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spk04: Good day and thank you for standing by. Welcome to the EPR Properties 3rd Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised, today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Brian Moriarty, Vice President of Corporate Communications. You may go ahead.
spk03: Okay, great. Thank you. Thanks for joining us today for our third quarter 2021 earnings call and webcast. Participants on today's call are Greg Silvers, President and CEO, Greg Zimmerman, Executive Vice President and CIO, and Mark Peterson, Executive Vice President and CFO. I'll 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 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 contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. The reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings releasing 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, www.eprkc.com. Now I'll turn the call over to company's president and CEO, Greg Silvers.
spk09: Thank you, Brian. Good morning, everyone, and thank you for joining us on today's third quarter 2021 earnings call and webcast. Third quarter was highly productive. With our strong cash collection results and the meaningful steps we took to further solidify our balance sheet and strengthen our liquidity, we reinforced our position to pursue additional investment growth. We were pleased to report cash collections which exceeded our expectations, driven by the accelerated recovery across our experiential properties. We believe that increased vaccination levels and new protocols have translated to increased levels of confidence as people are again going out and seeking memorable experiences. Consumers are returning to the theater in a significant way, driven by highly appealing content as studios reestablish a rhythm of releasing major titles in theaters. Strong momentum has been established with the box office, with pandemic area records being broken. This demand for the theater experience has also provided studios much greater clarity around the economic value that box office contributes. We look forward to seeing this momentum continue as studios have committed to exclusive theatrical releases and a strong slate of titles remain in 2021 and going into 2022. We are also continuing to see a sustained rebound across our non-theater experiential properties. From Eat and Play to Experiential Lodging, The common attributes of value and drive-to locations provide choice, allowing consumers to spend a few hours or a few days outside the home. On the capital markets front, we were pleased to once again receive an investment grade rating with a stable outlook from S&P, while Moody's raised its investment grade rating to a stable outlook in October, recognizing our meaningful progress. Additionally, we further solidified our balance sheet as we completed a new $1 billion revolving credit facility and $400 million debt issuance. These actions have certainly enhanced our liquidity profile and positions us well to reaccelerate our growth. Mark will provide greater detail on this. All of this progress established a strong backdrop for us to pivot to pursuing growth, and we made progress in reestablishing our investment spending momentum. As Greg will speak to, we have reengaged in discussions across many of our experiential property types. Lastly, I want to bring to your attention our updated company tagline and logo. The new tagline, the Diversified Experiential REIT, highlights diversification as an important attribute that we will continue to build on. We are migrating from a recovery opportunity to a sustained growth opportunity. as it is our strategic intention to grow across each of the eight property types as defined in our investor presentation as target experiential property types. We believe we are uniquely positioned to capture these opportunities. We are seeing ample evidence of consumer demand for experiential properties, and we have the only team in the industry with proven capabilities across the entire spectrum of experiential concepts. With this backdrop of demand combined with our team and focus, we believe we truly offer a unique alternative for investors to gain diversified exposure to experiential real estate and the experiential economy. Now I'll turn it over to Greg Zimmerman.
spk06: Thanks, Greg. At the end of the third quarter, our total investments were approximately $6.5 billion, with 358 properties in service and 96% occupied. During the quarter, our investment spending was $39.3 million, bringing the year-to-date total through September 30th to $107.9 million, in each case entirely in our experiential portfolio. The spending included an acquisition, built-to-suit development, and redevelopment projects. Our experiential portfolio comprises 284 properties with 43 operators and accounts for 91 percent of our total investments, or approximately $5.9 billion of the $6.5 billion, and at the end of the quarter was 95% occupied. Our education portfolio comprises 74 properties with eight operators, and at the end of the quarter was 100% occupied. Now I'll update you on the operating status of our tenants. Q3 theater headlines were extremely positive. Q3 total box office was $1.37 billion. Major films were released. customers returned to theaters, and box office results steadily improved. The first $100 million three-day weekend in the pandemic era wasn't until July. Since then, North American box office has exceeded $100 million for a three-day weekend five times. Shang-Chi and the Legend of the Ten Rings put an exclamation point on the quarter, establishing an all-time four-day Labor Day box office record at 94.7 million. Venom, Let There Be Carnage, delivered the highest grossing opening three-day weekend during the pandemic era at 90 million. Box office momentum