EPR Properties

Welcome to the EPR Properties Q1 2025 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President, Corporate Communications.

Great, thank you. Thanks for joining us today for our first quarter 2025 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. I'll start 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 intended to continue to believe, may expect, hope, anticipate, or other comparable terms. The company's actual financial condition and the results of the operations may vary materially from those contemplated such poor-looking statements. Discussion of those factors that could cause results to differ materially from those poor-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 a 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 SEC on Form 8K. If you wish to follow along today's earnings release, supplemental, and earnings call presentation, all available on the Investor Center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silvers.

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's first quarter 2025 earnings call and webcast. I am happy to report that our first quarter results reflect continued strength in our portfolio, with top-line revenue up 4.7%, and FFO has adjusted per share up 5.3% year over year. Additionally, we are pleased to announce that we are increasing our 2025 earnings guidance. During the quarter, we made progress with our investment pipeline, deploying capital into accretive opportunities that support our long-term growth strategy. As part of our investment spending during the quarter and subsequent to quarter end, we are introducing two new experiential asset types to our portfolio, a construction-themed attraction and a private golf club with expansive amenities. We are delighted to add these properties to our portfolio as they reflect the attributes we seek in our experiential investments. While we remain prudent in our investment spending given the current cost of capital, we are encouraged by our ability to continue to find attractive investments. We also advanced our capital recycling strategy, focused on the sale of theater and education assets and accretively redeploying this capital into target experiential properties. This strategy remains a top priority for us as we continue to refine our portfolio with the goal of further expanding our experiential portfolio across high-quality properties. Turning to an overview of our portfolio, our first quarter consolidated coverage remains at 2-0, which is consistent with the reported coverage on our year-end call. We are pleased with the momentum and resilience we're seeing at the box office. Thus far, we've seen success around multiple genres, including original content, as most recently evidenced by the performance of Sinners, franchise films, including Captain America, Brave New World, and Mufasa, The Lion King, and animated features like Dog Man and Milena 2. The upcoming film slate is strong, and we remain optimistic about seeing continued solid performance in theatrical exhibition. Our ski properties also delivered solid results, supported by robust season pass sales and favorable weather conditions. As we've discussed previously, our snowmaking capabilities at these properties help to mitigate weather risk. While our play sector experience some year-over-year declines, our coverage in the space remains healthy and we are confident about the sector's resilience. Lastly, amid ongoing uncertainty, We wanted to highlight the long-term resiliency of experiential spending in many of these sectors that we invest in. As is highlighted on the chart, spending on these experiences has consistently grown over the last 25 years throughout macro cycles. Additionally, the data illustrates that these sectors are resilient during challenging economic periods and have the potential to exhibit robust recoveries. We believe that consumers often seek away-from-home entertainment and leisure options even during more challenging period due to a mix of psychological, behavioral, and economic factors. These types of experiences offer affordable escapism by providing value-oriented entertainment and a temporary escape. History suggests there is also some substitution effect whereby consumers may trade down rather than opt out opting for local, more budget-friendly experiences instead of expensive vacations or high-end purchases. This trade-down effect can make our venues more appealing during downturns. With that, I'll turn it over to Greg Zimmerman to go over the business in greater detail.

