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spk07: Good day and thank you for standing by. Welcome to the Q1 2024 EPR Properties Earnings Conference call. At this time, all participants are in a 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 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand your conference over to your first speaker today, Brian Moriarty, Senior VP of Corporate Communications. Brian, the floor is yours.
spk08: Thank you, Stacey. Thanks for joining us today for our first quarter 2024 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. We'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 those 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 10K and 10Q. Additionally, this call will contain references to certain non-GAP measures we believe are useful in evaluating the company's performance. A reconciliation of these measures for the most directly comparable GAP measures are included in today's earnings release and supplemental information furnished to the SEC under form 8K. 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, .eprkc.com. Now I'll turn the call over to Greg Silvers.
spk12: Thank you, Brian. Good morning, everyone, and thank you for joining us on today's first quarter 2024 earnings call and webcast. In the first quarter, we were pleased to continue the momentum established during the fourth quarter of 2022, executing investment spending across our target experiential property types. Our coverage levels remain strong, and we believe are indicative of the resiliency of the experiences our customers offer. The box office remains in line with our expectations, and we look forward to seeing the results of the coming months as key titles come out. More broadly, I'd like to highlight some of the significant strides made to our overall value proposition as we move into 2024. Strengthen experiential portfolio. We have continued to diversify and strengthen our portfolio of experiential properties. As evidenced by our coverage metrics, we remain focused on growing an experiential portfolio that is built for the long run and is able to sustain various economic cycles. Expanded investment opportunity set. While we are currently constrained in our capital deployment, we have been actively cultivating our unique relationships and exploring new potential investments that align with our experiential portfolio. This work provides a foundation for future investments and growth in our portfolio. Economically rationalized theater exhibition business. We saw a strong rebound in the box office last year, and while we anticipate that the 2024 box office will be slightly down versus 2023, we know that this is driven by delays in titles as opposed to consumer demand, and that 2025 looks excellent. Additionally, we firmly believe that the debate around streaming versus theater exhibition for movies has been resolved. As studios look for high potential ROI on movie production costs, theater exhibition remains the essential primary distribution channel, with streaming complementing the ecosystem downstream. A high quality balance sheet. Our balance sheet coupled with significant free cash flow allows us to fund our anticipated investment spending while also supporting a well-covered monthly dividend, and we are committed to sustaining these important attributes as we work toward an improved cost of capital. Finally, as we've stated previously, we're working diligently to control the factors that we can control. While macroeconomic factors can and have had a significant impact on our business, we continue to focus on being positioned for success. Now I'll turn the call over to Greg Zimmerman to go over the business in greater detail.
spk11: Thanks, Greg. At the end of the quarter, our total investments were approximately $6.9 billion, with 358 properties that are 99% leased, excluding properties we intend to sell. During the quarter, our investment spending was $85.7 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 288 properties with 51 operators, and accounts for 93% of our total investments were approximately $6.4 billion. And at the end of the quarter, excluding the properties we intend to sell was 99% leased. Our education portfolio comprises 70 properties with eight operators, and at the end of the quarter, excluding the properties we intend to sell was 100% leased. Turning to coverage, the most recent data provided is based on a December trailing 12-month period. Overall portfolio coverage for the trailing 12 months continues to be strong at 2.2 times. Trailing 12-month coverage for theaters is 1.7 times, with box office at 8.9 billion for the same period. Our theater coverage reporting assumes that the regal deal was in place for the entire trailing 12-month period. Trailing 12-month coverage for the non-theater portion of our portfolio is 2.6 times. Now I'll update you on the operating status of our tenants. Our theater coverage is at 2019 levels, even though North American box office remains well below 2019 levels. We continue to see sustained increases in food and beverage spending and spending on premium large format screens. Our portfolio is well positioned to benefit from these trends, and importantly, the box office generated from our high quality theater portfolio continues to outperform the industry. Turning to box office and the state of the industry, Q1 North American box office was 1.6 billion. While Q1 performance was down .6% from Q1 2023, as a result of strong performances by Dune Part II, Kung Fu Panda IV, Godzilla Times Kong, The New Empire, and Ghostbusters Frozen Empire, March's $739 million gross exceeded March 2023 by 17.4%. To date, 10 films have grossed more than $60 million in 2024. These results once again demonstrate consumers want to see good films on the big screen. Box office gross is directly tied to the number of titles released, and we remain optimistic that as the year progresses, more titles than anticipated will be released as studios ramp up production coming out of the delays caused by the writers and actor strikes. April was down somewhat because of a lack of