioned, partially that was from Q3, which was skiing attractions and then we expect in the fourth quarter to be attractions again, but also some eaton play tenants starting to pay.
Pay percentage rent. So we're encourage really as the business picks up we're seeing additional percentage rents that frankly, we didn't play.
<unk> previously, but it's really evidence of the demand that these properties are seeing.
Okay Alright.
Alright, thank you.
Thanks, Thanks Todd.
Our next question comes from the line of Katy Mcconnell from Citi. Your line is open.
Great. Thank you.
Now touching the targeted level of contractual cash revenue, how should we think about NOI growth.
Yes, maybe just to start some of the key drivers that you think about next year.
I mean, I think we've said Katie that art.
I'll ask mark to comment, but I think we've said generally.
Bumps are going to average somewhere 1% to 2% call. It one 5% and then the remaining amount of growth will be driven primarily by additional investment spending but mark is are those numbers consistent yes.
In part we will get to a 100% revenue recognition rate, which will drive earnings next year will also we did have some of our managed properties closed for a good portion of the season. So we're hopeful of those get a full season to operate those will also improve.
And performance in 'twenty, two so I think we've got some tailwind heading into 'twenty, two as far as year over year growth.
Okay, Great and then can you just update us on the pipeline of dispositions to selling guidance for the balance of the year and.
And does that account for any of the theater assets, the marketing or any other category.
Yes, I think it's primarily theater assets, but I'll, let Greg.
And I'll, let mark talk about what's in the budget for the rest of the year, but we have as I mentioned in the.
In my script, we have five theatres left to sell Thats. It those are only vacancies three or under contract.
Two are.
This substantial.
Expressions of interest.
We anticipate that several of those should close this year, but they could roll into Q1 next year.
Yes.
Guidance went up for dispositions kind of at the midpoint by $53 million in 48 of it was the ski properties.
I would call the remainder of it some things moving around but Greg also mentioned the theater property that sold in Q4 for $6 8 million. So that's really the primary drivers.
The increase in Q4, we have in addition to the ski properties. We sold in the theater, we've already sold there could be other smaller sales and we've got a range for that.
Some of which relates to the non theater properties and I think that is it mostly land sales right.
Maybe one of them yes.
Okay.
Got it okay. Thank you.
Thank you.
Our next question comes from the line of Rob Stevenson from Janney. Your line is open.
Good morning, guys excuse me.
Mark or one of the Greg.
How are you guys thinking about sort of where you guys are versus September or October 2019, whichever.
Best data for on a sort of same store cash revenue run basis today, I mean, you've renegotiated some of the leases with your tenants you've sold some stuff, but excluding deferrals and all the other sort of stuff.
Would be in there I mean, how much is revenue in the door down today on the same properties versus 2019, and how much of that gap are you likely to make up over the coming quarters.
I think what we've said on the same properties.
We went into this and said we thought we would be down about 5% I think we actually hit that number or maybe slightly less slightly less than 5%. So Rob I think the guidance that we gave the market early on has has proven correct.
Most of that is permanent candidly and we would be.
Be remiss if I told you I think we can we can make that up those are renegotiated leases.
I do think at 5%, though we are as we talked about we're sitting on a lot of liquidity.
Our ability to make that up.
As we start to drive investment volumes is pretty apparent, but I'll, let greg or mark.
I'd like to know I think thats right.
And we've had some portfolio changes since 2019, we sold charter schools at the end of 19, we saw private schools, we've shown some theaters et cetera. So we're sitting as we as I said quite a bit of liquidity, but when you talk about store over store. The 5% is the number we've been.
As Greg said had had estimated and Thats what has come through at 4% of that is really the AMC deal that we disclosed quite a while ago. So.
Nothing's changed in that regard and most of them so ex AMC.
Yes.
It's not down very much at all.
Thats correct, and we are collecting and the deferrals.
For the most part it wasn't forgiveness and we're collecting those over time and youre seeing that in our cash flow numbers.
Okay.
And then the other question is.
A number of <unk>.
People in both the Triple net space and the overall retail space had been doing.
They have been going back and reevaluating their theaters for.
Less parking trying to carve out some out parcels.
A couple of them have looked at as potential multifamily development sites, given how pricy multifamily land has gotten in the costs there et cetera. When you look at your theater portfolio.
Is there any material amount of.
Our parcels to carve out.
Properties that.
Would make for a higher and better use at this point as youre going through and trying to figure out your theater exposure going forward.