Thanks, Greg. At the end of the quarter, our total investments were approximately $6.8 billion, with 331 properties that are 99% leased or operated, excluding vacant properties we intend to sell. During the quarter, our investment spending was $37.7 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 276 properties with 51 operators and accounts for 94% of our total investments, or approximately $6.4 billion. And at the end of the quarter, excluding the vacant properties we intend to sell, was 99% leased or operated. Our education portfolio comprises 55 properties with five operators, and at the end of the quarter was 100% leased. Turning to coverage, the most recent data provided is based on a March trailing 12-month period. Overall portfolio coverage remains strong at two times, the same as last quarter. Turning now to the operating status of our tenants. The rebound in North American box office continues. Q1 box office was $1.4 billion, down 11.6% compared to Q1 2024, largely because of the significant underperformance by Snow White. We've seen a quick rebound with the outstanding performance of several films in Q2 to date. Q2 box office through this week was $11 billion, which brings year-to-date box office to $2.5 billion, a 17.1% increase over the same period in 2024. A Minecraft movie opened to 163 million, both the largest opening in 2025 and the largest opening weekend ever for a video game movie. To date, Minecraft has grossed 398 million. Akin to Barbie, Minecraft was a cultural phenomenon fueled by consumers seeing the movie several times and interacting with the screen. Beyond Minecraft, the well-reviewed genre-bending horror film Sinners has grossed $180 million to date, and the faith-based The King of Kings has grossed $58 million. Last week, Thunderbolts, the latest installment of the Marvel Cinematic Universe, opened to $74 million. With these strong early Q2 performances, as of the first week of May, we are back on track for our projected year-to-date box office gross. As history has shown, When product is flowing, the box office is resilient, and when there is a consistent flow of good product, consumers are in the habit of going to multiple movies. For the remainder of Q2, beyond Minecraft, eight titles are projected to gross over $100 million, including four projected to gross over $175 million. Thunderbolts, Lilo and Stitch, Mission Impossible The Final Reckoning, and How to Train Your Dragons. The slate for the remainder of the year is also strong, including the Fantastic Four First Steps, Superman, Jurassic World Rebirth, and Avatar Fire and Ash. Box office gross ties directly to the number of titles released, particularly wide releases from the nine major Hollywood studios, which typically generate around two-thirds of the North American box office. As of May, we anticipate 2025 will have 78 major studio releases and 60 smaller studio releases. At this point in 2024, there were 64 major studio releases on the calendar. The 78 major studio releases currently scheduled for 2025 are forecasted to gross $800 million more than the major studio releases scheduled at this point in 2024. Our estimate of North American box office for calendar year 2025 remains between $9.3 and $9.7 billion. Another important element supporting the health of exhibitor profitability is the ongoing expansion of food and beverage offerings. These expanded offerings are driving increased consumer spending, revenue per patron, and levels of profitability per patron. Based on AMC and Cinemark public filings from 2019 through 2024, per patron ticket prices increased by approximately 26%, while F&B spending per patron increased by approximately 60%. Ticket margin is around 46%, while F&B margin is around 82%. This notable increase in higher margin F&B spending meaningfully boosts gross profit per patron and has a positive impact on the bottom line. When adjusting for the current per patron spending mix, we estimate that North American box office gross of around $9.5 billion today will generate rent coverage levels in our portfolio equal to those generated at an $11.3 billion box office in 2019. While box office metrics obviously will remain an important benchmark, the industry story has evolved. and strong per patron profitability now plays an important role in sustaining operator health. We believe that returning to 2019 box office levels is not necessary to maintain solid rent coverage or for the industry to remain financially healthy. Turning now to an update on our other major customer groups. Despite continuing pressure on operating expenses and in select cases, attendance and revenues declines, We saw good results across our drive-to value-oriented destinations. Our eastern ski areas benefited from a good snow year, and for the season, both Q1 and Q1 trailing 12-month revenue and EBITDARM were up across the ski portfolio over last year's season. Andretti Karting is under construction in Kansas City, Oklahoma City, and Schaumburg, with openings scheduled for mid-25 and early-26. Our even play coverage remains strong and above pre-COVID levels, but Q1 trailing 12-month revenue and EBIT arm were both down over the same period in 24. Many of our attractions were closed for the season in Q1. The 100,000-square-foot indoor water park addition at Bavarian Inn in Frankenmuth, Michigan, opened in Q1. Our iconic Hotel de Glace at Val Cartier celebrated its 25th anniversary with its usual strong performance. Santa Monica Pier was adversely impacted by the Southern California wildfires, including being shut down for several days. Some road closures are ongoing. We are very pleased with the strong performance of our fitness and wellness investments. The Springs Resort in Pagosa Springs opened its $90 million expansion in early April to good reviews. Ramp-up continues at our Murrieta Hot Springs Resort. Across our fitness and wellness portfolio, We saw increases in both revenue and EBIT arm in the trailing 12 months through March 2025 over the same period in 24. Our education portfolio continues to perform well. Our customers trailing 12-month revenue across the portfolio for 2024 was up, while EBIT arm over the same period decreased, driven largely by increased operating costs for one operator. Our investment spending for Q1 was $37.7 million, which included funding for experiential projects which have closed but are not yet open. During the quarter, we acquired Diggerland USA in West Berlin, New Jersey, 20 miles east of Philadelphia, for $14.3 million. Diggerland is the only construction-themed attraction and water park in the country and is our second investment with IAM, further diversifying our tenant base. Subsequent to the end of the order, we made two additional investments. We made our first investment in the traditional golf space, acquiring land for $1.2 million and providing $5.9 million in mortgage financing, secured by the improvements to Evergreen Partners for an existing private club in Georgia. We've spent a lot of time analyzing traditional golf while building deep relationships, and we are delighted to announce our foray into what we think is an exciting growth opportunity in a resilient space with a growing operator. We also acquired our second PennStack Eat and Play venue in Northern Virginia for $1.6 million, with a commitment to provide Build to Suit financing up to $19 million. This project is expected to open in 2026. PennStack features bowling, food and beverage, and redemption games. We continue to see high-quality opportunities for both acquisition and Build to Suit development in our target experiential categories. 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 the borrowing availability under our unsecured revolving credit facility. We're maintaining our investment spending guidance for funds to be deployed in 2025 in the range of 200 to 300 million. We have committed approximately $148 million for experiential development and redevelopment projects that have closed but are not yet funded to be deployed over the next two years. We anticipate approximately $87 million of the $148 million will be deployed in 2025, which is included at the midpoint of our 2025 guidance range. We continue to execute on our strategy to focus our portfolio on diversified experiential assets. To that end, in Q1, we sold 10 least early education centers, demonstrating our ability to strategically monetize our education portfolio. We also sold a vacant theater, two operating theaters, and one vacant early childhood education center. Net proceeds for these transactions totaled $70.8 million, and we recognized a gain of $9.4 million. Finally, we received $8.1 million in net proceeds for the payment in full of two mortgages secured by two additional early childhood education centers. The activity in the education portfolio was anchored by the sale of a portfolio of nine leased early childhood education centers to an investor at a 7.4 cap rate. demonstrating the high quality and value of our education portfolio. For the other three operating early childhood education assets, the existing operator purchased and or paid off mortgage financing at a blended rate of around 8.3%. In the past four years, we have sold 27 theaters. We only have three vacant theaters, two of which are under contract. We have no vacant early childhood education centers. As we noted on our year-end call, we also have signed a purchase and sale agreement to sell two theater properties to a smaller operator that currently leases both locations. Although there can be no assurance, we continue to anticipate this sale will occur by June 30. We are revising our 2025 disposition guidance to the range of $80 million to $120 million from a range of $25 million to $75 million. I now turn it over to Mark for a discussion.