titles, but we expect a return to stronger cadence in May, continuing throughout the remainder of the year, with titles including If, Inside Out II, and Deadpool and Wolverine. With this, we reaffirm our previous estimate of between $8 and $8.4 billion for calendar year 2024. While it's too early to provide estimates for 2025, we are confident it will be a significant improvement over both 2023 and 2024. Turning now to an update on our other major customer groups. We continue to see good results in ongoing consumer demand across all segments of our drive to value oriented destinations. As has been the case for several quarters, increases in fixed costs, including labor, insurance and taxes continue to pressure EBIT arm for many of our operators. Likewise, in some locations, we continue to see some pullback in attendance from post COVID highs. Nonetheless, our non-theater coverage remains healthy at 2.6 times the same as we reported on our Q3 and Q4 calls. Our Eat and Play assets continue good performance. With portfolio EBIT arm up 6% in Q1 2024 over Q1 2023. After completing four refreshes in 2023 that they funded, Topgolf will fund refreshes at three more of our units in 2024. A number of our attractions were closed seasonally in Q1. Bavarian Inn and Frankenmuth, Michigan opened the first phase of its family entertainment center in Q4 with a ropes course and climbing wall scheduled to open in Q2. The full project, including the 100,000 square foot indoor water park will open in late 2024. The new offerings are beginning to drive revenue and EBIT arm growth. Our fitness assets continue to show membership growth. Even while under construction for an extensive expansion project scheduled to open in spring 2025, our Springs Resort in Pagosa Springs continues its ADR growth. We're confident the expansion will drive growth at this outstanding asset. Ski results for the season were solid, despite weather-based attendance challenges everywhere but Alaska. In general, pass sales across the portfolio offset any weather issues. Our Aliesca Resort benefited from an above average snowfall and the introduction of the icon pass. Hotel room renovations are complete at Aliesca with restaurant and lobby renovations expected to be completed by year end. Our significant expansion at the Jellystone Cozy Rest RV Park north of Pittsburgh is 90% complete. And with the substantial improvements, we anticipate increases in revenue and EBIT arm. Both the Margaritaville Nashville Hotel and our Camp Margaritaville RV Resort and Lodge in Pigeon Forge continue to perform very well. We have seen some softness in ADR at the St. Petersburg market, which was negatively impacted our Bellwether and Beachcomber resorts. Our education portfolio continues to perform well with year over year increases across the portfolio through Q4 of 6% in revenue and 13% in EBIT arm. As we indicated last year, our Kindercare portfolio was subject to a rent reset retroactive to January 1st, but calculated in the first quarter. We have reached in an overall agreement with Kindercare to reset the rent. As we anticipated, our overall rent increased by approximately $1 million, and we will receive one location back at the end of the quarter, which we are actively marketing. We have sold four of the five Kindercare locations we took back last year. During Q1, our investment spending was 85.7 million. We closed on the $33.4 million acquisition of Enchanted Forest Water Safari in Old Forge, New York, in a sale lease back transaction, and established a relationship with an attractions operator new to EPR. Enchanted Forest Water Safari is a four season resort in the heart of the Adirondacks with the largest water park in New York, amusement rides, a hotel, private lake, RV sites and cabins, and access to hundreds of miles of snowmobile trails. We also extended our relationship with Andretti Karting, closing on two new build to suit locations. As we announced on the year end call, we provided build to suit financing for our sixth Andretti Karting location, this one in the greater Kansas City area. The total commitment is 35 million, with 8.8 million funded a closing. After our year end call, we also closed on a $5.8 million loan to Andretti to acquire land in Schaumburg, Illinois for another build to suit Andretti Karting location. Upon finalization of a construction contract and completion of due diligence items, the mortgage will be converted to a triple net lease with funding capped at 38 billion. Cap rates for these deals exceeded 8%, creating compelling long-term value. We're maintaining investment spending guidance for funds to be deployed in 2024 in a range of 200 million to 300 million. Through quarter end, we have committed approximately 220 million for experiential development and redevelopment projects that have been closed, but are not yet funded to be deployed over the next two years. We anticipate approximately 111 million of the 220 million will be deployed in 2024, which amount is included at the midpoint of our 2024 guidance range. In most of our experiential categories, we continue to see high quality opportunities for both acquisition and build to suit redevelopment and expansion. We have a robust pipeline with new and existing customers and concepts. Given our cost of capital, we will continue to maintain discipline and to fund those investments primarily from cash on hand, cash from operations, proceeds from dispositions, and with our borrowing availability under our unsecured revolving credit facility. Turning to a quick update on capital recycling. As we announced on our year end call, in Q1, we sold both of our Titanic museums in Pigeon Forge, Tennessee and Branson, Missouri to a private equity firm at a 6% cap rate on in-place income for a combined $45 million in net proceeds and a gain on sale of approximately 17 million. The cap rate and gain demonstrate the value of our experiential investments. We also sold the third of our vacant former Regal theaters for 1.2 million and a gain of approximately 900,000. We have eight remaining to sell with signed purchase and sale agreements for three of those eight. Beyond the eight vacant former Regal theaters, we have one remaining vacant AMC theater and a vacant Xscape theater we terminated in Q4. We are maintaining our 2024 disposition guidance in the range of 50 million to 75 million. I now turn it over to Mark for a discussion of the financials. Thank you, Greg. Today
