Q2 2022 EPR Properties Earnings Call

Okay.

Good day and thank you for standing by welcome to the Q2 2022 EPR properties earnings Conference call. At this time, all participants are in a listen only mode.

Presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your phone please.

Today's conference is being recorded and I would now like to handle conference over to your speaker today, Mr. Craig Evans Executive V P.

Evans. Please go ahead.

Thank you, Chris and thanks, everyone for joining us today for our second quarter 2022 earnings call and webcast participation participants on today's call are Greg Silvers, Chairman and CEO , Greg Zimmerman Executive Vice President and CIO, and Mark Peterson Executive Vice President and CFO .

Start the call by informing you that this call may include forward looking statements as defined in the private Securities Litigation Act of 1995 identified by such words as will be intend continue believe may expect hope anticipate or other comparable terms the company's actual financial condition and the results of operations may.

Very materially from these contemplated by such forward looking statements discussion of those factors that could cause results to differ materially from these forward looking statements are contained in the company's SEC filings included with the Companys 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.

Reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release, and the supplemental information 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, which is www dot ETR Casey Dot com.

Now I'll turn the call over to Greg Silvers. Thank you correct.

Morning, everyone and thank you for joining us on today's second quarter 2022 earnings call and webcast.

During the quarter, we delivered meaningful growth in topline revenue and earnings along with consistent collections in our scheduled deferrals. These results reflect the strong consumer demand for the experiences our tenants offer and the continuing resurgence of the experienced economy.

Since our last call Theater exhibition has continued to build strong momentum anchored by the Mega hit top gun Maverick patients paid off handsomely for Paramount pictures as they delayed the title several times recognizing that theater exhibition was essential and maximizing revenues for the title.

We are also pleased by the strong results produced from several titles and genres that appeal to a broader set of the population demonstrating.

Demonstrating that additional age cohorts will return to the theater if relevant content is offered we look forward to the remainder of 2022 as theater exhibition continues its positive momentum and regains its position as the dominant form of out of home entertainment.

Additionally, many of our other experiential properties continue to perform at or above 2019 levels. While consumers are faced with uniquely high inflation, we have yet to see any material inflationary impact on attendance at our properties and we believe we will continue to be well positioned as our properties offer the key at.

Attributes of lower price points, it easily accessible locations across the U S and Canada.

Turning to our investment spending we are pleased to accelerate our pace of deployment into attractive investments with solid economics utilizing our cash on hand, we acquired several unique and top performing properties, which fit our regional experiential profile. These.

These investments also demonstrate our ability to leverage our long term commitment to experiential assets and deep relationships in the industries into quality investments.

Our focus on continued growth and diversification is supported by the strength of our balance sheet and our cash flow generation.

As our recovery continues we are delivering sector leading earnings growth.

Well covered monthly dividend and a strong long term growth profile.

Our in place portfolio is delivering solid performance, while our strategy of identifying and executing on quality investments should deliver superior returns.

By continuing to execute on this strategy. We believe we will create meaningful shareholder value, which is not currently reflected in our share price.

Finally, we are pleased to announce that we are raising guidance for our 2022 <unk> as adjusted per share.

This reflects our increased earnings power and strong recovery of our tenants now I'll turn the call over to Greg Zimmerman to talk more about our portfolio.

Thanks, Greg at the end of the second quarter. Our total investments were approximately $6 6 billion with 358 properties in service and 97% leased during.

During the quarter, our investment spending was $214 9 million, 100% of the spending was on our experiential portfolio and included three acquisitions build to suit development and redevelopment projects.

Our experiential portfolio comprises 284 properties with 47 operators and accounts for 91% of our total investments or approximately 6 billion and at the end of the quarter was 96% occupied.

Our education portfolio comprises 74 properties with eight operators and at the end of the quarter was 100% occupied.

Well broadly there is increasing uncertainty and concern around inflation and the possibility of a recession historically our value oriented drive to destinations have proven to be more resilient in times of recession, because they provide a compelling value proposition for families to date, we have not seen meaningful impact from inflation.

Shneur gas prices and our expectation is that this will be the case in the event of an economic slowdown.

Now I'll update you on the operating status of our tenants.

Q2 total box office was $2 3 billion total North American box office for the first half of the year was $3 7 billion.

Our high quality theater portfolio continues to outperform the industry.

Second quarter box office was boosted by for Blockbusters top gun Maverick Doctor Strange in the Multiverse of Madness, Jurassic World Dominion and Sonic the Hedgehog too.

At $650 million in box office top gun is now the highest ninth highest grossing.