Thank you, Greg. Today I will discuss our financial performance for the first quarter, provide an update on our balance sheet, and close with an update on 2025 guidance. FFO's adjusted for the quarter was $1.19 per share versus $1.13 in the prior year, an increase of over 5%. Additionally, AFFO for the quarter was $1.21 per share compared to $1.12 in the prior year, an increase of 8%. Before I walk through the key variants, I want to go over two gains recognized during the quarter. As Greg discussed, during the quarter, we continued to make progress reducing our investments in theater and education properties and recycling those proceeds into other experiential assets. Net proceeds from dispositions totaled $78.9 million, and we recognized a net gain on sale of $9.4 million. We also recognize the net benefit for credit losses of $652,000. Note that both of these gains are excluded from FFOs adjusted and AFFO. Now moving to the key variances. Total revenue for the quarter was $175 million versus $167.2 million in the prior year. Within total revenue, rental revenue increased $4.1 million versus the prior year, mostly due to the impact of investment spending and higher percentage rents. Percentage rents for the quarter were $3.3 million versus $1.9 million in the prior year, and the increase was due primarily to $1.1 million recognized from one early childhood education center tenant. The increase in mortgage and other financing income of $4.1 million was due to additional investments in mortgage notes over the past year, as well as $1.8 million of participating interest income related to a ski property. I would like to note that both the $1.1 million in percentage rent and $1.8 million of participating interest income relate to prior periods. The calculations for some of these amounts were under review with our customers and agreement was reached after the amounts during the first quarter. Later, I will discuss how this impacts our 2025 guidance. Both other income and other expense relate primarily to our consolidated operating properties, including the Cartwright Hotel and Indoor Water Park, and our operating theaters. As Greg discussed during the quarter, we sold two operating theaters and currently have four operating theaters remaining. The first quarter was off-season for our two remaining unconsolidated RV park joint ventures that had a carrying value at quarter end of $11.4 million. Interest expense net for the quarter increased by $1.4 million compared to the previous year due to an increase in borrowings under our unsecured revolving credit facility which had no balance in the prior year. Turning to the next slide, I will review some of the company's key credit ratios. As you can see, our coverage ratios continue to be strong with fixed charge coverage at 3.2 times and both interest and debt service coverage ratios at 3.8 times. Our net debt to adjusted EBITDA RE was 5.3 times for the quarter. If you adjust this ratio to include the annualization of investments placed in service acquired or disposed of during the quarter, and the annual utilization of percentage rent and participating interest as well as other items, this ratio was 5.1 times at quarter end, which is at the low end of our targeted range. Additionally, our net debt to gross assets was 39% on a book basis at quarter end, and our common dividend continues to be very well covered with an AFFO payout ratio of 71% for the first quarter. Now let's move to our balance sheet, which is in great shape. At quarter end, we had consolidated debt of $2.8 billion, of which $2.7 billion is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.4%. Our liquidity position remains strong with $20.6 million of cash on hand at quarter end and $105 million drawn on our $1 billion revolver. Subsequent to quarter end, we reached We repaid $300 million in senior unsecured notes at maturity using funds available under our revolver. We have no other debt maturities in 2025. Our strong liquidity position provides us great flexibility, which is particularly important given the recent market volatility. We are increasing our 2025 FFOs adjusted per share guides to a range of $5 to $5.16 from a range of $4.94 to $5.14 representing an increase over the prior year of 4.3% at the midpoint. As we have discussed previously, given our current cost of capital, we are eliminating our near-term investment spending. We are confirming our 2025 investment spending guidance of $200 million to $300 million. We are increasing guidance for disposition proceeds for 2025 to a range of $80 million to $120 million from a range of $25 million to $75 million. On the next slide, we are increasing our percentage rent and participating interest income to a range of 21.5 million to 25.5 million, from a range of 18 million to 22 million. This increase is primarily related to the 2.9 million in prior period income recognized in the first quarter that I discussed previously, as well as additional amounts expected related to the current year. We are increasing our G&A expense to a range of $53 million to $56 million from a range of $52 million to $55 million, with the largest increase at the midpoint related to non-cash stock grant amortization. We are confirming the guidance for our consolidated operating properties, which is provided by giving a range for other income and other expense. One final comment regarding our FFOs adjusted per share guidance. Note that given the fact that our expected percentage rents and participating interest income continues to be weighted to the second half of the year, as does the performance of our operating properties due to seasonality, FFO is adjusted for shares expected to be significantly higher in the second half of the year versus the first half. Guidance details can be found on page 23 of our supplemental. Finally, we are pleased to have increased our monthly common dividend by 3.5% to $354 per share annualized, which began with the dividend payable April 15 to shareholders of record as of March 31. We expect our 2025 dividend to be well covered with an AFFO per share payout continuing to be at about 70% based on the midpoint of guidance. Now with that, I'll turn it back over to Greg for his closing remarks. Thanks, Mark.