spk13: I will discuss our financial performance for the first quarter, provide an update on our balance sheet and close with an update on 2024 guidance. FFO as adjusted for the quarter was $1.13 per share versus $1.26 in the prior year. And AFO for the quarter was $1.12 per share compared to $1.30 in the prior year. Note that out of period deferral collections from cash basis customers included in income were 0.6 million for the quarter versus 6.5 million in the prior year, resulting in a decrease of 8 cents per share versus prior year. Now moving to the key variances. Total revenue for the quarter was 167.2 million versus 171.4 million in the prior year. Within total revenue, rental revenue decreased by 9.3 million versus the prior year. The positive impact of net investment spending in the current quarter in prior year was more than offset by the reduction in out of period deferral collections that I just mentioned, as well as reduction in rental revenue related to the regal restructuring that took place in August of 2023. Additionally, percentage rents for the quarter increased slightly to 1.9 million versus 1.8 million in the prior year. Recall that percentage rent is expected to be recognized for the first time later this year for debaters under the regal master lease. Based on the current film slate, we expect that all of this percentage rent will be recognized in July of Q3, the last month of the lease year. Increase in mortgage and other financing income of 2.4 million was due to additional investments in mortgage notes in the current quarter in prior year. Both other income and other expense relate primarily to our consolidated operating properties, including the Cartwright Hotel and Indoor Waterpark and seven operating theaters. The increase in other income and other expense compared to the prior year was due primarily to the additional five theaters surrendered by and previously leased to regal, which have been operated by third parties on EPR's behalf, since early August of 2023. On the expense side, the following three items are excluded from FFO's adjusted, but I would like to give some details on the increases over prior year. First, retirement and severance expenses for the quarter of 1.8 million related primarily to a previously announced executive retirement. Second, the increase in provision for credit losses of 2.2 million is due to applying the credit loss accounting standard to our portfolio mortgage notes, including the impact from additional investments funded in the quarter and commitments, as well as the impact of changes in the macroeconomic environment. And third, the gain on sale of real estate of 17.9 million for the quarter is primarily attributable to the sale of the two cultural properties that Greg mentioned in his comments. Lastly, FFO's adjusted from joint ventures for the quarter decreased by 1.3 million versus the prior year due to softer performance at our experiential lodging properties in St. Petersburg, Florida. In addition, while the first quarter of the year is the off season for our RV parks, these properties had increases in expenses versus the prior year. Turning to the next slide, I've reviewed some of the company's CREED credit ratios. As you can see, our coverage ratios continue to be strong with fixed charge coverage at 3.1 times and both interest and debt service coverage ratios at 3.6 times. Our net debt to adjusted EBITDA RE was 5.5 times for the quarter. However, net debt to annualized adjusted EBITDA RE, a better measure of leverage was 5.2 times or about 30 basis points lower. Annualized adjusted EBITDA RE includes the annualization of investments put in service acquired or disposed of during the quarter, as well as the expected earnings on property under development, the annualization of percentage rents and adjustments for other items. Additionally, our net debt to gross assets was 39% on a book basis at March 31st. Lastly, we increased our common dividend by .6% beginning with the dividend that was paid in April. Our common dividend continued to be very well covered with an AFFO payout ratio for the first quarter of 75%. Now let's move to our balance sheet, which is in great shape. 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 4.3%. Additionally, our weighted average consolidated debt maturity is four years with only 136.6 million due in August, 2024, which we anticipate paying off using our line of credit. We had 59.5 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver, which positions us well given the continued difficult backdrop of the capital markets. We are confirming our previously announced 2024 FFOs adjusted per share guidance of 476 to 496, an investment spending guidance of 200 million to 300 million. We are also confirming the guidance we previously provided for certain other categories. Note that about 75 to 80% of our total anticipated percentage rent is expected to be recognized in the back half of the year. Guidance details can be found on page 24 of our supplemental. On the next slide, I wanted to illustrate, as I did last quarter, the anticipated impact on growth on FFOs adjusted per share for 2024 at the midpoint of guidance when you remove the impact of out of period cash basis deferral collections from 2023 of 36.4 million or 48 cents per share and the amount we collected of such amounts in the first quarter of 0.6 million or a penny per share, which is all that we anticipate collecting for this year. As you can see on the schedule, FFOs adjusted per share growth without deferral collections from 2023 to 2024 is expected to be 3.2%. Effective growth is just over 4% when also excluding the impact of lease termination fees recognized in 2023 of 3.4 million. Now with that, I'll turn it back over to Greg for his closing remarks.