North American film of all time year to date 12 films have exceeded $100 million in North American box office and during Q2 12 films grossed over $40 million box office, demonstrating a broad return to theaters by consumers.

At 1.132 billion in July was the highest grossing months since December 2019 led by minions. The rise of grew sore Lubben Thunder top gun Elvis and dope.

Three quick data points.

Minions the rise of brew has grown more than $320 million say to date, which shows families with young children still want to see films in the theatre.

We are encouraged by the performance of Elvis or traditional biopic with nose branded IP, which is reaching multiple generations and as grows to $129 million.

Right.

And each week of July four to five titles gross 10 million per weekend versus only one to three during the first half of the year, which again demonstrates the broadening recovery.

August and September results will be muted with few releases anticipated to generate $100 million.

<unk> Q4 is anchored by four major releases avatar, the way of water Black Adam with Dwayne Johnson Shazam, and the Marvel Universe film Black Panther will conduct forever.

The consumer is returning to the theater, but our results demonstrate that all ages of moviegoers still want to see good films on the big screen.

As mentioned on our last call and discussed in multiple media reports over the past several months, we don't have a demand issue we are a content supply issue.

Office numbers will continue to improve as studios increase the number of films flowing to theatrical release.

Turning now to an update on our other major customer groups.

I'd like to point out that in the Q2 supplemental we moved three properties from experiential lodging to the category, which best categorized as their key demand driver because.

Because they are both anchored by indoor water parks, we moved Camelback indoor Waterpark hotel and the cart right resort and indoor Waterpark two attractions.

We moved the Springs resort and Pagosa Springs anchored by natural Hot Springs to fitness and wellness.

The recently acquired villages icons Dakar tier as reported and attractions, we continue to see positive trends across all segments of our drive to value oriented destinations.

In Q2, we saw continued good performance across eat and play throughout the country.

Portfolio wide double digit year over year revenue growth, we are particularly pleased with the performance of our latest top golf locations.

As attractions began to reopen for the summer season, we saw revenue growth in performance generally at or above 2021 levels. We are seeing significant year over year growth in attendance and revenue at our cultural properties.

The attendance and revenue performance at the Springs resort and Pagosa Springs remains strong and as a result, we are working on an expansion Rev.

<unk> revenues are nearly at pre pandemic levels at our fitness assets.

Q2 begins the ski off season as previously mentioned several of our properties are undergoing capital improvements Alyeska resort. The Premier four season resort in Alaska has 76 named ski trails mountain biking, and hiking trails, the Nordic Spa.

<unk> aerial tram and the award winning seven glaciers restaurant atop mountain Ale yesterday, it's benefiting from strong summer travel demand in Alaska and after the close of the quarter, we closed on an additional $25 million in financing for <unk>.

Revenue growth continues across our experiential lodging portfolio with strong growth in ADR. We are pleased with the performance of our RV resorts.

Our education portfolio continues to perform well with year over year increases in revenue he.

EBITDAR and attendance across the portfolio attendance improved 15% in private schools and 19% in early childhood education.

Turning to a quick update on capital recycling.

We have executed contracts of sale for four of our five vacant theaters, which we expect to close in either 2022 or 2023, and we are discussing the theft with multiple parties.

During the quarter, we announced the acquisition of two well known assets in Canada for $142 million.

Villages <unk> Sarkar tier in Quebec City, Quebec, and the Calypso Waterpark in Ottawa, Ontario.

Car T as an iconic four season attraction destination and resort covering 225 acres and offering indoor and outdoor water parks in winter attractions, such as tubing and flooding over 600 campground sites and a variety of food and beverage options and resort and close the hotel that car T.

Four star modern hotel with 163 rooms, and the internationally renowned hotel Degloss Icehotel Calypso Waterpark is the largest themed water park in Canada, covering 350 acres with 35 water slides too lazy rivers, and the largest wave Poland Canada.

As noted on the last call during the second quarter. We also acquired our third RV resort the Cajun palms RV resort in book Breaux Bridge, Louisiana between Lafayette in Baton Rouge, and a joint venture with Northgate resorts, a premier RV resort, operator, EPR owns 85% and our gross investment.

Exceed $60 million.

Joining venture that holds this property assumed third party debt of $38 5 million that matures in 2034 and is attractively priced at a blended rate of just over 4%.

We're making substantial progress on our investment pipeline to date in 2022, we have funded $268 $3 million for acquisitions, refinancings, and new development projects and attractions ski Eaton play health and wellness and experiential lodging, we expect to fund an additional approximately <unk> <unk>.