continues as we roll into Q4. North American box office through this past weekend is 3 billion, compared to 2.1 billion for all of 2020. We believe Q4 performance will deliver around 2 billion. An instructive metric to evaluate box office recovery is to compare 2021 monthly grosses to the same month in 2019, which adjusts for the seasonality of the film schedule. Q2 box office gross was around 25% of 2019. Since then, box office has consistently improved month over month when compared to the 2019 comparable period. July was at 45%, August at 50%, September at 53%, and when final October numbers are in, we expect grosses will exceed $622 million, or around 80% of 2019, the highest monthly gross since February 2020. Additionally, the number of films released to exhibition is steadily increasing and should drive continued box office recovery. During 2018 and 2019, there were around 560 new titles released to theatrical exhibition annually. In 2020, there were 327, a 42% decrease. Through September 30th, there have been 285. We anticipate that number will grow to around 400 by the end of the year. The release cadence will continue to grow in 2022. Increased product will drive continued box office recovery. The remaining Q4 film slate is strong. Eternals, Ghostbusters Afterlife, West Side Story, Spider-Man No Way Home, The King's Man, and Matrix Resurrections. The 2022 film slate is compelling, with a potential for 20 titles to gross $100 million or more, up approximately 50% from 2021. Anchored by two Tom Cruise pictures, Top Gun Maverick and Mission Impossible 7, three Marvel Universe films, and several highly anticipated sequels, including Aquaman 2, Avatar 2, John Wick 4, The Batman, and Jurassic World. Finally, the impact of premium video on demand and streaming on the theatrical window and theatrical exhibition is clearer. After the day-and-date hybrid release of Black Widow, Disney announced the remainder of its 2021 film slate will have an exclusive theatrical release. Warner Brothers had already committed to an exclusive theatrical release for 2022. The results of day and date premium video on demand and streaming demonstrated the best way for studios to maximize revenue is through a multi-pronged approach anchored by the theatrical exhibition in an exclusive window. The exclusive theatrical window is generally settling around 45 days with some variability for individual titles and exhibitors. Historically, the majority of box office growths occurred in the first 45 days. The reduction of the exclusive theatrical window will lead to more streaming services releasing more films theatrically. More content in theaters is a positive for consumers. This is already happening. In May, Netflix released Army of the Dead theatrically in select theaters, including 600 Cinemark theaters, for one week prior to its availability on Netflix. Netflix is continuing its experimentation. In Q4, it will release 10 titles to theatrical exhibition before release to streaming. It won't be a 45-day window, but Netflix understands the importance of theatrical release for both revenue generation and word-of-mouth marketing. This is reinforced by the recent announcement that Netflix will operate the Bay Theater in Pacific Palisades. Turning now to an update on our other major customer groups. We see continued positive performance across all segments of our drive-to, value-oriented destinations. The fewer the COVID restrictions, the better the performance. Across all segments, our customers found many ways to improve their profitability despite fewer guests. Consumers want to engage in social activities. We are seeing excellent performance across Eat and Play throughout the country with attendance approaching or exceeding 2019 levels and continued margin improvement and profitability. We saw a recovering demand across our attractions and cultural holdings throughout the summer. Attractions with fewer COVID restrictions performed well and several were significantly ahead of 2019 levels. Others were negatively impacted. by ongoing COVID restrictions, with performance improving as restrictions were relaxed and eliminated, and the impact of fewer group and school events. We anticipate continued growth in demand in 2022, assuming no material COVID restrictions. There is high demand across our experiential lodging portfolio with strong occupancy and ADR growth. The Cartwright Resort and Indoor Waterpark reopened on July 1st and ramped up through the summer. We're pleased with our progress. The Margaritaville Nashville Hotel in downtown Nashville is benefiting from Nashville's rebound to its typical diverse and robust event calendar, including live performances at the Ryman Auditorium, Tennessee Titans and Nashville Predators games, and an IndyCar race. The RV portion of our Camp Margaritaville RV Resort and Lodge in Pigeon Forge, Tennessee opened in June. We saw strong demand through the summer, and into the fall foliage season, which draws visitors to Great Smoky Mountains National Park, the most visited national park in the country with over 12 million visitors in 2020. The lodge will be completed in Q4. Despite the impact of reduced cruise business on Alaska, Alyeska Resort benefited from increased airlift and ground tours to Alaska and is performing well. Our Nordic Spa will open Q4. In St. Petersburg, our repositioned Bellwether Beach Resort is completely renovated with all rooms and venues open, driving ADR increases. We're completing the second phase of the redevelopment at the beach coma. Heading into winter, we expect strong demand for our drive-to value-oriented ski destinations as evidenced by Vail's increased Epic Pass sales for 2021-22. Vail's recently announced $320 million capital plan will improve four of our properties. Our education portfolio continues to perform