spk12: Thank you, Mark. As we are all learning to operate in a higher for longer environment, our portfolio continues to demonstrate the resilience of consumer demand for value oriented experiential assets. Additionally, we're off to a solid start for our investment spending and disposition targets. In summary, we continue to be positioned to succeed for our shareholders with a well covered dividend and a path for growth. Now let's open it up for questions. Stacey.
spk06: Thank
spk07: you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while I compile the Q&A roster. Our first question comes from Joshua Dennerlin of Bank of America. Joshua, go ahead with your question.
spk02: Yeah, morning everyone. Greg, you mentioned in your prepare room, you mentioned in your prepared remarks your capital constraint, but I also noticed you have three categories of properties you wanna reduce, the early childhood education, private schools, theaters. How do you think about tapping those for the path for recycling?
spk12: Again, I think Josh, we clearly have and will continue to explore that. Again, our first priority is probably to deal as we can with vacant properties because not only are they not income producing, but there's cost associated with that. But as we move and see as markets and other opportunities become available, we definitely will continue to look at those. I think the obvious choice, I mean, there's no doubt the theater market remains challenged. Greg and his team have done a great job of executing on some of those. But our education portfolio is one that as we start to marry opportunities with capital needs, we're going to explore further. Greg, I don't know if you have that. No,
spk11: and yeah, Josh, it's a strong portfolio, obviously 100% leased with revenue and EBITDA continuing to grow. So I think it's actionable at the right time.
spk02: Okay, and then Mark, I just wanted to go over the guidance, some of the guidance line items. What gets you to the high and low end of the percentage rent guidance? And then could you remind us where the operating properties income like flows through the guidance lines and just like what gets you the high and low end this year?
spk13: Sure, probably the biggest variable on percentage rents is probably the theater portfolio. Remember with the regal lease, we have a low threshold. So we expect to be in percentage rents. And then that's all gonna be contingent on box office and more specifically how our individual properties perform. Beyond the theaters, there's other percentage rents that can go up or down, certainly based on the performance of other property types, but probably the biggest variable is theater percentage rents. As far as how operating properties flow through the income statement, you have on the consolidated side, you've got the seven operating theaters and Cartwright, and those are operating properties that show up in other income and other expense. So we guide to those. You can see the guidance on page 24 of our supplemental where we give a range for other income and other expense. You get a sense of what those numbers will be. In addition to the operating theaters there in the Cartwright, there is some other income and expense that can go through there like FX and so forth. But the primary thing is those operating properties. And then the other operating impact is really on the JV side, which is reported as equity and income or loss from joint ventures. And we also provide guidance on that along with the FFO impact from those joint ventures. So that's our properties in St. Petersburg and then the RV parks. And those are, again, operating properties that we have a percentage interest in.
spk02: Thanks, guys.
spk13: Thank you, Josh.
spk06: Stand by for our next question. Our next question comes from Smeez Rose with Citi. Smeez, please go ahead with your question.
spk05: Hi, thanks. I'm just
spk04: wondering when you talk to your tenants, I guess particularly maybe on the operating side, are they seeing any or voicing any concerns around consumer propensity to spend? I mean, as you know, there's been rising concerns around the health of the economy, particularly for kind of a middle market consumer. And I'm just wondering if you're kind of having thoughts along that front.
