Q2 2023 EPR Properties Earnings Call
Okay.
Do you ask a question during the session you will need to press star one on your telephone.
You will then hear an automated message advising that your hands is right to withdraw your question. Please press star one once again.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speaker today <unk>.
Ryan Moriarty, Vice President of corporate Communications. Please go ahead.
Okay, great. Thanks for joining us today for our second quarter 2023 earnings call and webcast.
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 will start the call by informing you that this call may include forward looking statements as defined by 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.
Additionally, this call will continue 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 furnished to the FCC under form 8-K if.
If you wish to follow along today's earnings release supplemental and earnings call presentation.
Thank you Brian Good morning, everyone and thank you for joining us on today's second quarter 2023 earnings call and webcast.
During the quarter, our topline revenue grew approximately 8% and our <unk> as adjusted per share grew approximately 9% versus the same quarter. Prior year. These results were driven by both a continued strong recovery in our experiential properties and consistent deferral collections.
As we announced on June 28th finalizing the Regal restructuring agreement was a significant step in strengthening our theater portfolio and enhancing our overall company profile.
The agreement provides us with significantly with a significantly stronger tenant a long term master lease and a percentage rent component, allowing us to participate in a recovering box office.
This resolution, we also have more visibility into our into our earnings outlook and we're pleased to provide earnings guidance for 2023.
Also as recently announced southern theaters was acquired by sand TECOS theaters Southern was our fourth largest theatre tenant and as part of the acquisition we were paid the remaining deferred rent.
This transaction demonstrates renewed confidence in theatrical exhibition and.
Strengthens our theater tenant base.
Over the last few weeks, we've witnessed the power of theater exhibition and the validation of studios Apple and Amazon to commit the theatrical exhibition as the primary distribution platform for movie content.
The combination of Barbie and Oppenheimer has become a societal event, which has transcended consumer demographics.
The low budget sounder frequent blew away box office expectations generating over $150 million year to date.
This type of outperformance is hard to predict for any single film yet over time. It has proven to be a consistent occurrence for select films.
Through July 31 box office is up 20% versus 2022 and is currently tracking towards 9 billion for 2023.
The writer and actor strikes present, a fluid dynamic and may impact box office, depending on the length of time to resolution.
And a bit of a positive sign it has been reported that the writers Guild and the studios have agreed to meet this Friday, which they have not done for three months.
Regardless of this near term dynamic any impact is anticipated to be short term as the participants understand that a robust theatrical business is a necessary part of the landscape, providing the primary path to economic viability for movies.
Shifting to capital spending we have completed approximately $100 million of investments to date and are selectively growing our experiential portfolio, while being prudent in our capital allocation.
Additionally, we've committed to approximately $224 million of additional experiential development and redevelopment projects over the next two years for which we already have the necessary capital now.
Now I'll turn it over to Greg Zimmerman for more details on the quarter.
Thanks, Greg at the end of the quarter. Our total investments were approximately $6 7 billion with 363 properties in service and 97% leased during the quarter, our investment spending was $32 2 million, bringing our total investment spending for the first half of the year to $98 7 million one.
Hundred percent of the spending was in our experiential portfolio and included continued funding for experiential build to suit development projects and redevelopment projects commenced in 2022.
Our experiential portfolio comprises 290 properties with 51 operators and accounts for 92% of our total investments were approximately $6 2 billion and at the end of the quarter was 98% occupied.
Our education portfolio comprises 73 properties with eight operators and at the end of the quarter was 93% occupied all of the vacancy in education as from the properties held for sale at the end of the quarter.
Turning to coverage. The most recent data provided is based on a March trailing 12 month period overall portfolio coverage for the trailing 12 months continues to be strong at two times trailing 12 month coverage for theaters is one three times with box office for the 12 months ending March 31 at seven seven.
For reference trailing 12 month box office through June 30 is $8 1 billion trailing 12 months coverage for the non theater portion of our portfolio is two seven times.
Now I'll update you on the operating status of our tenants.
Regal completed its emergence from bankruptcy on July 31, which is the effective date of the master lease and all ancillary documents, we received July rent and deferred rent from Regal Mark will discuss amounts relating to our claims in conjunction with the completion of the bankruptcy case.
We're pleased to report that the five surrendered Regal theaters operating through management agreements are open based on our experience with operating theaters and our strong relationships with cinemark in Phoenix, we were able to open the theaters less than one week after Regal turned the keys back to us.