well. After a challenging 16 months, we are returning to growth and actively pursuing deals in all our experiential verticals other than theaters. In Q3, we acquired the Jellystone Park Camp Resort in Warrens, Wisconsin for $25.2 million in an unconsolidated joint venture of which we own 95%. This iconic family campground RV park features numerous experiential amenities, including a water park and a water slide. Along with Camp Margaritaville, the Jellystone acquisition demonstrates our belief in the growth opportunities in the experiential RV park space. The remainder of the quarterly investing spending was in built-to-suit development and redevelopment projects in our eat and play and experiential lodging categories. Our primary capital recycling focus remains on our vacant theaters, and we're pleased with the progress. Since Q3 2020, we've sold five vacant theaters for various uses, including one that closed yesterday for approximately $6.8 million at a slight gain. We have five remaining vacant theaters. Three are under-executed contracts for sale, and we're marketing the remaining two with multiple expressions of interest. In the third quarter, we also completed the sale of two land parcels. At the end of October, we sold our Wisp and Wintergreen ski resorts to our tenant for $48 million, or about a 9% cash cap rate with a gain on sale of $15.4 million. This was a strategic decision to improve our portfolio and our credit profile. Located in Maryland and Virginia, they were the farthest south ski locations in our portfolio, And other than Alyeska, they were our only ski resorts not operated by Vail. Finally, I want to update you on the status of our cash collections. Cash collections continue their upward trajectory. Tenants and borrowers paid 90% of contractual cash revenue for the third quarter. In addition, we collected a total of $11.3 million of deferred rent and interest during the quarter as well as $5.3 million on a previously reserved note receivable. Through September 30th, we have collected a total of $59.5 million of deferred rent and interest from accrual and cash basis customers. Mark will provide additional color on revenue recognition and cash collections for the third quarter and the remainder of the year. We are excited by the prospect of each metric approaching 100% in the fourth quarter. I now turn it over to Mark for a discussion of the financials.
spk08: Thank you, Greg. Today I will discuss our financial performance for the quarter, provide an update on our capital markets activities and strong balance sheet, and close by reviewing our increase in 2021 earnings guidance. FFO as adjusted for the quarter was 86 cents per share versus a loss of 16 cents in the prior year, and AFFO for the quarter was 92 cents per share compared to 4 cents in the prior year. Total revenue for the quarter was $139.6 million versus $63.9 million in the prior year. This increase was due primarily to improved collections and revenue from certain tenants which continue to be recognized on a cash basis or were previously receiving abatements as well as less receivable write-offs than in prior year. I will have more on collections later in my comments. Scheduled rent increases as well as acquisitions and developments completed over the past year also contributed to the increase. This increase was partially offset primarily by property dispositions. Additionally, we had higher other income and other expense of $7.9 million and $5.2 million, respectively, due primarily to the reopening of the Cartwright Resort and Indoor Water Park after being closed due to COVID-19 restrictions, as well as the operations from two theater properties. Percentage rents for the quarter totaled $3.1 million versus $1.3 million in the prior year. This increase related to higher percentage rents from an early education tenant due to a restructured agreement, as well as stronger performance than expected at two attraction properties and one ski property. This was partially offset by the disposition of certain private schools in December of 2020. I would like to point out, as I have in recent prior quarters, that we are defining percentage rents here as amounts due above base rent and not payments in lieu of base rent based on a percentage of revenue. Costs associated with loan refinancing or payoff for the quarter of 4.7 million related to the write-off of fees and termination of interest rate swaps related to the repayment of our $400 million unsecured term loan facility during the quarter. Interest expense net for the quarter decreased by 5.2 million compared to prior year due to reduced borrowings offset by lower interest income on short-term investments. In addition to the repayment of the term loan, We had no balance on our revolving credit facility during the quarter. You may recall that in prior year, we had drawn $750 million on our revolving credit facility as a precautionary measure, which provided us with additional liquidity during the early days of the pandemic. During the quarter, we continued to see improvement in the credit profile of our mortgage notes and notes receivable, resulting in a credit loss benefit of $14.1 million versus a loss of $5.7 million in the prior year. The primary reason for the benefit this quarter was stronger than expected performance by a borrower, resulting in a partial repayment of $5.3 million on a fully reserved note and the release from an additional $8.5 million in funding commitments that also had been previously reserved. Note that this benefit is excluded from FFO as adjusted. Lastly, income tax expense was $395,000 for the quarter versus $18.4 million in the prior year. This variance related to the full valuation allowance recognized on all deferred tax assets during the third quarter of 2020, which effectively eliminated the impact