spk12: Yeah, Smeez, again, we continue to be as close in contact with them as we can. We're not seeing... Clearly, the concern is being voiced, but we're not seeing it flow through to the numbers. I think there's a general kind of concern broadly that is in the media and in the discussion point, but so far flowing through the numbers, as we talked about and Greg talked about in his comments about EBITDA up, especially kind of in the Eat and Play area, which we would see kind of sooner. If you talked about, again, even today, if you saw Cinemarks report out earlier today, they're talking about strength in the continued food and beverage spend with movie going. So even though there's no doubt it's a concern, we just haven't seen it materialize. Greg, I think that covers it very well.
spk05: Thanks. And then I'm just wondering on the
spk04: vacant theaters remaining for sale, can you just remind me, I guess, what sort of the progress since the last quarter? Is it still the same status in terms of like purchase and sale agreements or has there been any incremental progress, I guess?
spk11: Yes, so obviously we announced we sold one theater Q1 and we have three of the eight remaining regals under contract of sale. That's about the same as last quarter. We have had some ins and outs on LOIs, which as we report every quarter, is usually a function of whether folks want to get a zoning variance or make changes to the underlying real estate. So sometimes they feel like it's gonna take longer than they thought. We do have interest in all those remaining regals. We also have significant interest in the AMC, which is in Hamilton, New Jersey. And then we're starting to get interest in the escape theater, which we just terminated at the end of Q4. So we feel pretty good. In general, since COVID, we've sold our terminated leases for 16 theaters and we average around six a year, plus or minus, and we feel pretty good about that cadence issue.
spk05: Okay, thank you, appreciate it. Thank you, Smith. Standby
spk07: for our next question. Our next question comes from Todd Thomas of Key Bank. Todd, go ahead with your question.
spk01: Hi, good morning. This is Intara Nagtaduri, on for Todd Thomas. I was just wondering, on the investments front, could you talk about the pipeline for new acquisitions and sale leasebacks? I know the pace is running a little ahead for your guidance, but is there potential to deploy more capital and are you seeing yields trend higher above the 8% that you discussed for new deals that you're underwriting? Greg?
spk12: I would say, I'll let Greg comment as well. I think as always, right now our opportunities that exceeds our available capital, so we're being selective in what we're doing. I think on the cap rate, there's clearly pressure to move those yields. It's that fine line of risk versus reward and quality. So I think what we would say is we're comfortably in the eights, but that it continues as more and more capital is constrained, that moving those numbers up is something that I think everybody's dealing with. But Greg?
spk11: Yeah, I agree. I'd say there's upward pressure on cap rates and we still continue to see opportunities in most of our verticals that are actionable and we'll continue to work on those throughout the year.
spk01: Okay, and if I could just follow up back to the feeder portfolio and the percentage rent discussion. You mentioned that your feeder portfolio is outperforming the overall industry. Does that change the math around box office targets and the regal percentage rent as we think about how the rest of the year may play out?
spk11: No, this is Greg Zimmerman. In general, as we say, we have 3% of the screens in the country and we generate 8% of the box office. In our theater portfolio, the vast percentage of our percentage rent is with the regal portfolio and Mark discussed that. We expect to have percentage rent in Q3 and we're monitoring the box office performance of those individual theaters.
spk12: I would say, and Greg, you can comment on this, our regal portfolio is performing as expected. I mean, again, their market share is as we kind of underwrote. When we say we're outperforming, we were outperforming last year, we're still continuing to outperform. But what's going to impact the percentage rent is these next three or four months. If you look at the film calendar, it was always heavily weighted to the second half of the year and the summer kind of season. That kind of really kicks off, as Greg said, kind of in May with the titles really starting to flow then and the upside downside is really going to be governed by these next three or four months. We're hopefully optimistic. Things are tracking as we have projected them and we'll just have to see how the titles play out.
spk11: Yeah, we'll see starting this weekend, the Fall Guy opens. And currently our projections are that we should have at least four films in May that are around $100 million or greater.
spk01: Thank you.
spk11: Thank you.
spk06: And bye for our next question. Our next question comes from Ray Zong with JP Morgan.
spk07: Ray, please go ahead with your question.
