EPR Properties (EPR) 2007 Q1 法說會逐字稿

I would now like to turn the presentation over to the Chief Executive Officer, Mr. David Brain. Please precede, sir.

Thank you, Cammie. Good morning, everyone. Thank you for joining us. Let me start with our usual preference, as we begin this morning. I need to inform you this conference call may include forward-looking statements defined by the Private Securities Litigation Reform Act of '95 identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate, or other comparable terms.

The company's actual financial condition, results of operations, may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause actual results to differ materially from those forward-looking statements is contained in the company's SEC filings, including the company's report on Form 10-K for the year ending December 31, 2006.

All right, let me again say thank you for joining us. We always appreciate your investment of time and interest. We're pleased you joined us to go over the first quarter '07 report, all the recent company news. I as usual want to start by introducing the other EPR executives with me on the phone this morning.

To bring you up to date on everything I'm joined by Greg Silvers, our Chief Operating Officer.

Good morning.

And Mark Peterson, our Chief Financial Officer.

Good morning.

In addition to our normal agenda of record setting financial results and exciting company news, we're embarking this morning on a new dimension in our quarterly communication. Hopefully all of you have noted it, and are dialed in to our new today video dimension. A simultaneous web cast available via a link from our website at www.eprkc.com.

If you are not there, I invite you try and do so now. We're going to be flipping pages or slides as we speak this morning. And we're offering this visual dimension to add clarity, definition, and enhance understanding. If you've arrived at the right web site, you should be looking at something familiar yet somewhat new. It's our new logo and name presentation slide.

You'll notice we've done some much-needed CapEx rework of our coliseum logo to bring it into the 21st century. We've also added to our revamped logo and our name both visually and with text. The addition of the spotlighted stars above the coliseum and the Five Star Properties descriptor below our name, reflect the underwriting standard we've been following throughout the history of the company. But are just now featuring more prominently under this branding.

I want to walk through this Five Star approach with you in detail today. We're anxious to share this perspective with you as it provides important context and description of the disciplined approach we have always utilized in cinema property investing, and are using to extend our range of investing. It is highly germane for even some of the transactions we're announcing today.

Transactions that, at first, might suggest a departure from our history, but upon examination of their substance and structure are revealed to be an extension of our well developed underwriting and transaction technologies. Before, however, I go into all of this detail, I want to turn things over to Mark, who will detail the financial results for the quarter, progress on our capital funding arrangements, and some increased earnings guidance for the year 2007.

Then Greg will run down all the investing activities of the quarter, even up to today, as well as increased guidance in this regard. I will then come back to go over these contextual matters I spoke of with the help of a few slides.

All right, with that I'll give it to Mark.

Turn to the next slide. In reviewing our financial performance for the first quarter, as you can see on this slide, the first slide. Our net income available to common shareholders increased 12% compared to last year from $16.1 million to $18.1 million. Our FFO also increased 12% compared to last year from $23.5 million to $26.2 million.

On a diluted per share basis, FFO was $0.98, compared to $0.90 last year for an increase of 9%. Looking at the details of our first quarter performance, as you can see on the slide our total revenue increased 9% compared to the prior year to $50.4 million. Within the revenue category, rental revenue also increased 9% to $43 million, an increase of $3.5 million versus last year.

Percentage rents were flat versus last year at about $500,000. Mortgage financing income was $3 million for an increase of $1.2 million versus last year. As of the end of the first quarter, we had four mortgage notes outstanding totaling $115 million.

The mortgage notes relate to our Metropolis project in Toronto, our Crotched Mountain Ski Resort in New Hampshire, our megaplex theater under construction in Louisiana, and our new investment in March of $35.9 million for the development of a water park anchored entertainment complex in Wyandotte County, Kansas called Schlitterbahn Vacation Village.

We advanced an additional $45.7 million on this mortgage loan subsequent to the end of the quarter in April, bringing our total investment to date in this project to approximately $82 million. Greg will discuss this exciting development in his remarks as well as our investment in two additional ski resorts both of which also closed in April.

Other income was $781,000, compared to $1.5 million last year. The decrease of $682,000 is due to the closing of a restaurant we previously operated in South Field, Michigan as a TRS that is now under lease to an unrelated restaurant tenant. Last year's results also included a non-recurring gain of $400,000 for an insurance claim on one of our non-triple net properties.

On the expense side our other operating expenses, which reflect our TRS operations, decreased by $432,000 to $606,000 for the quarter. The decrease in expense is due to the closing of the restaurant operations in South Field, Michigan that I just discussed.

G&A expense increased $751,000 versus last year. This increase is due to approximately a $600,000 increase in personnel related expense and $150,000 increase in franchise taxes and additional professional fees associated with compensation consulting and assistance in complying with the new proxy disclosure rules.