$24 8 million on announced projects during the balance of 2022.

Cap rates are around 8% and should create compelling long term value.

We're maintaining our 2022 investment spending guidance range of $500 million to $700 million.

We feel good about our investment progress as we move through 2022.

Consumers continue to engage in experiential activities and operators are growing.

With our broad unparalleled experience and network in experiential real estate, we're ideally positioned to continue to take advantage of these growth opportunities.

Finally, with the continued recovery in the performance of our properties, we will provide coverage metrics on next quarter's earnings call.

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 provide an update on our strong balance sheet and close with updated 2022 earnings guidance.

We had another strong quarter that exceeded our expectations <unk> as adjusted for the quarter was $1 17 per share versus <unk> 68 cents in the prior year and <unk> for the quarter was $1 23 per share compared to 71 cents in the prior year.

Now moving to the key variances total revenue for the quarter was $164 million versus $125 4 million in the prior year.

This increase was due primarily to improved collections from certain tenants, which continued to be recognizing revenue on a cash basis or had previously received abatements scheduled rent increases as well as the effect of acquisitions and developments completed over the past year.

Also contributed to the increase.

This increase was partially offset by the impact of property dispositions.

We are very pleased to report that all deferred rent and interest continues to be collected as scheduled during the quarter. We collected 4.9 million of deferred rent from accrual basis tenants and borrowers that reduced receivables.

Leaving a balance on our books at June <unk> of $12 1 million.

We expect to collect approximately $10 million of this remaining balance over the back half of 2022 2022.

Additionally, during the quarter, we collected $4 7 million of deferred rent and point $3 million of deferred interest from cash basis customers that were recognized as revenue when received and which were not included in our guidance.

At June 30, we had approximately $119 million of deferred rent owed to us not on the books. This remaining balances due over the next five years revenue from these customers will continue to be recognized when the cash is received I will provide more on the expected cash basis deferral of collections for the remainder of the year later in my comments.

It is notable that through June 30, we have collected over $100 million.

Rent and interest from customers that was deferred as a result of the impact of the COVID-19 pandemic.

Paul that we forgave very little renter interest during the pandemic, but instead worked diligently with our customer to design repayment plans that work for their businesses.

We are now seeing the fruits of that work as our customers have experienced a strong recovery and are paying back their deferrals. In addition to all of their current amounts due.

Moving on we had higher other income and other expense of $8 9 million and $5 8 million respectively, mostly due to the performance of the Cartwright resort and indoor water Park, which was closed for a portion of the second quarter in 2021 due to COVID-19 restrictions.

As well as from two theater properties that we operate.

Mortgage and other financing income was $7 6 million for the quarter versus $8 4 million in the prior year. The decrease was due to write offs of $1.5 million of accrued interest receivables in mortgage fees, primarily related to our only investment with one eat and play borrower.

Additionally, during the quarter, we recognized $9 5 million in credit loss expense, primarily related to the same Eaton play borrower.

Note that credit loss expense is excluded from <unk> as adjusted.

The decrease in mortgage and financing income was offset by <unk> 3 million in deferral of collections from a cash basis borrower and other smaller items.

<unk> rents for the quarter totaled 519001st $2 million in the prior year the decrease versus prior year related to less percentage rent from an early education tenant based on a restructured lease which has higher base rents in 2022.

This was partially offset by higher percentage rents from one ski property.

The 519000 of percentage rents recognized for the quarter was less than the $1 million. We had anticipated primarily due to an increase in a tenant's revenue threshold upon which percentage rent is calculated.

This threshold is dependent on CPI and the magnitude of the increase was not anticipated in our plan.

This issue impacts a couple of other properties as well and I'll have more on its impact on our percentage rents for the year when I discuss our revised guidance.

And finally equity and income from joint ventures totaled $1.4 million versus the <unk> for the quarter compared to a loss of $1 2 million in the prior year.

This is due primarily to increased revenues at two experiential lodging properties in St. Pete Beach, Florida that are performing well. In addition to income from our new investment in the cage and palms RV resort in Louisiana.

In addition, due to the recent renovations completed in the performance at the St. Pete Beach properties. During the quarter. We were able we were able to refinance the nonrecourse secured debt at these joint ventures based on a significantly higher valuation increasing the debt amount from 86 million to $105 million and lowering the interest rate.

We received $6 7 million in proceeds as a result of this refinancing after reserve fees in cash left in the joint ventures.

I would like to take a moment to point out a couple of other items in our supplemental.

First due to our increased investment in joint ventures, we added a summary of unconsolidated joint ventures on page 18, which includes our carrying values earnings and debt terms.