As today's results indicate, our portfolio of experiential properties continues to deliver quality results. I also wanted to comment on recent announcements about possible tariffs impacting the film industry. At this point, there is significant uncertainty about the viability, scope, and timing to implement such a proposal. However, both sides of the debate have a stated objective of producing a robust slate of films that drive a successful film exhibition industry. We will closely monitor these developments, but we take comfort that the entire 2025 slate and most, if not all, of the 2026 slate is already in post-production, which we believe should limit any near-term impact. With that, why don't I open it up for questions? Alice?

Thank you. At this time, if you would like to ask a question, please click on the raise hand button which can be found on the black bar at the bottom of your Zoom screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk and then you will hear your name called. Please accept, unmute your audio and ask your question. If you are on a mobile device using the app, simply tap into the three dots or more button to find the raise hand feature. And lastly, If you're calling in today, star nine will activate the raise hand and use star six to mute and unmute. We will wait one moment to allow the cue to form. Our first question will come from Anthony Paolo with JP Morgan. You may now unmute your audio and ask your question.

Great, thanks. Yes, you can hear me. Yes, yes. My first question. Great. First question is on the golf investment. Can you maybe spend a minute and give us a little bit more color around how you see the yields, deal structure, and just maybe a little bit more on the first transaction here in terms of like what equity is behind it, who the operator is, experience, that sort of thing.

Sure, I think, and then I'll let Greg Zimmerman add on to this. I think what we've done is done a deep dive in this. Tony, and there's, you know, nearly 2,000 courses across the U.S. have been eliminated over the last five years. So there clearly a scarcity has been introduced into it. This that we're involved in is a private club. So the, you know, the actual membership and fees and everything tied to the land and run with the homeownership. So we think it's a very, very solid and reliable income flow. But we also think there are good opportunities that are going to continue to develop in this scarce environment.