Thing to sort of mine there of any materiality.
I think it's a good question, Rob I think the point to point out as we've been doing that all along I mean, if you look at at most of our when you look at our portfolio, where we have restaurants are where we've mined and sold out parcels. We did a deal a couple of years ago, where multifamily outside <unk>.
Cargo. So we continue all the time to look at ways to.
<unk> value working with our tenants.
Greg I don't see that stopping.
Stop at all and I think the.
In terms of the repositioning.
We've sold some of these they can amc's for multifamily we sold some for industrial so where there is demand we pay attention to that.
Okay, and then Mark the jelly stone.
JV is that unconsolidated.
Yes, it's correct, we own 95%, but it's on consolidated just has to do with the accounting rules around major decisions, they're kind of shared so the accounting rules require that to be unconsolidated. So that'll show up in the unconsolidated joint venture line item Okay.
Thanks, guys I appreciate the time.
Thanks.
Okay.
Our next question comes from the line of Michael Carroll from.
From RBC capital markets. Your line is open.
Yes. Thanks.
Talk a little bit about how private market valuations changed first level here targeted asset classes today versus pre COVID-19 levels.
Is there a meaningful difference or has this recovery kind of brought those valuation levels back to where they were previously.
I would say again.
It would be kind of Michael Greg It would be kind of credit based I think there is still a recovery in the theater space, but when you look at some of our kind of top tenants avail of top golf.
Six flags there has been meaningful kind of valuation I mean.
A lot of those assets could trade significantly into the low single digits. So I think that that's an area. When you parse our portfolio there is.
Significant valuation distinction.
Very very many of those those tenants in assets, but Greg maybe yes, I would also in lodging.
No doubt that's recovered nicely.
And then I guess when you are looking at these types of investments I mean are these all stabilized deals or are there any value add type transactions that you can find that might have a better return profile I guess, what's on the marketplace that you're really interested in.
It's both I mean, you heard Gregg talk about the daily So think of it as very value add in the sense that we're already.
We have a property improvement plan, we intend to invest and modernize.
So when we can as we as we talked about when we could go in a kind of a low eight.
And make improvements and we think drive those up.
Heard us talk about our some of our experiential lodging, where we've made.
Improvements in our driving returns so I think it's a little bit of both Michael.
There are.
Stabilized opportunities, but there is always going to be.
Things that we think that we can buy at attractive prices now and then improve to two higher returns.
You had mentioned on that Joe.
Sorry, I just wanted to add to that one thing on the jelly <unk> eventually.
Investment I should mention is that we do have secured debt on there.
That at about $15 million at a 4% so an attractive rate.
So thats.
We've gone and invested 25 gross and more like 11 ish net.
In the interest rate on that is like 4% just to round out that investment.
Okay.
Makes sense and then on the gaming side I know there was a big transaction that youre looking at pre Covid that I think are probably looking at now I mean is there an update you can provide on that I mean, how is that progressing are you in the middle due diligence right now.
Again, we can't comment on any kind of deals generally I would say as many of you know the gaming space has gotten increasingly more competitive.
Again, the we've seen significant cap rate compression in that area.
We'll see if that works for us, but we don't comment on really any specific transaction.
Okay, great. Thank you.
Thanks, Michael.
Our next question comes from the line of Kevin Kim from Truest. Your line is open.
Hi, This is keep it quick.
Quick question first.
Sure.
What are your leverage ratio of debt plus preferred to EBITDA by end of the year on a normalized basis.
Yes. The good news is our leverage should be back in a range of $5 $5 to $5 six so call. It will be it should be in the mid fives in fourth quarter, and our <unk> payout ratio will be in the low 70, So we're kind of going to get back to normal as far as our leverage and of course.
As we further annualized next year.
Investments aside that will go down further.
And that's including preferred.
That's.
No that does not include preferred debt that does not include preferred.
Okay. So.
So in terms of your capital deployment plans going forward.
Your stock price has rebounded nicely, but I would say not quite to the point where larger deals would.
It would make sense in terms of the yield spread investing.
How do you think about that as a management team.
And.
What other alternatives.
Alternative funding mechanisms and how youre thinking about it.
Is that all.
I think keeping first of all you have to realize as Mark said, we're probably sitting on $2 million to $300 million of cash so again.
Deals work a lot with that that much much cash with that being said we are mindful of that.
We've made as you said, we've made a nice recovery, we think theres still.