of deferred income taxes after that time. Now let's move to our capital markets and balance sheet. We had a very productive quarter related to financing activities that resulted in several improvements in our balance sheet and a lower cost of capital for EPR. As mentioned earlier, we repaid our $400 million unsecured term loan on September 13th, and following this repayment, we received an investment grade rating from S&P on our unsecured debt with a stable outlook, which added to the existing investment grade rating from Moody's. Additionally, Moody's raised its outlook to stable during October. On October 6th, we amended and restated our $1 billion revolving credit facility to extend the maturity to October 2025, with extensions at our option for a total of 12 additional months subject to conditions. We are pleased that the new facility has the same pricing terms and financial covenants as the prior facility with improved valuation of certain asset types. On October 27th, we closed on $400 million of new 10-year senior unsecured notes at a coupon of 3.6%, the lowest in the company's history. The offering was over 4.5 times subscribed, which allowed us to significantly tighten pricing, and achieve a negative five basis points new issue concession. As previously announced, the proceeds from this offering will be used in part to redeem all $275 million of our five and a quarter percent senior unsecured notes at the May call amount on November 12th. Our net debt to gross assets was 38% on a book basis at September 30th. Pro forma for the bond transactions, we will have total offsetting debt of approximately $2.8 billion all of which will be either fixed-rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.3%. Additionally, our weighted average debt maturity will be approximately six and a half years with no scheduled debt maturities until 2024. We had $144.4 million of cash on hand at quarter end, which is expected to increase by approximately $95 million with the issuance of the new 10-year bonds net of the redemption of the 2023 bonds, and we have nothing drawn on our $1 billion revolver. We continue to be encouraged by the positive signs we are seeing in our customers' businesses and the resulting positive trajectory we are experiencing in cash collections. Cash collections from customers continue to exceed expectations and where approximately 90 percent of contractual cash revenue or $124.5 million for the third quarter. This amount is more than the high end of the guidance range we had previously provided and was primarily driven by additional collections from cash basis customers. During the quarter, we also collected $7.7 million of deferred rent and interest from accrual basis tenants and borrowers, and the deferred rent and interest receivable on our books at September 30th was $40.9 million, which we expect to collect primarily over the next 27 months. Additionally, during the quarter, we collected $3.6 million in deferral repayments from cash basis customers that were recognized as revenue when received. At September 30th, we had about $126 million of deferred rent and interest owed to us not on the books. We anticipate collecting some of this amount over the next two quarters. However, most of this amount is scheduled to begin to be collected over about 60 months beginning in May of 2022. Revenue will continue to be recognized on these amounts when the cash is received. Finally, as discussed previously, we also received a note repayment from a cash basis customer of $5.3 million, which resulted in credit loss recovery that is excluded from FFO as adjusted. Adding this all together, as you can see on the slide, we collected more than 100 percent of contractual cash revenue for the quarter. We are pleased to be increasing guidance for 2021 FFOs adjusted per share from a range of 276 to 286 to a range of 295 to 301. The guidance for 2021 FFOs adjusted per share includes only previously committed additional investment spending of approximately 6 million for the last three months of 2021. Guidance for disposition proceeds has also been increased from 40 to 50 million to 93 to 103 million, primarily to reflect the sale of the two ski properties that Greg discussed. As we have done in previous quarters, we would also like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the fourth quarter of 21, as well as our expected collections that relate to those same periods. The range we expect to recognize in Q4 of such contractual cash revenue is $133 to $138 million, or 96 to 99 percent. Additionally, the expected range we expect to collect of such contractual cash revenue in Q4 is $131 to $135 million, or 95 to 97 percent. Differences from the full amount of contractual cash revenue relate to deferrals granted and the associated accounting. Please note that the definition of contractual cash revenue continues to exclude percentage rents, straight line and other non-cash revenue, and revenue related to managed properties. I would also like to note that beginning in 2022, we expect both current quarter collections and revenue recognition to be at 100% of contractual cash revenue, and we expect to continue to collect deferrals, deferral amounts from prior periods. Finally, I thought it would be helpful to provide a bridge from the midpoint of our previous FFOs adjusted per share guidance of 281 to the midpoint of our increased guidance of 298. As you can see on the slide, the increase is driven by increased revenue recognition and percentage rents, as well as lower interest expense in G&A, partially offset by the impact from increased dispositions and lower operating profit from managed property. Details regarding all of our 2021 guidance can be found on page 22 of our supplemental. Now with that, I'll turn it back over to Greg for his closing remarks.