But Greg. Yeah, Tony, I would say this is a private club. We're also monitoring daily fee clubs, which we would have an interest in as well. I think the deal structure you'll see is flexible. You know, we'll either approach this as a sale leaseback, or in this case, it was mortgage financing. The operator is a growing operator. They have a couple of clubs and a deep bench of talent. So we believe it's an opportunity to grow with them. And lastly, I will say, as we always do, we spent a lot of time over the last five developing deep roots. I think, as we've said repeatedly over the last year or so, we really believe in fitness and wellness as a growth opportunity in this portfolio, and that helps us round out our offerings.

Okay. Thanks for that. And then just my second one's really a two-parter on the disposition side of things. One, just would love to hear the nature of the buyers that you're seeing out there. I mean, it seemed like good portfolio execution on the early childhood education sale. And then also just more nuanced related to the guidance. You have about $40 million, I think, of mortgage receivables that come due later this year. And I was wondering if that's, if you expect to get paid back on those or if those get extended, if it's in the disposition guidance or just what happens there.

Yeah, I would say, first of all, it was a robust process with multiple bids and buyers in that the depth of the buyer was good. This was a private fund that specializes in education. And like I said, I think Greg would say on most of our sales right now, we're at least two or three deep on quality bids for our assets. So that's strong. As far as the repayment of the mortgages. I think we have one built in there, but Mark, maybe you have.

Yeah, there are two mortgages, you say, maturing. I think we, in guidance, more of that $10.75 million number, that we have in our guidance. The other one, we'll see what happens, but more likely gets extended.

Okay, thank you. Next question.

Our next question will come from Bennett Rose with Citi. You may now unmute your audio and ask your question.

Okay, thanks. Hi. I wanted to ask you just two questions. One, I'm sure you saw that Six Flags is closing their Hurricane Harbor Annapolis and apparently doing kind of a strategic review of a number of their properties. I was just wondering if they are communicating with you about any of your Hurricane Harbor properties or kind of what coverage looks like there.

Again, I would say clearly we're in contact with Six Flags all the time as a good tenant. We don't anticipate any of our properties closing. And I think as it develops, that will show you that they've got a higher and better use for that property and will generate substantial value associated with it.

Okay. And then I was just wondering, I used the credit line to pay down the bonds that were coming due. Would you expect to do kind of a term that out later this year? Or maybe you could just talk a little bit about how you're thinking about that.

Yeah, we have some flexibility when it comes to that. If you think about it, we have, like I said, $105 million on the line, paid off the debt subsequent to your end, which took us to about $400 million on the line. And then you kind of look at investment spending and cash flows over the remainder of the year. That's probably a net 100 million more on the line. So the good news is if we don't do anything, we're only about half drawn on the line. But I will say in our guidance, we do expect to do a bond transaction. And turn that out to your point, if you did a $400 million transaction, it would be down to about 100 million at year end. So I think the good news is we have some flexibility with respect to that. We're monitoring the market both in the five-year and 10-year realm. But lightly, we would do a bond transaction. We're also monitoring sale transactions as well.

What do you think a five-year or 10-year would price now? for you?

So a five-year spread-wise would probably be in the 180, 185 area. So if you look at, you know, today's treasury, it'd probably be in the 575 and three quarters area. And that's probably 60 basis points when you count the rate and spread difference between that and a 10-year, about 60 basis points less than what a 10-year would be. Frankly, we think, you know, our spreads are still higher than they should be, and hopefully quarters like this and as the box office recovers and people take note of that, we hope those spreads come in a bit.

Okay, thank you.

Our next question will come from RJ Milligan with Raymond James. You may now mute your audio and ask your question. RJ? RJ Milligan, please unmute yourself.

Hey guys, sorry about that. Dispositions in the court, dispositions in the quarter, a little bit more than expected. And so I think on a standalone basis, that would lead to a decrease in guidance, but guidance was up. And Mark, you touched on this in your comments, but I'm just curious if you could maybe quantify some of the components, obviously higher percentage rent, but what else is going in there? And then the second part to that question is, as we think about the 508 at the midpoint for the year, how much of that is sort of non-recurring or one-time prior period collections that we should strip out as we think about 2026.

Yeah, let me walk you through that. So we were at 504 midpoint, you know, we increased percentage rent guidance at the midpoint by three and a half million. That's about four and a half cents. And about 2.9 of the 3.5 was prior period, as I mentioned. So call that 3.5 cents or so of the 4.5% increase in percentage rents. And then going the other way, we increased G&A by about a penny. So on the two explicit things that we provide, that gets you to about 507. To your point, the remaining two items, there's probably about a two cent impact of the incremental dispositions. You know, from a gap point of view, those average about a nine cap from a gap perspective, even though we're much lower than that on a cash basis. So two cents on the dispositions and offsetting that going the other way, about two and a half cents is lower interest expense. And that's partially because we've moved back the timing of our bond offering. So anyway, 504, the too explicit item gives you the 507 and kind of the net impact of about another penny of less interest expense on the positive side and incremental dispositions on the negative side. I call it negative from an earnings perspective, but certainly was positive from a portfolio management point of view.