More to do with that as far as kind of driving our multiple up.
So.
As Greg said, we still have assets that we're selling so we still have the ability to recycle, but we believe that our recovery will continue as we demonstrate.
The consistency and reliability.
<unk> of these cash flows and combined with our existing cash and liquidity.
We can begin to establish an investment cadence that we will continue to drive down our cost of capital.
Got it. Thank you that's it for me.
Thanks, Kevin.
Again, if you would like to ask a question press star one on your telephone.
Next question comes from the line of John with Telecom from Ladenburg Thalmann. Your line is open.
Good morning.
Morning, Jonathan.
So.
Okay.
On the theater I know you sold one subsequent to quarter end, but is there a market today or kind of theaters that are going to continue to be operated as theaters and like most of the sales and the projected sales you have for kind of.
A reuse of the property.
Yes.
I was going to say John Ironically enough. The one we sold will be a theater operators.
Yeah.
So let me just comment on baked in but it's going to be operated.
Correct. That's another another operator, we will take it over.
I would say, we're starting to see the recovery of that business.
Early on you're correct most of our assets were sold for an alternative use we thought it was important to kind of demonstrate.
That high quality real estate had a had a demand.
Think now you're starting to see whether it is.
Ours that we have we're starting to get offers for existing you saw Netflix by the other areas of theater, you've seen AMC gets back into the market and buy theaters for operations. So I think youre starting to see that market saw and more liquidity being injected into it I would.
Also say John we're agnostic I mean, we take the theatres out to market and whoever wants to pay the highest price. That's that's how we go with.
Yes.
Okay.
And then on the investment side, but maybe on the experiential lodging.
And specifically asset similar to the one you acquired in the quarter, which are kind of.
RV oriented type of experiential lodging.
What's the total addressable market there.
How big could that maybe specifics slice of the potential investment pie E or EPR.
Well I mean, we'll have to see how it grows for us, but we think that's a multibillion dollar opportunity as far as just if you think national parks things of that nature.
Yes.
These are not let's be clear. This is not the kind of manufactured housing kind of thing that these are truly experiential.
RV parks, but but we think again, our first experiences with that both in terms of Wisconsin and in terms of Pigeon forge has been incredibly positive.
Greg and his team has built relationships with operators in that in that area.
An area for many years has not been a minute ties. If you think about it it was a lot of kind of concrete pads, where people pull their rvs.
And we are bringing a thought process, we're cross pollinating our ideas on some water Park thing some some other amenities that we're able to kind of bring.
To the table in fact.
Greg and their team they are talking about.
Digital check in lots of different things that I.
<unk> change that experience.
And we've seen phenomenal growth in the recreational vehicle space through Covid and think that's got some nice tailwind. So we think that.
A kind of a nice opportunity for us to add to the overall experiential flavor of our portfolio.
Okay understood.
One quick detailed one on the guidance most of the pushes and pulls versus last quarter, we're pretty self explanatory, but.
The decline of <unk> from the managed properties and other can you maybe provide some more color on what drove that versus what you were seeing at <unk>.
Sure John This is Greg.
A couple of things one we're managing some theaters. So obviously we've had ramp up.
Through the summer and things are getting better as the box office has recovered.
St. Pete Beach, I think the biggest issue was the Red tide hits, Tampa Bay, and it drove down a lot of our a lot of our bookings.
There was a recent storm that seems to have washed that out. So we're hoping that that's behind us for now.
And then the Cartwright is just a situation where we're ramping up it was closed for over a year and we have a new chair in place. So we're pleased with the progress, but it's a ramp up in New York restrictions and New York.
<unk>, so even even when we opened we were able to open at capacity right and therefore, we've been gradually ramping it through and to a smaller degree the jelly stone investment.
<unk> season, that's a new investment in the fourth quarter, we will have I expect a slight loss because it's not they're not their season. So that's part of it too is a new one.
Investment at Fair Thats still part of that was by design. So we wanted to make some improvements. So that's when you kind of buy it to make the improvements.
Driving into the operating yes, and we also wanted to pick up labor day, and the Cranberry Festival in so we could really understand the nuts and bolts of the project heading into next year for sure.
Okay.
Very helpful. That's it for me.
Thank you very much.
John.
There are no further questions at this time now I'll turn the call back over to Greg Silvers for closing remarks.
Well. Thank you everyone for your time and attention we look forward to talking to you at year end and evergreen safe and joy the upcoming holidays. Thank you. Thank you. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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