Second due to our customers' recovery from the impact of COVID-19. This quarter, we have begun presenting our portfolio detail by annualized adjusted EBIT EBITDA, sorry versus contractual cash revenue.

This allows us to include managed properties and joint ventures, and has a better method for allocation than using contractual cash revenue that had made sense to us when we were impacted by the pandemic.

You will see this change on page 21 of the supplemental including the reclassification of certain properties that Greg discussed.

Note that the allocation percentages shown for Eaton play is impacted the most by this change due to picking up the property operating expenses at our entertainment districts versus previous previously showing it by contractual cash revenue, which included Cam reimbursements with no expense offset.

Turning to the next slide to review some of the company's key credit ratios as you can see our coverage ratios continue to be strong with fixed charge coverage at three three times in both interest and debt service coverage ratios at three eight times.

Our net debt to adjusted EBITDA was five one times on a net debt to gross assets was 39% on a book basis at June 30th.

Lastly, our common dividend continues to be very well covered with an <unk> payout ratio for the second quarter of 67%.

Now, let's move to our balance sheet and capital markets activities at quarter end, we had consolidated debt of $2 8 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 four 3%.

Additionally, our weighted average consolidated debt maturity is almost six years with no scheduled debt maturities until 2024.

We had over 168 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. Furthermore, we expect to generate over $150 million of operating cash flow after payment of dividends in 2022.

See our balance sheet is very well positioned to fund our investment opportunities.

We were pleased to be increasing guidance for 2022, <unk> as adjusted per share to a range of $4 50 to $4 60 from a range of $4 39 to $4 55.

We are confirming our guidance on investment spending of 500 million to $700 million and disposition proceeds of zero to $10 million.

Before concluding I would like to give some additional details regarding 2022 guidance.

The increase in the midpoint of our <unk> as adjusted per share.

<unk> of eight from $4 47 to $4 55 is due to seven cents of deferral of collections from cash basis customers during the second quarter and five cents of other favorable items, including improved performance expectations at our managed properties.

This is partially offset by a reduction in percentage rent guidance of four cents at the midpoint, primarily due to an increase in revenue thresholds for certain customers that are dependent on CPI increases as I mentioned earlier.

Also we continue to expect percentage rent to be weighted to the fourth quarter with third quarter expected to be consistent with second quarter levels.

We are continuing to exclude any future collections of rent deferrals from cash basis customers in our guidance given the uncertainty of collections such amounts we booked as additional revenue to the extent received over the last six months of 2022 and could represent as much as approximately $6 million or about <unk> <unk>.

Per share of earnings for each of the third and fourth quarters.

Yeah.

Guidance details can be found on page 24 of our supplemental lastly, I'd like to comment on our capital plan for 2022, we continue to be in the enviable position in this turbulent market with low leverage over $168 million of cash on hand at quarter end nothing drawn on our $1 billion line of credit no.

Scheduled debt maturities into 2024 and expected operating cash flow after dividend payments of over $150 million for 2022. This means we can be opportunistic as to when and how we access additional capital depending on our level of investment spending now.

Now with that I'll turn it back over to Greg for his closing remarks, Thank you Mark.

In closing as you've heard today, our portfolio continues to strengthen our investments are ramping and our balance sheet is well positioned to fund this growth.

We believe this unique combination will continue to drive earnings outperformance and create shareholder value.

With that why don't I open it up for questions operator.

Thank you.

As a reminder to ask a question you will need to press star one one on your phone.

Standby as we compile the Q&A roster.

Hello, Amit.

Our first question comes from Anthony <unk> of J P. Morgan Your line is open.

Alright, great. Thank you and good morning.

My first question relates to the investment pipeline and you talked about I think about an 8% yield that youre seeing out there I was wondering if you could talk a bit more about.

What is particularly attractive to you right now where youre seeing the most deal flow and.

How that 8% flexes up or down based on different types of product.

Sure and I'll, let Greg jump in on this after but Tony I would say, it's pretty much across the board.

I think we're seeing good opportunities.

Greg can tell me if he agrees I think our deal pipeline is as robust as it's ever been.

Where you see some flex is is whether it's a development redevelopment versus an acquisition.

I would tell people and this is I think you've heard this from other people. It is taking longer to get deals closed just because of third parties, where thats lawyers or inspections or title companies. So I think they're struggling with staffing like everyone else, but I think we're excited.

About not only the depth, but the breadth of what we're seeing but Greg maybe you want to add something to that.