Okay, and then just the follow-up to that is in the 508 number, how much of it is prior period rent collections that we should think about pulling out for a run rate for 26?

Right, really it's at that percentage rents, 2.9 million. We don't have any out-of-period deferral collections in this quarter, nor do we plan any in our guidance. So it's really through the first quarter, the expectation for the year right now is just the 2.9 million is prior period. So that's about three and a half.

Okay, that's helpful. And then thank you for that. You know, stocks done well so far this year. Obviously you guys have been self-funding through dispositions and pre-cash flow. At what point or stock price do you guys start getting a little bit more aggressive and thinking about issuing equity to increase the investment activity?

Again, RJ, it's Greg. It's really about accretive growth. And so it's of we're delivering kind of at the top, near the top end of sector growth without having to issue equity. As opportunities, and Greg and his team find those opportunities, we'll take a look at it. I think, you know, from an absolute standpoint, probably as we get at or near an 11 multiple, it starts to get kind of much more interesting. We've talked about the depth of our opportunities. But when you can drive 4% growth with a 7% dividend and deliver 11% total shareholder return with what we think is very little execution risk and no capital markets, we think that should be quite appealing to investors and the opportunity to do more as we continue to demonstrate our ability to execute.

Makes sense. Thanks, Jeff. Thanks, George. Thank you.

Our next question comes from Justin Hasby with RBC Capital Markets. You may now unmute your audio and ask your question. Justin, if you are calling in today, star nine will activate the raise hand and use star six Please unmute and unmute.

Yeah, sorry about that. Thanks for taking the question. Can you just provide some color on the investment pipeline and the types of opportunities in the market?

Yeah, and I'll let Greg jump in on this. I think overall, as we kind of demonstrate, it's a depth and breadth that we're trying to take advantage of. And as we've talked about before, look at opportunities which provides opportunities for future growth. Like, you know, even in the Gulf, we've signed agreements where this hopefully will lead to future growth as we go forward. And Greg and his team do a great job about not only finding a deep deal, but finding a pipeline of deals or supporting existing tenants. But Greg. Yeah.

And to follow up on a couple of things there, Justin, if you look at the depth and breadth, I mean, we've announced deals in eat and play attractions and fitness and wellness this year. To Greg's point on the golf deal, we have a forward commitment for funding. Our pin stack deals are second with this operator and our IAM deal was our second with that operator. So That's the way we like to grow the business. As I've said, and I mentioned earlier on the call, I think we see a lot of opportunities in the fitness and wellness space, which we broadly define and includes our hot springs resorts and now golf. So I would say we're seeing opportunities in all of our sectors, probably not so much in gaming right now, but all the other verticals.

Okay, thanks. And then the last one for me, can you just expand on the current macro environment and how that could impact your underlying tenant base and then any impacts on future investment activity?

Again, as we kind of laid out, there's actually, notwithstanding the moniker of consumer discretionary, there's a lot of resilience in what we think is affordable entertainment and leisure options. It will ebb and flow within, like we said, Eat and Play was down a little, Ski was up, theaters are up 17% year to date. So again, those things will ebb and flow, but people don't give up fun. And we've continued to see those kind of resiliency, both in the current environment as we look back through history. And we'll continue to be mindful of what we think are those value oriented drive to destinations that demonstrate that kind of resiliency and continue to deploy capital in a way that we think creates high quality and resilient cashflow streams that support rising dividends. Greg, I would also add,

money in those spaces, despite the economic conditions. And again, we're seeing that fitness and wellness portfolio.

Great, thanks.

Our next question will come from Catherine Graves with UBS. You may now unmute your audio and ask your question.

Great, good morning. Thank you for taking my questions. My first AMC on their earnings call said they expect 2026 box office to surpass 2025. So is that consistent with the conversations that you're having with others? And does that at all influence how you're thinking about theaters in the longer term?