Cinemark is operating theatres in Houston, Columbia, Maryland, Orange County, and suburban Chicago, and Phoenix is operating a theater and suburban Louisville.
On July 17th Sand TECOS theaters acquired VSS southern theaters through an asset purchase agreement.
With 10 theaters southern was our fourth largest theatre holding.
<unk> is owned by the San Antonio Area Foundation, one of the nation's premier community foundations. The combined San TECOS entity operates 27 highly monetize theaters and eight south eastern states, making it the eighth largest theatre circuit in North America.
In anticipation of the Santee coast transaction, we entered into a lease termination agreement on a ground lease theater property in new Iberia, Louisiana, and which we no longer have an interest there was no change to our overall economics as a result of the termination.
And in conjunction with the transaction southern paid its entire remaining deferred rent of $11 6 million.
Which will be recognized as rental revenue in the third quarter of 2023.
The second quarter was a continuation of box office recovery.
<unk> office for the first two quarters was $4 4 billion, a 20% increase over the first half of 2022.
Q2 total box office was $2 7 billion, a 15, 5% increase over Q2 2022 led by the Super Mario Brothers movie Spiderman across the Spider verse Guardians of the Galaxy volume three and a little Mermaid seven.
Seven films grossed over $60 million and three growth over $100 million.
Q3 is off to a robust start led by the record shattering performance of Barbie and Oppenheimer, both of which continue to defy all expectations along with the unexpected hit sound of freedom, which has generated approximately $150 million to date.
<unk> fueled by Barbara and Hymer July box office growth exceeded July 2019 box office growth.
Through July 31, 19 titles have grossed over $100 million in 2023 and year to date box office growth stands at $5 7 billion, a 20% increase over the same period in 2022 are.
Our high quality theater portfolio continues to outperform the industry.
Barbie grows to $162 million in its opening three days, an additional $26 million on each of Monday, and Tuesday, the highest grossing Monday and Tuesday ever for Warner Brothers and $93 million on its second weekend also a Warner brothers record to date Barbie has grossed 300.
<unk> hundred $66 million Oppenheimer grossed over $82 million on its opening weekend $46 million in the second weekend and $181 million to date.
This is the first time, a three day weekend had a film opened to a $100 million.
While another open to $50 million bar.
Barb and Hymer weekend was the highest grossing three day weekend since the pandemic and the fourth biggest weekend ever.
Importantly, this box office outperformance was not fueled by franchises or comic book characters, but by two unique universally well reviewed standalone movies, one about an iconic Mattel toy and the other and historically accurate are rated three hour movie about the development of the <unk>.
Adam bomb.
Barbian Oppenheimer demonstrated that content can come from anywhere and be compelling in the hands of a good storyteller.
Each reached broad demographics and together they created a cultural phenomenon reminding everyone of the power of good storytelling on the big screen.
We are optimistic about the remainder of the year with teenage mutant Ninja turtles mutant Mayhem on which opened this week killers of the flower Moon hunger games, the valid of songbirds, and snakes, Napoleon and Aquaman and a loss kingdom rounding out the rest of the year.
Finally, there is a lot of press coverage of the writers and screen actors strikes as Greg mentioned, it's been reported the studios and writers are scheduled to meet for the first time in three months tomorrow.
And that we don't have any information on the timing for resolution of either strike, but for now there has been limited movement of major titles into 2024.
Turning now to an update on our other major customer groups. We continue to see good results and ongoing consumer demand across all segments of our drive to value oriented destinations across the board operators are managing increased operating expenses and while attendance remains strong in some properties we are seeing.
<unk> and anticipated pullback from peace from Poste.
Peak post pandemic performance. Despite these headwinds many of our operators are continuing to grow revenue and EBITDAR or.
Our Eaton play assets continued their strong post pandemic performance with portfolio revenue for Q2 up 9% and EBITA arm up 2% over Q2 2022 are well located top golf in King of Prussia, Pennsylvania opened with strong numbers at the end of June .
All of our theme parks and water parks are now open for the summer season.
Our operator at our cardiac <unk>.
And Calypso Waterpark is producing strong operating results as they complete one year of operating both properties attendance at city Museum in St. Louis is up 8% year over year driving increased revenue and EBITDAR construction of the indoor water Park at the Bavarian N and Franken Muth, Michigan has about 20% complete.