Yes, Tony I would agree with what Greg said I think that the dislocation in the debt market is helping us a bit and absolutely. When we're looking at a development project, we're expecting a higher yield we're seeing strength across virtually all of our verticals and have multiple deals in discussion and virtually all of the verticals.

And obviously, we're not as we've said many times looking to increase any theater exposure.

Okay got it thanks and then.

Any changes to the contractual bump structures that youre getting in leases. These days and also can you remind me if you have any sort of.

Capped CPI in the portfolio at this point.

We really don't have uncapped.

There's no doubt, we're pushing on on where those caps those caps used to live somewhere in the call. It one and three quarters to 2% now we're pushing those to try to push those to two and a half to three I mean, we're also mindful of the idea of uncapped CPI exposure.

And put great pressure on yours.

On your tenants. So we've not had a tenant who's not pushing back on.

The uncapped aspect of that.

But we are pushing the boundaries on that but Greg maybe you have more to add but I think that's right and certainly every every lease is a discussion tenants certainly understand that inflations initiatives. So.

We're getting better.

Increasing the caps as Greg said, but.

Not uncapped.

Okay, great. Thank you.

Thank you Tom.

Thank you.

One moment please for our next question.

Our next question will come from Nicholas Joseph of Citi. Your line is open.

Thanks, you talked about before the five vacant theatres under contract whats the broader market for occupied theaters today, especially with the box office has bounced back a bit in the second quarter.

I still think and again I'll, let Greg jump in this I think what Youre seeing is there is a market for underperforming or non occupied theaters most of our non occupied or for alternative use I don't think there's a lot of people trying to sell good theaters, we haven't seen a lot of that in the market yet.

I think as we worked through this year. We've said consistently we think that market will continue to improve and youll start to see some movement in there in 2023 as everybody readjust and sees that.

This industry is going to be okay.

Candidly, we're not seeing a lot what I would call good theaters change hands, but Greg maybe you have better dollar on that yes, I completely agree I mean, occasionally we will get a teaser for what we would consider a lower quality theater, but they are few and far between.

Thanks, that's helpful. And then just on the credit loss write off what was unique about that tenant versus the performance youre seeing really across the rest of your in place portfolio.

Again, what we had was mainly a one eight in play that was kind of a brewpub kind of operation that we had a real leadership issue change and shake up and it really is idiosyncratic to anything else we're seeing.

This is not a space that we have.

This was the only asset like that we had and then it was a unique kind of leadership kind of turmoil that effectively to a large degree shut the business down so.

We are we have invested more in that area and we don't plan to Nick.

Thank you very much.

Thank you.

Thank you.

And one moment.

For our next question.

Our next question will shall come from Todd Thomas of Keybanc capital markets. Your line is open.

Hi, Thanks, Good morning, just a couple questions around the guidance Mark a lot of helpful detail around the quarter and the outlook.

Question for you outside of the admin related to the out of period collections from cash basis tenants are there any additional nonrecurring items, our run rate adjustments that we should think about moving from.

<unk>.

Anything that impacted <unk> as adjusted in the quarter.

I mean, not really we excluded we excluded the credit loss.

<unk>.

We don't expect the bad debt write offs to continue so that mortgage financing income should move back to historical levels, plus any new investments that we have and the impact on that line item, but no I think I think largely the increase in guidance is the seven.

We've had better performance at our managed properties both.

Cartwright in theaters, but also and particularly at the unconsolidated JV, which.

Which is really helping and thats really offsetting like like we show on that schedule of the decrease in percentage rents due to the threshold issue that I mentioned.

Okay. That's helpful and so the <unk> rental revenue and then our panel.

And in mortgage and other financing income is that where those adjustments.

Will take place.

Yes.

It's not quite a penny higher than rapid totaled seven seven.

Most of it's in rent.

Got it.

Okay, and then in terms of investments I guess it.

It sounds like Youre seeing.

A lot more product come to market in the pipelines.

Fairly healthy here.

As we think ahead and I realize you're not providing 23 guidance but.

Investment spending is forecast to ramp up here in the back half of the year a little bit.

Expect to see that level of spend continue into 'twenty three.

As you look ahead.

Again, Todd you said it correctly, we're not going to give guidance now I will stick with what I said earlier, our pipeline is very robust and as Greg said I think there is a lot of capital constraints in the market right now with people whether it be on the debt side or they don't like their cost of equity.

We really think.

Deals that had potentially moved away from us have are coming back.

So we're seeing good opportunities and I think.

As Mark talked about our balance sheet has positioned us to kind of take advantage of some of this so I.