I think that is consistent that we think it's really driven by the content and the slate of movies. And that's kind of where everybody starts that and the slate continues to get deeper. I don't think it changes our perspective on theaters. We have continued to say that we want to lower that level of concentration and increase our diversity. Probably what it does is it creates better opportunities to execute on that strategy. But listen, it continues to improve the health and sustainability of the environment. If you look at someone like Cinemark, they're now trading back at levels pre-2019. So again, we're very, very excited about kind of that continuing involvement of box office. And as we've said on the podcast, On the slide that we presented, the mix has changed and we now have with food and beverage, you know, even at nine and a half billion, which is kind of the midpoint of what we're talking about this year, kind of even darkened. contributions should be at or near back to box office levels that were 11.3. So we're really excited about where the direction would go.

Just to add to that, you know, that should increase our real percentage rent that, you know, goes through July. So we've got a nice momentum this year and expect, you know, an increase given the box office improvement expected for the following year and Keep in mind, we also have the other half of the AMC bump. So I think we have good results forecasted for this year, and that momentum continues into next year.

Got it. Thank you. That's helpful. And then my second question, you discussed sort of the tariff and inflation resistance of the existing experiential portfolio, but I was wondering maybe a little bit more on tariffs. How are you thinking about the possible impact to your development? pipeline? Has the tone of negotiation shifted at all following April 2nd? Are there any concerns for things like projects getting delayed or paused at all or anything like that?

I think that's a very good point. I think clearly there's a lot more discussions on bill to suit projects. Everything that we have right now is kind of priced out with GMV pricing. So pricing's locked in prior to the implementation of the tariffs. But as we go forward, there's no doubt that people are going to be looking at those things. For what we have in our forecast right now, we feel good about because we've got kind of locked in pricing. But we're quite confident that it will at least be a topic of discussion as we go forward, whether that's lumber, steel, equipment. All of those things are gonna be brought to bear and we'll just have to see kind of as we go forward. Right now, as I said, we feel good about where we're at right now and we'll just see how it impacts as we move forward.

Got it, thank you for the color. Thank you.

Our next question will come from Mitch Germain with Citizens Capital Markets and Advisory. You may now unmute your audio and ask your question.

Hey, good morning. I think there was some previous commentary by an industry group in the theater industry about a significant amount of capital spend, several billion dollars of capital spend planned for theater upgrades. And I'm curious, if that process is underway and you think there could be any disruption given what's happening in the macro?

Oh, the process is already underway and we're seeing it impact some of our properties. So that's, but it's not, it's literally kind of what we would call kind of expansions into large format and IMAX and new seating and things. We don't really see an impact to that, nor do we see a lot yet that that's being impacted by anything related to tariffs that most of those commitments have already been ordered and made. so they laid them out in future schedules. So I haven't seen any backup of that yet, Greg.

No, and Mitch, I would say, even though it's a big number they announced, it's per house a relatively limited impact. So it doesn't take that long to make these conversions and they're all economically beneficial. So we're very supportive of that.

Great, that's helpful. And then I hope I didn't miss it, Mark. Was there anything specific that drove the percentage rent activity in the first quarter?

Yeah, as I mentioned, we had 2.9 million of prior period percentage rents that hit percentage rents and interest. And then in addition, we had some additional percentage rents. As I mentioned, you know, we took up our guidance three and a half million. A lot of that relates to what happened in Q1. And when I say it's percentage rents and percentage interest, it hits two different line items. You know, percentage rent hits rental income and percentage interest hits mortgage and financing income. But that was the big delta.

Our next question will come from Yupal Rana with KeyBank Capital Markets. You may now unmute your audio and ask your question.

Great, thank you. Greg, maybe you can talk about the strength of the consumer today and if you're seeing any impact on consumer spend, at least in the near term. The longer term chart that you provided was helpful, but just curious what you're seeing today as it relates to consumer spend and behavior. Thanks.

I think it's really, again, resilient. I mean, we're seeing pockets where it's stronger and pockets where we're seeing weakness. I would say if anything is going through there, it's on the food spin. Even when we look at our eat and play, it's the kind of the eat side of that that's kind of down. So people are still enjoying the activities, but not spending as much on that. So again, that's consistent with what we've seen historically. So we still see, you know, like I said, ski up. We saw fitness and wellness up. We saw eating play down slightly. So this is the benefit of having a diversified portfolio in the experiential. and it manifests itself out in the coverage kind of stayed the same. But right now, there may be, you know, some real pressure at the lowest end of the consumer, but in that lower middle through the middle, we still feel it's, you know, highly supportive. When we talk to our tenants, they say that. So, you know, as long as You know, the key indicator when we talk to them, as long as employment remains good, people are incorporating these experiential avenues and venues into their everyday lives. And we see no reason for that to not continue. But Greg?