And on schedule for a summer 2024 opening construction is underway on our Titanic custard and chocolate shop in pigeon forge with opening scheduled by the end of this year.
Across our fitness offerings, we're seeing continued growth in membership revenue as the post pandemic emphasis on fitness continues construction is underway for both the expansion of the Springs resort in Pagosa Springs, and the development of our Marietta, California Conference Center into a new natural Hot Springs Resort Merida Springs is scheduled to open.
In early 2020 for construction on improvements to gravity House Steamboat Springs, and ask Aspen locations is scheduled to commence this month.
Except for North Star, where heavy late season snow kept the mountain opened for skiing until the end of April our ski resorts were closed for most of most of Q2 year over year skier visits were up 27% across our portfolio driven by strong season pass sales.
<unk> resort will join the Ikon pass program for the coming six ski ski ski season, which should drive increased skier visits.
Our Margaritaville hotel Nashville approximate to all of Nashville's famous downtown destinations continues its upward trajectory in revenue EBITDAR and occupancy.
This weekend in Nashville will host the Big Machine Music City Grand Prix with the Indy car series racing on the streets of downtown Nashville at both the Beachcomber and bellwether resorts in St. Petersburg, We continue to see increases in occupancy and operating revenue, while ADR is normalizing from post pandemic highs revenue and EBITDA.
<unk> increased year over year in Q2 for all of our overall RV Park portfolio.
Our education portfolio continues to perform well with year over year increases through March 31 across the portfolio of 17% of revenue and 25% and EBITDAR.
Attendance is holding steady at very high levels at the end of the quarter, we entered into a lease termination for a private school in Columbus, Ohio as part of a larger settlement arising from a partial casualty we received a lease termination fee of $900000 in our marketing the property for sale.
Turning to a quick update on capital recycling during the quarter, we sold one of the five kindercare locations for which the lease was terminated for net proceeds of $4 3 million and a record and recorded a loss of 575000. After the close of the quarter. We sold another two kindercare locations for a combined net proceeds.
$13 8 million and a gain of $1 5 million all of these will be operated as schools. We are continuing to market the remaining two.
Also after the end of the quarter, we sold a former Cinemax theater and Hialeah, Florida for a non theater use for net proceeds of $9 million and a gain of 747000 year to date, we have generated approximately 31 million and proceeds from dispositions.
In mid July we can we began publicly marketing the 11th surrender Regal theaters, we plan to sell it's early days, but we're pleased with the interest and we will update you on our progress on future calls.
In Q2, our investment spending was $32 2 million, bringing our total investment spending for the first six months of 2023 to <unk> $98 7 million. In addition to the continued funding of experiential development and redevelopment projects commenced in 2022, we made our first investment in the <unk> space with <unk>.
Mortgage financing for the development of good serves first location in Dallas. Good served as the first Standalone standing wave concept developed in an urban U S market. It combines surfing food and beverage and outdoor entertainment into a unique experience. We have spent a lot of time understanding the source space and we're excited to be.
<unk> of good serves first project.
We're maintaining our investment spending guidance for funds to be deployed in 2023, and a range of $200 million to $300 million as of the end of Q2, we are committed and additionally, approximately $224 million and experiential development and redevelopment projects, which we expect to fund over the next two years.
Without the need to raise additional capital, we anticipate approximately $105 million of that $224 million, we deployed over the remainder of 2023 and that is the amount included at the midpoint of our 2023 guidance range.
Cap rates continue to be in the 8% range and most of our experiential categories, we're seeing high quality opportunities for both acquisition and build to suit redevelopment and expansion. We continue to have a good pipeline with new and existing customers and concepts. Likewise, we continue to exercise discipline, reducing our near.
Term investment spending and funding the investments primarily from cash on hand cash from operations disposition proceeds and borrowings under our unsecured revolving credit facility as.
As we have said for the past several quarters, we are limited by the recovery of our cost of capital not by opportunity.
Now turn it over to Mark for a discussion of the financials.
Thank you Greg today, I will discuss our financial performance for the second quarter provide an update on our balance sheet and close with providing 2023 earnings guidance.
We had another strong quarter of results with <unk> as adjusted of $1 28 per share versus $1 17 in the prior year up 9% and <unk> of $1 31 per share compared to $1 23 in the prior year up 7%.
Now moving to the key variances by line item total revenue for the quarter was $172 9 million versus $160 4 million in the prior year. This.