spk03: Hi, good morning. Thanks for taking my question. I guess my first one is follow up on the remaining spending for the year. I was adding all the things that you guys already teed up for the rest of the year with the actual ZECAR printed this quarter. Seems like you guys are roughly already at the low end of the range. You guys mentioned there's some pressure on the yield. So just curious to know, are the negotiation taking a pause with the rate coming up in the past two months or is continuing at this, right now just try to think about is it more back end loaded for the remainder 15 minutes or so, or it could happen any time as well?
spk12: Well, I think it's trying to be measured. Again, as we have limited capital, we're always trying to balance the needs of a good deal right now versus what we might see in the third quarter. So I think Greg and his team are trying to do a good job of always holding back some degree of capital so that we have opportunities to meet the needs of either our existing tenants or something opportunistically that comes forward while also balancing some of the things that a question was asked earlier. Can we accelerate some of our dispositions to take advantage of that? And Greg and his team are always trying to look at that balance and say, okay, what have we got right now? What you saw this quarter was a really nice mix of, A, we've got a new attractions tenant, which is great. We got a new relationship and a relationship agreement to look at future deals with them. But we also supported existing tenants with the end readies and we got really what we think are strong deals there. So it's trying to find that right balance within a world of limited capital and striking that balance for the entire year. Because if we spend everything in the first quarter, while that's great for earnings, that challenges us to be opportunistic as the year runs through. So it's right, it's trying to hit that balance.
spk03: Gotcha, that makes sense. And on capital source side, you guys mentioned the priority is to deal with the vacant theaters for now. Anything you guys are contemplating on the theaters that are well covered and any guests on the cap rate if ever, that would be helpful. Is there any color on that?
spk12: Yeah, I mean, the challenge is as the industry has recovered, we really still have not seen a lot of transactions on what we would call very strong theaters. I think that market's getting better. There's no doubt that clearly the overhang of the industry is behind us. People are seeing, and if you look at two of our major three operators, they have as good or better balance sheets than they had in 2019. Clearly Regals is much better and Cinemark is just as strong as they retired some of their largest, some of their bonds earlier this quarter. So I think that market is developing, but Greg?
spk11: I agree, and I wouldn't be able to hazard a guess on cap rates because as Greg said, we just haven't seen any trades of theaters that are cash flowing because if it's a decent theater, people are holding on, betting on the recovery, which obviously is playing out and will continue to play out through the end of the year and into 2025. Gotcha, that's it for me, thank you.
spk12: Thank you,
spk07: Ray. Stand by for our next question. Our next question comes from Rob Stevenson with Janny Montgomery Scott. Rob, please go ahead with your question.
spk09: Good morning. Greg or Greg, you indicated that Topgolf was gonna refresh some more locations in the portfolio. What does that look like in terms of dollar invested on those type of refreshes and what do they do? And are you guys funding that and if so, what are the expected returns and any changes to the lease term or bumps, et cetera?
spk11: Yeah, Rob, I wouldn't know exactly how much it is because they fund 100% themselves. They figure out which ones they wanna refresh. So there's no change to the lease term and we don't get a return on it, but we're happy obviously when our tenants are investing in our real estate. What the refresh consists of is replacing the outfield grass turf and then also paint and polish on the existing asset, the restrooms, that sort of thing. So again, we're always thrilled when our tenants are investing in our real estate.
spk12: Yeah, I mean, I think it's safe to say, Rob, it's millions of dollars. Oh, for
spk11: sure, it's millions.
spk12: And so what we take that on is commitment to the existing location. If someone is spending millions of dollars to continue to refurbish an existing location, two, it talks about the wear and tear and how busy they are and B, it talks about the commitment of the tenant to the ongoing operations of that location. But no, we don't invest, we don't spend any of our dollars on that, it's totally Topgolf's investment.
spk09: Is that because of their cost of capital or is that because you guys would rather that they do it? I mean, are you turning down this type of stuff? Because a lot of times it's the landlord that does this and then you extend the lease, et cetera, on improvements. And so to your point, it's rare that the tenants go and invest this money on their own.
spk12: Again, they have not approached us, but it would be our indication that this, much like we see in our theater business and everything as FF&E and other things need to be replaced, that it's their responsibility. We have certain standards that we put in our lease that they have to maintain to, and we would just see this as part of an ongoing responsibility that we see with all of our tenants.
spk11: Yeah, and it's not unique. I mean, Vale has refreshed their assets of ours and so has Six Flags.
spk13: We generally invest in real estate, not FF&E, in sort of refurbishment or painting and sort of for us, that's usually the tenant.