spk09: Thank you, Mark. As you've heard today, our recovery is nearly complete, and we're focusing on a return to growth. As we've stated, we have the team, the balance sheet, and equally important, the consumer demand to make that happen. We look forward to demonstrating these efforts in the coming quarters. With that, why don't I open it up for questions.
spk04: As a reminder, to ask a question, you will need to press star 1 on your telephone. To answer your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Todd Thomas. With key back, your line is open.
spk05: Hi, thanks. Good morning. First question, I just wanted to talk about... acquisitions. You talked about being in a position to begin deploying capital here, and I think there's been a focus on gaming when we think about investments for EPR here, but I'm just curious around other potential acquisitions that you might be looking at and contemplating. I think you mentioned that everything's sort of on the table outside of theaters. Can you just discuss sort of where you're seeing you know, attractive investment returns and opportunities, you know, elsewhere and across the landscape a bit.
spk09: Sure, Todd. And I'll let Greg add some more to this. I think one of the things that this quarter has to reflect is if we look back in the third quarter, remember this is also the period of time where the Delta variant very much reared its head. there were quite a bit of concerns about would we be back into shutdowns. I think we took a very conservative kind of view of that, what we had experienced. So we probably kind of took the foot off the accelerator a little bit as we let that play out to kind of see. Clearly, as I said, the consumer Wasn't as affected by that, fortunately. We saw strong demand on that, and I would anticipate that we would see our investment volumes growing as we move through upcoming quarters. But as to where those are at, Greg, why don't I look to you and you can give us some insight.
spk06: Yeah, Greg, I agree. The investment cadence will certainly start to pick up. We're seeing opportunities in experiential lodging, for sure. We're seeing opportunities in attractions and and Eat and Play, and we are actually actively looking at projects in all of the verticals on our website other than theaters. And again, gaming does remain a focus for us.
spk05: Okay, and can you provide a little bit more detail around the joint venture acquisition that you completed during the quarter of the experiential lodging property in Wisconsin? And is there an investment yield that you can share, just a little bit more color on that investment?
spk06: So with respect to the joint venture, we partnered with an operator that has substantial experience in the RV park business. So we actually own it in the joint venture, and they will manage it for us. We thought it was a great opportunity. The park has been around for 30 or 40 years. and we felt like there were a lot of opportunities to improve it. And we've already started to see the results of that since we took ownership in Labor Day.
spk09: I would say from a yield standpoint, I think we think it's a low-aid type return, Todd.
spk05: Okay. That's helpful. And, Mark, the increase in percentage rent, I think you mentioned a couple of attraction tenants of a ski property perhaps. What's the outlook for percentage rent throughout the balance of the year, and do you expect percentage rents to continue to remain elevated in 2022?
spk08: Yeah, you notice we increased the midpoint of our guidance by $2.3 million, and as you mentioned, partially that was from Q3, which was ski and attractions, and then we expect in fourth quarter to be attractions again, but also some eat and play tenants starting to pay percentage rent. So we're encouraged, really, as the business picks up, we're seeing additional percentage rents that, frankly, we didn't plan on previously, but it's really evidence of the demand that these properties are seeing.
spk05: Okay. All right. Thank you. Thanks, Todd. Thanks, Todd. Thanks.
spk04: Our next question comes from the line of Katie McConnell from Citi. Your line is open.
spk01: Great. Thank you. So now that you're approaching the targeted level for contractual cash revenues, how should we think about NOI growth upside from here? And maybe you can just discuss some of the key drivers as we think about next year.
spk09: I mean, I think we've said, Katie, that our, and I'll ask Mark to comment, but I think we've said generally, you know, bumps are gonna average somewhere one to two percent, call it one and a half percent. And then the remaining amount of growth will be driven primarily by additional investment spending. But Mark, are those numbers consistent?