This increase was due to improved collections from cash basis customers the effect of acquisitions and developments completed over the past year as well as scheduled rent increases.
During the quarter, we collected a total of $7 8 million of deferral payments from customers of which $7 3 million was from those on cash basis accounting that was recognized as additional revenue.
<unk> order. We also received an additional stub payment from <unk> related to September 2022 minimum rent of approximately <unk> 7 million.
That was recognized as additional revenue this quarter.
I will discuss how we expect cash basis deferrals and wriggles bankruptcy settlement on July 31.
The impact the remainder of this year in 2024, when I go over guidance.
Percentage rents for the quarter increased to $2 1 million versus $5 million in the prior year, primarily due to improved performance at one ski property.
On the expense side G&A expense for the quarter increased to $15 2 million first $12 7 million in the prior year due primarily to higher professional fees, including those related to the <unk> resolution.
As well as high ROE higher payroll costs, including noncash cash share based compensation expense.
During the quarter, we recognized an impairment charge of $43 8 million primarily related to eight of the property surrounded by surrendered by Regal based on third party appraisals that this charge is excluded from <unk> as adjusted.
Interest expense net for the quarter decreased by $1 7 million compared to prior year due to an increase in interest income on short term investments and an increase in capitalized interest on projects under development.
Lastly, <unk> adjusted from joint ventures for the quarter was $1 5 million versus $3 4 million in the prior year.
2024.
We had nearly $100 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver.
The Regal resolution behind US we are pleased to provide 2023 episodes adjusted per share guidance of 505 to 515.
Representing an increase of approximately 9% at the midpoint of versus 2022.
As we have discussed previously given our cost of capital in the current inflationary environment, we have consciously decided to limit our near term investment spending and fund these investments primarily with cash on hand, and operating cash flow.
As well as disposition proceeds in borrowings under our unsecured revolving credit facility.
Accordingly, we are confirming our 2023 investment spending guidance range of 200 $300 million and.
And we do not anticipate the need to raise additional capital to fund these amounts.
Disposition proceeds guidance for 2023 $31 million to $41 million and.
And we have increased guidance for percentage rent by $1.5 million at the mid point, primarily due to better performance at the ski property I discussed previously.
Note that as in prior years percentage rent is heavily weighted to the fourth quarter.
Also note is discussed on our recent call that none of the percentage rent expected for 2023 relates to the new Regal Master release, which is based on last year and is this is expected to be recognized in 2024.
Additionally, we are raising G&A expense guidance by 1.5 million at the mid point due to hire professional fees, including those related to the Regal resolution and.
And to a lesser extent higher payroll costs, primarily due to incentive compensation.
I also thought it'd be helpful to summarize our expectations for deferral collections and certain other amounts to be recognized as revenue in 2023 and included in our guidance.
As well as our expectations for these amounts for 2024.
As you can see on the slide we expect to recognize a total of approximately 35 $7 million in 2023 for cash basis deferral collections Regal stub rent Regal pre petition rent related to the mass release properties for the period from September one to September 6th 2022 and.
And the lease termination fee for an education tenant that Greg described.
Most of the $19.3 million estimate for the second half of 2023 is expected to be recognized as revenue in the third quarter due primarily to the collection of the entire remaining deferred rent from southern theatres of $11.6 million in connection with the sale to Santee goes.
As well as those amounts related to the re related to <unk> bankruptcy resolution.
While additional amounts may be received not shown on this slide related to a rejection damages with Regal that are that are treated as an unsecured claim we expect any such amounts will be nominal.
With Rico's bankruptcy resolution and the full deferral repayment by southern the deferred rent receivable not on our books, excluding any amount held in abeyance related to Regal is reduced to approximately $12.9 million.
Of this amount $11.5 million relates to one cash basis attraction tenant who's repayment timing is based on an earnings threshold threshold, which is not expected to be achieved in 2023.
The remaining amount of approximately $1.4 million relates to to cash basis tenants that are paying according to agreed upon schedules through 2024.
And thus the amounts to be recognized in the fourth quarter and next year for these tenants are expected to be nominal as shown on the slide.
Finally, I want to remind everyone given that <unk> master release was effective on July 31. This tenant was moved to accrual basis at that time.
As discussed on our previous call. We expect the five theaters surrender by Regal that we will operate will break even over the remainder of 2023 and this is what is included in the mid point of guidance.