Yeah, I think probably the best metric is we've had five straight weeks of $100 million or more at the box office, including two weeks of over $200 million. So people are still spending. And as we mentioned, you know, both Cinemark and A&C reported in the past week, and they have per caps of around $8 that are only saved through the first quarter. So, you know, that's a real-time indicator that things aren't so bad.

And the other metric I'd point to is the fact that we're, you know, two times cover across the portfolio. That's higher than 1.9 pre-COVID. So we're still tracking on a trailing 12-month basis higher than

okay great thank you that was helpful and then you know the box office has had a good start at 2q uh but you know there's some anticipation that we might get over to get over 4 billion in the box office this summer which only happened once since the pandemic due to barbie and oppenheimer just curious how do you anticipate the box office trending uh heading into the summer months and then later in the second half

I mean, right now, like I said, we build everything up bottom up in our analysis. I will tell you, and we tell people all this time, we are horrible at picking movie by movie. I don't think there's a person sitting in this room with me that thought Minecraft was going to do $400 million, and it will cross that this weekend. But the titles, the depth and the quantity of titles look strong when you start to look. If you look at, you know, Lilo and Stitch that's coming up is now trending higher in pre-sales than Minecraft. You know, so it really looks like we have a good shot at setting an all-time, not COVID, I'm saying all-time Memorial Day weekend record. with the Mission Impossible film and Lilo and Stitch on their own doing together over 200 million. So again, when you have a constant flow of product and you've heard us talk about this many times, it's not necessarily the individual film, it's the stacking up films week after week and where people get into the habit and go into that film and seeing those previews drives them to go more. and we're getting back into that. So if you look at the kind of Greg's comments, if you look at eight films over the next kind of couple of months that are expected to do a hundred million or more, that means we're getting a big expected hit every weekend. And that kind of performance really is what drives kind of the excitement about the summer and beyond.

And then the second half of the year, it looks really strong with franchises, you know, Fantastic Four, Superman, Jurassic World, Avatar, ending out the year.

And then we got Wicked, the second half of Wicked coming in. So, I mean, there's a lot of good titles. And again, it's also a nice balance. We're getting back into that. You know, you've got Mission Impossible, you've got Lilo and Stitch, you've got that that drives 18 to 24 year old males, but also drives the family. And as we get to that kind of good content and consistent number of high quality films, that leads to good box office results.

Okay, great, thank you.

Thank you.

Our next question will come from Spencer Glyncher with Green Street. You may now unmute your audio and ask your question.

Great, can you guys hear me? Yes. Okay, excellent. Okay, well, just one for me. As you look across your various investment opportunities, as you continue recycling capital, have you noticed changes to bid-ask spreads or cap rate movements in any of the sectors you're underwriting?

Not big movements. I mean, again, we've consistently said we're comfortably in the eights. That's kind of stayed there. Again, I would say, Spencer, when you look at, you know, quality variations may move that a little bit, but not a lot of changes in the bid-ask spread. Greg? No, I think that's accurate.

Okay, great. That's it for me. Thanks, guys. Thank you. Thank you.

Our last question will come from Yana Galan with Bank of America Merrill Lynch. You may now unmute your audio and ask your question. Hi, thank you.

Good morning and congrats on a great start to the year. Just a quick follow-up on the 2.9 million percentage rent and participating interest true up in the first quarter. Just wanted to clarify, is that completely retroactive? You mentioned some type of agreements, just curious if that impacts level of percentage rents or participations going forward.

Yeah, so as I mentioned, you know, we're taking guidance up 3.5 million, 2.9 is prior period. So there is an incremental current year impact to percentage rents as we from those tenants and borrowers as well as kind of looking at the overall mix. So there's kind of two components to it. A lot of it's prior period, but there is a current year component as well.

And I'll jump in and add on that. Again, credit to our asset management staff who are kind of constantly evaluating these. And this related to kind of discussions with these tenants and how they were calculating versus how we were calculating. It resolved favorably to our interpretation. So not only does it impact prior periods, but it's going to benefit us as we go forward as well.

Yeah. A lot of that conversation was about the deductions that we're taking that, you know, we politely disagreed with. And then like Greg said, we resolve that this quarter.

Great. Thank you for clarifying.

There are no more questions, so I will now turn the call back over to Greg Silvers for any closing remarks.

I just want to thank everyone. I appreciate the opportunity to spend time with you, and we look forward to seeing you at NAIRT in June. Thanks, everyone. Thanks.