spk08: Yeah, I mean, in part, we'll get to 100% revenue recognition, right, which will drive earnings next year. We'll also, you know, we did have some of our managed properties closed for a good portion of the season. So we're, you know, hopeful of those get a full season to operate. Those will also improve in performance in 22. So, I think we've got some tailwinds heading into 22 as far as year-over-year growth.
spk01: Okay, great. And then could you just update us on the pipeline of dispositions that you're assuming to sell and guidance in the balance of the year? And does that account for any of the feeder assets that you've been marketing or any other categories you can speak to?
spk09: Yeah, I think it's primarily theater assets, but I'll let Greg for the main discussion.
spk06: Yeah, and I'll let Mark talk about what's in the budget for the rest of the year. But we have, as I mentioned in my script, we have five theaters left to sell. That's it. Those are our only vacancies. Three are under contract, and two are substantial expressions of interest. We anticipate that several of those should close soon. this year, but they could roll into Q1 of next year.
spk08: Yeah, our guidance went up for dispositions kind of at the midpoint by $53 million, and $48 of it was the ski properties, I would call the remainder of it. Something's moving around, but Greg also mentioned the theater property that sold in Q4 for $6.8 million, so it's really the primary drivers of the increase. In Q4, we have In addition to the ski properties we sold and the theater that we've already sold, there could be other smaller sales, and we've got a range for that, some of which relates to non-theater properties.
spk06: And I think those are mostly land sales, right? Yeah. Maybe one other one. Yeah.
spk04: Got it. Okay, thank you.
spk06: Thank you. Thanks.
spk04: Our next question comes from the line of Rob Stevenson from Jenny. Your line is open.
spk02: Good morning, guys. Excuse me. Mark, or one of the Greggs, how are you guys thinking about sort of where you guys are versus September or October 2019, whichever you have the best data for, on a sort of same-store cash revenue run basis today? I mean, you've renegotiated some of the leases with your tenants. You've sold some stuff. But excluding deferrals and all the other sort of stuff that would be in there, I mean, how much is revenue in the door down today on the same properties versus 2019, and how much of that gap are you likely to make up over the coming quarters?
spk09: I think what we've said on the same properties, you know, we went into this and said we thought we would be down about 5%. I think we actually hit that number or maybe slightly less than 5%. So, Rob, I think the guidance that we gave the market early on has proven correct. I think most of that is permanent, candidly. And we would be, I'd be remiss if I told you, I think we can make that up. Those are renegotiated leases. I do think, you know, at 5%, though, we are, as we talked about, we're sitting on a lot of liquidity. Our ability to make that up, I think, you know, as we start to drive investment volumes is pretty apparent. But I'll let Greg or Mark add anything if they'd like to?
spk08: No, I think that's right. I mean, as you mentioned, we've had some portfolio changes since 2019. We sold charter schools at the end of 19. We've sold private schools. We've sold some theaters, et cetera. So we're sitting, as we said, on quite a bit of liquidity. But when you talk about store over store, the 5% is the number we've been, as Greg said, had estimated, and that's what has come true. And 4% of that's really the AMC deal that we disclosed quite a while ago. So nothing's changed in that regard.
spk02: Okay, so XAMC, it's not down very much at all.
spk08: Exactly. That's correct. And the deferrals, for the most part, there wasn't forgiveness, and we're collecting those over time, and you're seeing that in our cash flow numbers.
spk02: Okay. And then the other question is, you know, a number of people in both the triple net space and the overall retail space have been doing, have been going back and reevaluating their theaters for, you know, less parking, you know, trying to carve out some out parcels. You know, a couple of them have looked at them as, you know, potential multifamily development sites given how pricey multifamily land has gotten and the cost there, et cetera. When you look at your theater portfolio, is there any material amount of out parcels to carve out, properties that would – make for a higher and better use at this point as you're going through and trying to figure out your theater exposure going forward? Anything to sort of mine there of any materiality?
spk09: I think it's a good question, Rob. I think the point to point out is we've been doing that all along. I mean, if you look at most of our, when you look at our portfolio where we have restaurants are where we've mined and sold out parcels. We did a deal a couple of years ago on multifamily outside Chicago. So we continue all the time to look at ways to create value working with our tenants. Greg, I don't see that stopping.