spk09: Okay, and then how are you guys thinking about incremental investment in California these days? There's been some talk about potentially expanding the $20 minimum wage to other industries with multiple locations nationally and wondering how that would impact your types of tenants and your desire to invest in that state going forward.
spk11: Well, obviously, we are in the midst of opening the Murrieta Hot Springs Resort in Murrieta, California. We had a soft opening in February and it'll be fully open this summer. So, you know, we continue to feel like good locations in California are worth investing in. I would say, you know, as a general proposition, we're investing in larger assets. So, looking at the value over time.
spk09: Okay, thanks guys, I appreciate the time this morning. Thank you, Ron Throb.
spk06: Standby for our next question. Our next question comes from Michael Carroll with RBC.
spk07: Michael, go ahead with your question.
spk10: Yep, thanks. I guess, Greg, earlier in your prepared remarks, you talked a little bit about new potential investment opportunities that you're continuing to kind of mine your relationships to find those deals. I mean, should we think about these as different property types that you're currently not investing in? I guess, what are those discussions and what type of properties are we talking about?
spk11: No, I think they're all solid within the verticals, Michael, but I'll give you an example, a couple of examples. You know, we did the deal at the end of the year with Miraval, which is a family business, great fitness asset, and we have a relationship agreement with them. So, we feel like that's helping to expand our fitness and wellness category. As Greg and I both mentioned, we're really happy with Water Safari in Old Forge. It's been around for probably 50 years. It's a great asset in central New York in the Adirondacks. And again, we have a new operator, and as Greg mentioned, a relationship agreement with them. And then, obviously, we've had an ongoing relationship with Andretti, so we're thrilled to be able to do a couple more Andretti deals. So, we're always looking within the verticals, and what I like to tell my team is we're expanding the aperture of the vertical.
spk10: OK, and then, I guess, what are you doing specifically to kind of strengthen those relationships? Is it just kind of like talking to those stakeholders within the space and deploying capital and these smaller deals that you can make sense, and then when your cost of capital improves, then you can be prepared to be more aggressive deploying capital into those verticals?
spk12: Well, and I'll jump in on this. I think Greg and his team have done a great job, and we talked, and you hear him talk about this phrase, relationship agreement. What we think about a relationship agreement is, not only are we gonna do this deal, but we're gonna see every deal that you're involved in as we go forward, and we have a right to do those deals. So, it's not an obligation, but it's creating pipeline for us as they grow their businesses, we are their preferred capital partner. So, when we are in an environment where we have limited capital, it's not good enough for us to have this deal. We want this deal and an opportunity to grow with that tenant going forward. And in every one of the instances that Greg just mentioned, not only did we do a transaction, but we got a relationship deal, which will give us a pipeline to future growth. So, it's not only about deploying capital today, it's about creating that opportunity to deploy capital for years into the future, and Greg and his team have done a great job of doing that.
spk10: Thanks, Greg. And then, I guess just last one for me, historically, where do these tenants typically get financing? I'm assuming that that market's pretty dried up right now, and they're looking to create these relationships with people like you so they can grow their business?
spk12: Again, I would say that for most of these groups, that they have grown with banking relationships, and at this point in time, they've either outgrown those banking relationships because they've gotten to the next tier of size, or as always, the regional banks are not as aggressive on doing more real estate loans. So, I would say it's primarily in that world.
spk11: Yeah, and I would also say, Mike, look, if you wanna grow, and maybe not within a certain jurisdiction, then a regional bank's probably gonna be less helpful than we are because we'll go anywhere over the US as long as our underwriting supports the location. So, and I think once people start to deal with this, they learn that we bring a lot to the table, that your typical banking relationship, in terms of advice and things that we see, trends across the
spk12: industry. And I think as you get to that next size, like in Andretti's, candidly, a lot of our triple net competitors have done Andretti's deals, but once again, we have these kind of relationship agreements that allow us to see certain things so we can be selective in where we're doing it, and then others in the triple net world may be doing deals with them, but we're aware that several of our competitors have done deals with them.
spk09: Okay, great, thank you.
spk05: Thanks, Dave.
spk07: I'm showing no further questions at this time. I'd now like to turn it back over to Greg Silvers for closing remarks.
spk12: Well, thank you everyone for joining us today. We look forward to probably meeting with all of you and investors in Nehri coming up shortly. Have a great day and thanks for attending. Bye-bye.
spk07: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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