I think we like where we're well where we're positioned and as we have announced there is development and redevelopment projects that are going to carry into 2023 already on the books. So we're getting back into that rhythm of what you saw kind of pre pandemic, where we start projects and we began the year with a significant amount of carry.

Over but.

All I can say is we like kind of where we're positioned right now and stay tuned.

Next for what we do next year.

Okay. That's helpful and just last question Greg for you I think in your prepared remarks.

You commented that you have yet to see any material changes to performance at the company's properties related to inflation that consumers are facing.

Are there any categories or segments of the portfolio, where you are seeing some impact and where would you expect to see.

The greatest sensitivity moving ahead, if there was going to be.

Some potential moderation in performance or traffic.

I think I think I'll, let Greg comment on this as well I think the first kind of Canary, We would see in the coal mine would probably be in our hospital and our experiential lodging properties. Because those are you've got ADR is and you're starting to where you would see pricing power almost on a daily basis as some of the demand starts.

To erode or we're seeing we haven't seen it yet, but I think we would we would start to see it in some of that I think in some of the attractions properties candidly. The season is almost over so it's as we moved through kind of the summer season. So my guess is there. The next thing we will.

Looking out for as we move into the winter months is kind of the ski properties and seeing if we're seeing any impact there, but we monitor it across kind of all of our portfolio.

I think what I've seen what we've seen in previous.

Recessions and I'm not saying all recessions are the same but in previous is.

Some food and beverage reductions like people still going to the movies, but not spending as much on concessions or at some of our Eaton play still going but.

The size of the check on the F&B goes down.

So those are the areas that will definitely be monitoring Todd.

Okay. That's helpful. Thank you.

Thank you.

Thank you.

And again in one moment for our next question.

Our next question will come from Rob Stevenson of Janney.

Any Montgomery your line is open.

Good morning, guys.

Greg how much of the investment spending in the second half is likely to be development or redevelopment, where the earnings impact isn't as mediate versus straight acquisitions.

I'll, let Greg yet, but I think that we're going to be looking at kind of.

It's a nice combination of both again as Mark and this indicates we've got really really good earnings growth and being able to identify the right projects, which we think drive the highest kind of reward for the risk well and did that but I would say there is there is a.

Substantial amount of development and redevelopment in there, but Greg maybe yes, I think thats well foot, Greg I don't have anything to add.

Okay. That's all I'm trying to figure out how much is in the earnings impact for the back half of the year versus whatever you want to call. It an earn in for 'twenty, three where they really don't start producing much revenue until then and the earnings impact is more twenty-three oriented than back half of 'twenty. Two so just trying to so let me let.

Let me comment on obviously the build to suit really youre, just kind of having capitalized interests. So not a whole lot of earnings impact. This year more next year. When it comes online with respect to acquisitions I would tell you we've been conservative in how we've laid that in in the back half such that.

The further you put it particularly to fourth quarter, you are not having as much impact. This year as you will next year. So we've been fairly.

<unk> as we've thought about the timing of acquisitions, Okay, and then a couple of other things for you Mark.

You can play credit loss is that just a write off or is there a path to recovery or a control of an asset or anything there or is it just a straight right off at this point.

Well they continue to OSB amounts but.

Frankly, if we thought we're going to recover it we probably wouldn't have written it off so I think with respect to the write off of $1 $5 million, we probably will not recover that although we will continue to pursue it and then with respect to the credit loss, that's just a matter of going out and getting it appraised at the collateral value and booking it to that number.

Okay, and then lastly for me on.

On the guidance did I hear you correctly that there was that you don't have any of the deferred rent that you haven't.

<unk> through the first six months in the guidance for the back half of the year. So that's all upside.

The first six months of the year is because the extent once we receive it counted so the $1 six <unk> in Q1 seven in Q2, that's in our guidance the forward number one.

It could be as much as <unk> <unk> per quarter is not in our guidance and again there is more risk associated with that and we do not guide to that Okay. And then how much have you collected in July was that anything material or is that.

Essentially a third of the 6 million is that about $2 million a month.

Yes.

Again, we're not giving guidance on on that and we're probably not going to talk about our forward quarter at this point.

Thanks, guys.

Thanks.

Thank you.

Okay.

And get them on we will get our next question.

Our next question comes from Josh.

<unk> dinner line of Bank of America. Your line is open.

Okay.

Good morning, Josh.

I guess yeah.

Mentioned, the education portfolio in your opening remarks, I guess, maybe.

Maybe stepping back strategically how are you thinking about that I'm curious to hear your latest thoughts on how that fits into your strategy going forward.

Sure Josh we've talked about before we kind of look at that as it's a performing asset it's doing well as Greg mentioned in his comments.