Furthermore, we have also included and guidance the anticipated carrying costs for the 11th surrendered theaters that we intend to sell over time.
Which will be reflected in property operating expense.
Guidance details can be found on page 24 of our supplemental.
Now with that I'll turn it back over to Greg for his closing remarks. Thank.
Thank you Mark.
As I stated in my opening comments were pleased to have delivered a favorable regal outcome, which combined with the <unk> acquisition means that the three of our top four cinemas tenants now have very high quality balance sheets with minimal risk.
Given these improvements in credit the continued success of our non cinema portfolio and the demonstrated consumer preference for out of home Entertainment. We continue to believe that EPR offers a very attractive value for investors with a well covered dividend and an opportunity for multiple expansion.
With that why don't I opened it up for questions Theresa.
Okay. Thank you.
We will now conduct a question and answer session.
To ask a question please press star.
One line and your telephone and wait for your name to be you know.
Dry your question. Please press star one one again.
Please stand by while we compiled.
Okay.
Alright first question comes from Joshua.
A building.
Mine is open.
Yeah, Hey, everyone. Good morning.
Good morning, gentlemen to ask about I just wanted to ask about the writers' strike at at what point with the strength start to impact your portfolio or the or the movies being released I just kind of curious if there is any risks to 2023 box office within the strike in certain restrictions around the actor's ability to market during the strike.
Josh what we what we know right now is there is there has been limited tidal movements yet again.
Again, it it could be a potential if we see I mean, the product that we've seen for the balance is generally done for 2003, but it really begins with studios if they're going to move.
Product either one.
To be supported Promotionally by the actors.
Or two if they have any last minute kind of reshoots. So it's really in the purview of the studios. So we don't know right now I think.
The only what we would call.
Bigger title, we've had one move that we're aware of everything else right now is is.
Standing Pat hopefully.
As we've talked about as.
Is there is beginning to be some discussions.
Will prove very fruitful and we can quickly move to kind of resolution of this and and have little to no impact, but Greg I don't know if you know I think I think you covered.
Covered in Green.
Thanks for that.
<unk> 20, twenty-three guide sorry, if I missed this is there any percentage rent included in your in your guidance range.
<unk> yeah yeah.
Oh, yes for the back half of the year, Yeah, We said that the percentage rents for the year are going to be $12 million.
And as I said percentage rent as is it is it has been historically has kind of heavily heavily weighted to the fourth quarter. So we expect about 50% of it in the fourth quarter.
And the remainder of what wasn't recognized in the first six months to be in the third quarter. So yeah, there's definitely percentage rents in the back half none related to Regal.
If that was your question those that percentage rents based on last year, and we expect that to hit next year, depending on box office.
Okay perfect Yeah that was what I'm trying to get at I appreciate it.
Thanks. Thanks.
Thank you.
Yeah. My question comes from <unk> <unk>.
Keybanc capital market your.
Your line is open.
Yeah.
Sorry about that.
His first question. So appreciate the detail in the earnings slide around the deferred rent payments and other revenue collections.
And the third quarter and really sort of 2024, so just to be clear so after the <unk>.
Incremental $11 million, you expect to see in three Q or 14 cents.
The decrease in four Q verse three Q that you are anticipating that gets us to a relatively clean run right in the fourth quarter as we as we think about 2024 is that the right way to think about it in terms of.
The non-recurring.
Items.
Leave us with a pretty clean run right beginning in the fourth quarter of this year.
Correct, we only expect about 300000 to impact as far as deferral is kind of odd a period.
Stuffed to impact the fourth quarter I think the fourth quarter will give you a clean run right, but remember that we have some seasonal businesses and so forth and percentage rents heavily weighted to fourth quarter. So as of other adjustments rather than just taken at times for it to do but it is a clean clean number as far as deferrals installed payments and so forth and like I said only a very small number of.
Expected to be recognized in Q4.
Got it okay.
And then can you comment a little bit more on the theater sales.
It sounds like there is interest from other existing theater operators I'm. Just curious if you can discuss the potential timing and how we should think about those carry costs.
Sure Todd it's Greg.
Historically over the last two and a half years, we've sold 10 theaters.
Six of those weren't for non theater use Forfar theater used so that kind of gives you the goal posts.
We needed to wait to market these because regal hadn't notified.