spk06: No, it won't stop at all. And I think in terms of the repositioning, We've sold some of these vacant AMCs for multifamily. We've sold some for industrial. So where there is demand, we pay attention to that.
spk02: Okay. And then, Mark, the Jellystone JV, is that unconsolidated? Did I read that right? It is.
spk08: Yeah, it's correct. We own 95%, but it's unconsolidated. It just has to do with the accounting rules around major decisions. They're kind of shared decisions. So the accounting rules require that to be unconsolidated. So that will show up in the unconsolidated joint venture line item. Okay. Thanks, guys. Appreciate the time. Thanks, Rob.
spk04: Our next question comes from the line of Michael Carroll from RBC Capital Markets. Your line is open.
spk07: Yeah, thanks. Can you talk a little bit about how private market valuations change for some of your targeted asset classes today versus pre-COVID levels? Is there a meaningful difference, or has this recovery kind of brought those evaluation levels back to where they were previously?
spk09: I would say, again, it would be kind of credit-based. I think there's still a recovery in the theater space, but when you look at some of our kind of top tenets, a veil, a top golf, a six flags, there's been meaningful changes. kind of valuation. I mean, you know, a lot of those assets could trade significantly into the low single digits. So I think that's an area when you parse our portfolio, there is a significant valuation distinction in very many of those tenets and assets.
spk06: But Greg, maybe you have... Yeah, I would also add lodging for sure.
spk09: Yeah, no doubt. That's recovered nicely.
spk07: And then I guess when you're looking at these types of investments, I mean, are these all stabilized deals? Are there any value-add type transactions that you can find that might have a better return profile? I guess what's on the marketplace that you're really interested in?
spk09: I think it's both. I mean, you heard Greg talk about the Jellystone deal. We think of it as very value-add in the sense that we're already – We have a property improvement plan where we intend to invest and modernize. So when we can, as we talked about, when we can go in at kind of a low eight and make improvements and we think drive those up, you heard us talk about some of our experiential lodging where we've made significant improvements and are driving returns. So I think it's a little bit of both, Michael, that there are stabilized opportunities, but there's always going to be things that we think that we can buy at attractive prices now and then improve to higher returns.
spk08: Sorry, I just wanted to add to that. One thing on the Jellystone investment I should mention is that we do have secure debt on that at about $15 million at a 4%, so an attractive rate. So we've gone in, invested 25 gross and more like 11-ish net, and the interest rate on that is like 4% just to round out that investment.
spk07: Okay. Okay. That makes sense. And then on the gaming side, I know there's a big transaction that you're looking at pre-COVID that I think you're probably looking at now. I mean, is there an update you can provide on that? I mean, how's that progressing? And are you in the middle of due diligence right now?
spk09: Again, we can't comment on any kind of deals. Generally, I would say, as many of you know, the gaming space has gotten increasingly more competitive. Again, we've seen significant cap rate compression in that area, and we'll see if that works for us, but we don't comment on really any specific transaction.
spk06: Okay, great. Thank you.
spk09: Thank you.
spk06: Thanks, Michael.
spk04: Our next question comes from the line of Kevin Kim from Truist. Your line is open.
spk10: Hi, this is Kevin. Quick question first. where will your leverage ratio be if debt was preferred to EBITDA by the end of the year on a kind of normalized basis?
spk08: Yeah, the good news is our leverage should be back in our range of 5 to 5.6, so call it, you know, should be in the mid-fives in fourth quarter, and our AFFO payout ratio will be in the low 70s. So we're kind of going to get back to normal as far as our leverage, and, of course, as we further annualize next year, you know, investments aside that will go down further and that's including preferred that's uh no that does not include preferred debt it debt does not include preferred okay so um so in terms of your capital deployment plans going forward you know your stock price has rebounded nicely but i would say not
spk10: quite to the point where a lot of the deals would make sense in terms of yield spread investing. How do you think about that as a management team, and what other alternative funding mechanisms are you thinking about, if at all?
spk09: I think, first of all, you have to realize, as Mark said, we're probably sitting on $200 million to $300 million of cash. So, again, deals work a lot with that much much cash. With that being said, we're mindful of that. We've made, as you said, we've made a nice recovery. We think there's still more to do with that as far as kind of driving our multiple up. So, as Greg said, we still have assets that we're selling, so we still have the ability to recycle. But we believe that our recovery will continue as we demonstrate kind of the consistency and the reliability of these cash flows. And combined with our existing cash and liquidity, I think we can begin to establish an investment cadence that will continue to drive down our cost of capital. Thank you.