We don't as we've talked about and Mark talked about we don't need capital.

It could be a source of capital than we could as we've said it doesn't fit into our long term strategy. Those are assets that are owned by a lot of net lease kind of <unk>.

Competitors. So if if we go into next year, and we don't like our cost of capital or we think that we can achieve better returns by recycling that we see that as an opportunity, but given the fact right now that it's performing and where long relative to our capital needs. We don't see.

See any need to.

Necessarily sell those assets now, but it is an opportunity for us to again kind of recycle capital as we move through this recovery.

Okay, Great and then the.

Bad debt expense at $1 5 million.

Is there anything else in guidance as far as bad debt for the rest of the year.

Well you noticed thats not in my reconciliation of our guidance for the year, that's because we budget a certain amount of bad debts and this certainly fit within what we what we budget for a year or so.

So it didn't really affect us because we do budget.

Some reserves for bad debt.

Okay.

Utilize everything in your budget or is there a little bit more cushion.

We have more reserves on that.

Okay.

Appreciate it guys. Thanks.

Thanks sure. Thanks, Sir.

Thank you.

One moment for our next question.

Our next question will come from Michael Carroll of RBC capital markets. Your line is open.

Yeah. Thanks, Greg you highlighted your prepared remarks that the studios need to produce more content to help the box office to further recover I know the release schedule looks a little light. If you look into the second half of this year are you starting to see studios reinvest to theatrical contents to improve those schedules in 'twenty.

324, I mean, what's the outlook there.

Yes, I mean, we've seen some of the studios start to if you look at Warner Warner has said Theyre, taking up their number of films. So we're starting to see that and as Greg highlighted it's really not kind of the blockbuster films. It's the filler films, the kind of $25 million to $50 million budget films, which just candidly.

Didn't get made during the pandemic, it's going to take a little bit of time.

Again, there is still a lot of belief that there is there is other opportunities to fill that as people see.

Audiences kind of come back across multiple age groups as we talked about but we're starting to see the studios recognize that and respond.

And talk about kind of making <unk>.

<unk> more and different films. So we're encouraged.

<unk> by what we've seen so far.

Okay, and then related to the how interest rates are impacting I guess transaction values I know that you highlighted that youre starting to see development yield take higher or you see acquisition yields also take higher how is that being impacted.

Yes, I think it is I think we're seeing it across the board I think we're always have demand at a higher yield for development or redevelopment, but I think across the board I think yes.

And our size deals probably the major driver of that is the cost of debt or the absence of that.

For certain private groups to be active bidders and so accordingly with that movement.

I think what's really interesting and I'll ask Greg to comment is probably in the last quarter. We've seen the idea of a lot of a lot of tenants and operators who've kind of capitulated that yes costs are really staying higher and.

They were holding out thinking like we started kind of many times at the beginning of the year and saying. Okay. This is the year that rates are going to go higher and then they don't.

So I think the first half of the year, where people kind of continuing to fight that trend and now it's kind of like if you want to grow the business. This is just the cost of doing it and people are.

Getting more comfortable with that but Greg maybe you have more color on that yes, I think it's been about six months.

Conversation, starting with cap rates that have been compressed and people starting to have price discovery and.

And coming back and talking to us. So yes, I think in general we're seeing cap rate expansion across all of these verticals.

If you listen to prepared comments beginning of year, we probably would have said, 7% to 8%, yes, we're saying, let's say around 8%. So that's kind of tells you see.

<unk>.

Okay, So roughly 50 basis points higher youre seeing cap rates broadly increase for developments and acquisitions.

Yes, probably I think that's a fair.

Everything's a little that implies a level of precision that each deal is dependent on but that's probably a good mark.

Okay and then just lastly, Mark can you provide an update on the operating trends of the assets in the Trs I know that you've kind of highlighted that you are seeing some really good trends within the <unk>.

The lodging segment it.

It looks like what these properties generated about $1 million in the second quarter.

What would we should we expect as you move into the second half of this year and into 2023.

Well.

When you're looking at the equity pickup that has depreciation at <unk>. It was about $3 $4 million. This quarter. If you look at our port Arthur <unk> from JV. So now I will say that trend wise, we're doing very well second and third quarter of the high Mark High marks.

The prime season for our JV, so youre going to see higher earnings in Q2 and Q3.

Lower earnings in Q1, and Q4, but in general very pleased with the JV.

We're seeing if we if you look at it we got about $47 million of carrying value or.

<unk> for the year, probably somewhere in the six to nine range that implies kind of mid to upper double digit return on equity. So they are doing very well.