The individual theatres that they were closing and we wanted to be mindful of their employees et cetera. So we really only started hard marketing last week, but we were out soft marketing before I'd say of the 11, we've had interest of some sort in about eight.
We're already approaching Labour day, so the idea of being able to get something close this year might be.
Difficult given the timing of real estate transactions, but I would expect will start to see a cadence towards the end of this year.
And into next year for selling those.
And again, if you look at the run rate over the last two and a half years, we sell about three or four years.
Okay and do the discussions that you are having negotiations at all are they are they impacted at all by the strikes that are that are ongoing right now or is that not really a consideration and then separately on the strikes Greg I'm I'm just curious.
To the extent that there is a resolution here.
You know if the strikes or extend it a little bit further here, but you get a resolution I mean, how how quickly does production reramping.
The release schedule get back on track to the extent that there are some.
Some delays here any any sense there.
So it's hard I will take the first part and then I'll, let Greg answer the second part actually I would say the answer is there are zero impact from the strike as Greg mentioned and.
In his remarks, the fact that <unk> was willing to buy southern clearly shows that people are seeing.
The the continued recovery of the theatrical exhibition and obviously, that's amplified Buddy just unbelievable success of Barbie and Oppenheimer, which just as I said before a record shattering. So we actually have quite a bit of interest from theatrical exhibitors for some of these theaters, yes Echo Greg.
I don't think it's actually but I think most people in the industry are seeing this as a short term issue I mean, if you think about.
These these have occurred periodically I think they're more encouraged by all the studios commitment to theatrical and how it is it is bounce back and I would say, there's probably more rather than less optimism right now in the theater space as far as.
Turning it on and ramping up new production is really about probably night now in the latter half of 2425, most everything through the first half of 2004 is in post production and so there's just kind of small minor reshoots or voice over or.
Promotional aspects of it so I would think we believe that really right now if we solved it sooner rather than later, we'd have minimal impact on 24.
Okay, great. Thank you.
Thanks.
Thank you.
Alright next question.
Comes from <unk>, which city Mr. Wealthy line is that okay.
Hey, Thanks for taking my questions Uhm, So understand your comment about the restructured agreement not providing any sort of extra.
Per cent of <unk> this year, but just to confirm that the 12 million. That's in your number that doesn't include.
Any sort of legal contribution whatsoever, and then if I were to think about.
Let's just say the box office next year's 9.4 billion.
The mindset presentation, you cut out at all cause the illegal per cent address and all of that extra operating income incremental the 2024. Some it that'd be included in the <unk>.
2022 guidance.
So none of the percentage rents are operating theatre profit as in 2003 guidance, because the percentage rent or lease you're driven and it really will hit sort of second and third quarter next year and as far as operating theatres, while there could be some profitability were.
Transitions to both Senate Mark in Phoenix, and then as we go into next year, though we definitely expect those to be profitable and I think in our presentation. We said to the tune of about $6 million. So none of that is in this year and it should hit next year.
But but.
Think about that the 9.4 billion not box office.
Yeah, I'm, just curious you need to outline of your presentation like $14 million in percentage rent in operating income that would that would come from that I'm talking about the construction agreement preservation he put out before.
How much variability could there be around that number assuming there is a nine fort Knox box office could that'd be 10 million or $80 million. Just curious if you assume certain box office level, how much variability there would be around some of those numbers.
Yeah, I think you mentioned a $14 million number that's the deferral and stuff payments for 2003, and our presentation for Regal. The number we put at that box office of around nine four was eight seven and he's combining the 2866.
Gotcha so.
But first of all I think one of the one of the benefits as we set that number basically at trailing 12 months I think 2000 2000, yeah. I mean again those should be as far as variability. The percentage rent is was really based upon <unk>.
Regal maintaining their current market share. So again, there was no so could it go up or down but historically, if you look over years, they've had that market share now they've closed some theater. So there could be that traffic is going to move to other places so we could see.
A little bit of up and that I would say the variability is going to be in the operating theatres. I mean again. These are new theaters for these guys to operate now the good thing is they're getting their hands on them now and we didn't budget anything so they've got four or five months to get their hands on.
To kind of come up with those numbers, but so I think if the box office delivers it. It's it I think we're in good shape there we.
We put together a schedule in our Regal presentation that showed that variability. So it box office for example wasn't nine four it was 9 billion percentage rents instead of 877 $1 million in.