spk10: That's it for me. Thanks, Kevin.
spk04: Again, if you would like to ask a question, press star 1 on your telephone. Our next question comes from the line of John Mistaka from Leidenberg-Talman. Your line is open.
spk11: Good morning. Morning, John. So, just on the theater, I know you sold one subsequent to quarter end, but is there a market today for kind of theaters that are going to continue to be operated as theaters? It seems like most of the sales and the projected sales you have are for kind of a reuse of the property.
spk06: I was going to say, John, ironically enough, the one we sold will be a theater. It was bacon, but it's going to be operated as a theater. Yeah, correct. Another operator will take it over.
spk09: I would say we're starting to see the recovery of that business Early on, you're correct, most of our assets were sold for an alternative use. We thought it was important to kind of demonstrate that high-quality real estate had a demand. I think now you're starting to see whether it is ours that we have, we're starting to get offers for existing. You saw Netflix buy the opera as a theater. You've seen AMC get back into the market and buy theaters for operations. So I think you're starting to see that market thaw and more liquidity being injected into it.
spk06: I would also say, John, we're agnostic. I mean, we take the theaters out to market, and whoever wants to pay the highest price, that's who we go with.
spk11: Okay. And then on the investment side, focusing maybe on the experiential lodging and specifically assets similar to the one you acquired in the quarter, which are kind of you know, more RV-oriented type of experiential lodging. What's the total addressable market there? I mean, you know, how big could that maybe specific slice of the potential investment pie be for EPR?
spk09: Well, I mean, we'll have to see how it grows for us, but we think that's a multibillion-dollar opportunity as far as just if you think national parks, things of that nature. You know, these are not – let's be clear – This is not the kind of manufactured housing kind of thing. These are truly experiential kind of RV parks. But we think, again, our first experiences with that, both in terms of Wisconsin and in terms of Pigeon Forge, have been incredibly positive. Greg and his team has built relationships with operators in that area. An area for many years has not been amenitized. If you think about it, it was a lot of concrete pads where people pull their RVs up, and we are bringing a thought process where we're cross-pollinating our ideas on some water park things, some some other amenities that we're able to kind of bring to the table. In fact, Greg and their team, they're talking about digital check-in, lots of different things that I think change that experience. And we've seen phenomenal growth in the recreational vehicle space through COVID and think that's got some nice tailwinds. So we think that's a kind of nice opportunity for us to add to the overall experiential flavor of our portfolio.
spk11: Okay, understood. And one quick detail one on the guidance. Most of the pushes and pulls versus last quarter were pretty self-explanatory, but the decline of $0.04 from the managed properties and others, can you maybe provide some more color on what drove that versus what you were seeing at 2Q?
spk06: Sure, John. This is Greg. A couple of things. One, we're managing some theaters, so obviously we've had ramp up through the summer and things are getting better as the box office has recovered. In St. Pete Beach, I think the biggest issue was the red tide hit Tampa Bay and it drove down a lot of our bookings. There was a recent storm that seems to have washed that out, so we're hoping that that's behind us for now And then the cartwright is just a situation where we're ramping up. It was closed for over a year, and we have a new manager in place. So we're pleased with the progress, but it's a ramp up.
spk09: And New York restrictions were significant. So, I mean, even when we opened, we weren't able to open at capacity, and therefore we've been gradually ramping it through.
spk08: And to a smaller degree, the Jellystone investment, it's off-season. That's a new investment, and fourth quarter will expect a slight loss because it's not their season. So that's part of it, too, is that new investment.
spk09: In fairness, so part of that was by design. So we want to make some improvements. So that's when you kind of... buy it and make the improvements to then drive it into the operating system.
spk06: Yeah, and we also wanted to pick up Labor Day and the Cranberry Festival, and so we could really understand the nuts and bolts of the project heading into next year, for sure.
spk11: Okay. Very helpful. That's it for me. Thank you very much. Thanks, John.
spk04: If there are no further questions as assigned, now I turn the call back over to Greg Silvers for closing remarks.
spk09: Well, thank you, everyone, for your time and attention. We look forward to talking to you at year-end, and everyone stay safe and enjoy the upcoming holidays. Thank you.
spk06: Thank you. Thank you.
spk04: This concludes today's conference call. Thank you for participating. We now disconnect.
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