We're getting if you think about the St. Petersburg properties, our ADR is as high as they've ever been.

And in the JV are doing sorry, the RV parks are doing well in addition, so.

Really good performance some seasonality to it but some nice returns that we're getting on a levered basis.

Okay and can you remind us what the long term plan are for those properties do you plan on keeping them in the Trs or do you are eventually going to sell them to a tenant and put them in a triple net structure.

I think part of the issue is almost every one of these we've kind of redeveloped and so we've materially improved.

We will see again part of it's going to be about looking at that as as Mark said, we're achieving kind of mid level.

16% returns going to a to a net lease where will that land out and where do we think relative values going to be on.

Choosing structure over over yield, but we're never going to have a huge portion of our portfolio exposed to this but we think this is a really nice feature, especially in an inflationary environment to be able to capture.

Some of that upside.

And Greg I would say just to echo off.

The two RV parks and the two hotels, we have improved or are in the middle of an improving all of them substantially with development.

<unk>.

Yeah.

Great. Thank you.

Thank you Mike.

Thank you.

And one moment our next question.

Okay.

Next question is from John Masako of Ladenburg Thalmann. Your line is open.

Good morning.

John .

Just a quick question.

Question on the cash.

Cash deferral collection.

Is that expected to be pretty evenly weighted between.

Three Q4, Q and then I guess as we look into 2023 kind of collection schedule change marketable you at all.

Yes, So I think Q3 and Q4 I mentioned it should be similar similar type levels in terms of rent collection of deferred rent collections.

So for the total of the year that implies something close to $19 million for 'twenty. Two when you add in what happened in Q1 and Q2 as you move to 'twenty three.

Because some of the larger tenants start paying.

He started paying in Q2, that's going to annualize in 'twenty. Three so that 23 number is closer to $27 million is going to go up in 'twenty three.

<unk> schedule part of that 100 tenants based on EBITDA is a little bit difficult to predict so there's EBITDA predictions are there, but the rest of our schedule. So it's 27% and 23 close to $27 million roughly in 24 $26 million and 25, and then it starts to kind of come down as you go to 26% and 27, but it should stay at that.

Hi.

Mid Twenty's number for the next three years now keep in mind.

If we go to accrual anytime during that time, we will have a big one time.

Increase and it won't be in earnings in the future. So it kind of depends on the timing of going to accrual basis and as I've as we've always said theres more risk associated with these deferrals. If we ever were to say hey, if we could get it all at once or upfront.

We take a discount and so forth so.

Those are the numbers, but I'll just caveat both of it in terms of the what they mean to the future earnings.

That's very helpful.

Then in terms of percentage rent.

For the remainder of the year.

Clearly from a guidance, but if we do see CPI moderate at all in the back half of this year or in 2023, how does that impact the <unk>.

Percentage rent outlook.

And just broadly speaking that we're looking for exact numbers.

Yes, really we just have.

Two tenants one with.

A few properties one with one property that are impacted by this most of our percentage rents outside of these two tenants.

Arent CPI dependent.

The threshold goes up as the rent bump goes up so we had the unusual case in this particular case with these two tenants were particularly one which was.

It goes up by the hire of X percent or CPI or CPI running higher it did have an impact now we booked book 500000 of percentage rent during the quarter, mostly due to this one tenants. So it's not going to have a huge impact to the extent CPI were to increase beyond current levels with respect to that tenant.

The other tenant that affected like I said, a few properties had a kind of a five year. Bob that is also dependent on CPI Aero is capped but was larger than we planned but it is capped its not its not CPI just runs runs with CPI. So they're really but we had the one uncapped one the other one was higher than expected but is capped.

Long and short I don't expect a tremendous impact.

Percentage rents going forward from the levels. This year, which is mid point $8 million as a result of CPI further going up.

Okay, and then I guess just with this EPS percentage rent outlook for this year was any of that because of maybe.

Weaker than expected operating performance from 7% of your tenants or is it all just related to some of these.

Yes.

<unk> related adjustments.

Yeah, I'll say it was really.

Primarily the threshold issue I think we had we sort of budgeted the one tenant this quarter based on 19 levels. They were slightly below so there was a bit of a volume issue, but I think the threshold issue was the primary driver.

Okay.

Is it for me thank you very much.

Thank you.

This will conclude the Q&A portion of the conference I would now like to turn the conference back to Greg Silvers for closing remarks.

Thank you everyone. We appreciate your time and attention and look forward to talking to you next quarter have a great day. Thank you.

Yes.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Okay.

[music].