And profitability of theater of the operating theatres, you can see that variability on the chart that we showed in our Regal presentation to kind of vary based on box office up as Drake said, there's other things that could impact individual performance of theatres versus box office, but the primary indicator of performance for both the percentage.
An operating theatre is box office.
Yeah. That's that's very helpful. Thank you.
Thank you for your question.
Alright next question comes from Hygiene Milligan with Raymond Jane Your line is open.
Hi, Good morning, guys, so I'm not going to get different staff at the box office projection questions, but on slide seven you guys show the projections for the median I guess for multiple analysts for the box office projections for 23 to 24 of $9 billion and $9.8 billion I'm curious, if you've seen any movement and sort of that <unk>.
<unk> Ah est.
<unk> for 23, 24, just giving what's going on with the Writers' strike and I'm curious.
And I think Josh asked this question, but how long.
Before you adjust your own internal projections of I think it was nine $4 billion for the lease year and $9.8 billion for 2024, just sort of get to your numbers.
How long does it strike me to last before you relocate those estimates and say.
Maybe we need to take those down.
Yeah, I think again.
Right now I will take the second part of that first is.
The 9.4 is really about.
That runs from kind of July 31st two next year as long as we don't see a lot of titles move that number feels pretty good because if you think about that's the first half of the last half of this year and first half of next year. So I would say the risk is it is.
Prolonged as to the nine eight that meaning that the second half of next year.
But.
Yet I still think that we feel that the good thing RJ is this trajectory is probably at risk of just balancing out meaning that if we have if we thought it was going to be 998 that it balances.
921, both if you look at currently what's going on we're not making any changes because I said, we really had one film that we're aware of of any meaningful expectation. That's moved and we've had such outperformance to date that we have over.
Combat. So this year's numbers, we haven't seen really a lot of people move but.
If anything people probably would be moving their number up this year, but they're kind of holding it right now, but Greg do you have or no I agree I mean, I think RJ. The critical point is whatever movie might've moved has been more than offset by the outperformance of Barbie Oppenheimer and.
Is not would not be in Europe this year or.
Well when you yeah, well actually.
Still we're still benefiting again anytime if you talk to somebody in the industry when you're in August .
And you have a even this weekend, where we're going to have probably between those two approaching 100 million or over $100 million out of those two films. This weekend as a really strong August plus teenage.
Yeah, So I mean.
We're probably easily gonna have above $150 million top 10 film weekend.
Is would be great and any August .
Thanks, that's helpful. I wanted to I think it was topic.
On the deferral on other revenue collection. So that's very helpful. Thank you.
But markets I'm thinking about sort of the 2023 guidance regime two 2024.
I think that you're going to see at least according to this is about $35 million.
Lower stub and deferral payments expected twenty-three versus 24, and then there's I think $78 million reduction in Regal ranch. So that's about 52 million, that's going to be coming out.
23 is if you look into 24, and then what you need to add back as the operating theatre profit and and the percentage rats.
What else am I missing.
Yeah, Let me, let me take a little differently I think maybe the Regal part of that might've been a bit overstated. So if you take the 510 guidance. This year as you mentioned, we have $35.7 million most of which is non-recurring that's worth about 47 gives you the 463.
Those seven months.
Around $7.3 million a month is what the old rent used to be and you would take about 22% of that because that was the base rent cut that's worth about $11 million a year over year, So base rent going down $11 million and then you have to add to that what you said the percentage rants, let's call that $8.7 million will take a <unk>.
Look at that as we give guidance in February but that's what we put out and it seems to be tracking an operating theatre property crop profits of another $6 three that's $15 million going the other way. So it's actually once you back out deferrals and all this noise for Regal Regal is actually going up next year again subject to box office up about $3.7 million.
And then as we mentioned, we're also putting Regal an accrual basis accounting, which is worth about another two and a half million so kind of a 6.2 million dollar <unk>.
Increase for Regal.
So again you take the 510 subtract the 47 year at 463 AD in about eight cents for the Regal impacts are kind of sitting at 471 ish.
Before any growth from this year and next year and all the other puts and takes G&A and so forth, but that kind of gives you a sort of a.
A starting point.
That's very helpful for me thank you.
Thanks.
Alright.
Excuse me. Our next question comes from micro Carolyn RBC capital market. Your line is open.
If we get it through mid August and this is not resolved is that when we should start thinking about this could be having an impact on some of these movie delays.
Yeah, I mean, I think we're still consistent with that and I think what I said was that we thought it's really still believe that it's it's later in 2024 now they could move titles and remember we're just moving titles from 23 to 24 and as we see out.
Performance and twenty-three if studios.
Studios want a derisks some of that they can move that.
Kind of into 24, but I think as we move into the August and September timeframe is when we will start to see if titles are moving and if or if there's progress in the discussions and they are.
Okay.
That sounds good and then the way that we should think about too is.
Obviously, you have leases with a lotta. These theater, so you're not gonna, that's not gonna impacted but like the Regal percentage rants, you're operating theaters.
That's going to be impacted how much percentage friends do you have outside of that Regal restructuring that that could be impacted by by some of this movement.
It's very minimally nothing now.
Our percentage rent for example, this year is non theater related.
Okay great.
And then going back to the investment market and I know you talked a little bit about the 11 assets held for sale, but what about the the value for like the high quality theaters. I mean is there a market, forming where you could potentially sell some of your higher end type assets theater assets as as they are starting to be.
Interest out there.
I think there's always an I think is Greg talked about.
Some of these 11 that were take will probably be sold as theaters, but it's always.
About highest and best use and if you look at if you look at what the theater that we sold.
This year.
That that Greg just reported on.
Even though it's going to a non theater use this was a.
Based on previous rants of low single digit cap right that we achieved on that so I think it's it's truly about and Greg and his team and our asset management team trying to just determined what is the highest and best shoes. It's always nice as we're starting to see now theater operators come in.
Starting to bid these properties, but it's it's the juxtaposition of okay does it have a higher and better use and we can put.
Non theater use versus theater use as competing bids and Michael to the extent you are talking about selling theaters as theaters for cash flow, we're starting to see some green shoots there and again I I think the fact that <unk> was willing to buy southern shows that they.
<unk> Triple exhibition businesses is recovering nicely.
Okay, great. Thank you.
Thank you.
Alright next question comes from.
Huh.
Some J M. P security your line is open.
Hey, guys, it's it's Mitch here.
I think a lot of the Regal and other topics have been covered I'm, just curious a little bit about.
Some of the dispositions.
Greg I think you said that they were they were the <unk>.
He can't assets, but I'm curious about potentially considering.
Maybe some non core or even core.
Dispositions here.
In this environment on top of you know kind of what you're doing with Kinder Karyn Regal.
Again like I said.
Will always consider those things.
<unk> I think you know we had a lot going on with resolving Regal and getting this and think about we had our fourth largest tenant just changed hands. So.
Oh over the <unk> quarter, we've had a lot going on I think we've got quite a few dispositions that we're managing right now, but we're gonna look at all of those things Mitch as we kind of as we kind of removed the overhang that was a parent for the first half of the year, but kind of as we go forward.
You look at Regal better we've been talking about that they are going to come out on a.
Little to no debt in their entire structure.
So I think overall, we have spent a lotta time getting that theater portfolio and Greg and his team and Mark and his team of getting these things into a position that we have.
Fantastic theater tenants into a rising and recovery box office. So I think that was our focus and getting those things right and now as we move forward. We've got an opportunity to create additional capital is Greg has talked about many times.
We have good opportunities and will start kind of balancing all of those things out to whether it's.
Some of our operating education, which Greg relied is performing very well and some of these other assets. We have a stated intent and continue believed to lower our theater exposure and as that market comes back and as we're starting to see capital flow into.
Two exhibition, we're gonna see more and more opportunity. So we're very encouraged about not only our ability to raise capital, but the ability for the market to recognize the improvements that have been made not only in terms of the exhibition world, but in the terms of.
The quality of the tenets that we have now relative to there.
Relative to that recovery and I think it will create opportunity, but Greg I think that's right.
Great last one for me I know that.
You guys went over some of the puts and takes from 23 to 24 I'm curious.
How much G&A <unk>.
In 23 was allocated to Regal that kinda doesn't recur heading into 24.
Yes, it's probably around a couple million dollars actually that was kind of prolonged and a lot of work went into that so.
We do expect G&A to come down next year.
Thank you.
Thank you Mitch.
Thank you.
I'm showing no further questions at this time, so I would now like to turn the conference back to Greg Sylvester closing remarks.
Thank you Theresa and thank you all for joining US again, we look forward to talking to you in the coming months and as always if you have any questions be sure to reach out. So thanks, everyone and have a great day bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Mmm.
[music].