$200,000 of the $600,000 increase in personnel related costs relates to the special stock brand described in our proxy, associated with certain promotions and employment agreement amendments. The remaining $400,000 relates to increases in incentive compensation and salaries.

I will also point out that the first quarter is expected to be the highest quarter of G&A for the year, due primarily to our Section 79 employee life insurance benefit of approximately $400,000 that is paid in the first quarter, which is consistent with the prior year timing. With our increased investments and the expanded scope of our business, I'm also very pleased to announce that we have added two additional employees to our company, bringing out total headcount to a whopping 15 people.

Finally, we expense certain costs totaling $670,000, $673,000 in the first quarter of 2006 associated with amending and restating our credit facilities. And also recognized a gain on sale of land in the first quarter of 2006 of $345,000. No such amounts were incurred in the first quarter of 2007.

Looking at our ratios for the quarter, interest coverage was 3.7 times. Fixed charge coverage was 2.6 times, and debt service coverage was 2.7 times. All these ratios remain very strong. Moving on to the next slide. I want to provide you an update on certain capital market activities. As you may have seen in our recent 8-K filing, we completed an amendment to our revolving credit facility on April 18.

This amendment expands the asset types, which may be used in calculating the borrowing base subject to a ceiling that limits these other assets to 25% of the total borrowing base. Borrowing base credit was previously limited to only theaters and entertainment retail centers, and now includes additional asset types.

The amendment also provides a more favorable evaluation for our theaters and entertainment related assets in the calculation of our borrowing base and our overall leverage ratio, allows unsecured recourse indebtedness beyond the unsecured credit facility, relaxes certain limitations on permitted investments such as investments in mortgages and unconsolidated subsidiaries, and provides us more flexibility with respect to our development by increasing our lighter credit limit to $70 million.

We believe this amendment provides tangible evidence of the continued strengthening of EPR's overall credit quality. Moving to the next page of the presentation. We completed ten-year mortgage loans in March and April totaling $79.5 million. The $23.5 million that closed in March had an average interest rate of 6.07%. And the $56 million that closed in April had an average interest rate of 5.8%.

In addition, as you may have seen in our recent press release and 8-K filing, we provided notice of our intention to redeem all of the outstanding 9.5% Series A Preferred Shares on the first day our call option period begins, which is May 29. As previously announced, we expect to look at charge to earnings and FFO in the second quarter of $2.1 million or $0.08 per share as a result of this roughly $58 million redemption.

This anticipated charge was already contemplated in our previous FFO per share guidance for 2007 and has not changed. A few comments on the balance sheet before we move to our guidance update, at March 31 we had $734 million in debt. And our overall leverage on a book basis stood at 45%. Our overall leverage as a percentage of total market capitalization was a very conservative 28%.

Our debt balance included approximately $670 million in fixed rate, long-term debt with a blended coupon of approximately 6.1%. Our floating rate debt was $64 million, represented by our unsecured credit facility, which carried a spread of 130 basis points over LIBOR.

Finally, as shown on the next slide, based on our performance to date and management's expectation for the timing of additional real estate investments and financing activity over the remainder of the year, we are raising our 2007 FFO per share guidance to a range as you can see there of $4.09 to $4.18 from the previously announced guidance of $4.07 to $4.17.

As with the previous guidance this updated guidance includes the $0.08 charge to FFO from the anticipated redemption of the Series A Preferred Shares that I spoke about earlier.

Now, let me turn it over to Greg for his comments on investments.

Thank you, Mark. In the first quarter of 2007 we continued our success of acquiring and developing premier entertainment and recreational properties. At our last call we presented a capital plan of $175 million for the year. And I'm proud to report to you that we've made significant progress toward that goal.

I will speak later to our revised capital plan. But first, I would like to highlight several aspects of our capital plan, as well as our accomplishments for the first quarter. First, our original plan called for three to four theaters to be developed in 2007 for Southern Theaters in the Gulf States region.

As you will remember, in our last call I discussed the potential use of Gulf Zone Opportunity Bonds for the financing of these theaters, and our desire to allow our tenant to take advantage of this financing. What we have subsequently learned is that for our tenant to take advantage of this program, our involvement in these projects will be limited and therefore our capital will likewise be limited. As a result, several projects that we plan to come online in the spring of this year are no longer part of our capital plan.

While this was disappointing to us, we believe it is the right thing to do for the strength of our tenant and our continued relationship with Southern Theaters. Furthermore, I'm happy to report to you that we believe we've replaced the Southern developments with additional theaters, so that our overall number of developments that will commence in 2007 will not be reduced from the number we plan.

Several of these theaters, however, are not planned to commence construction until the fall, so our deployment of capital will be delayed. For the quarter, our capital expenditures totaled approximately $65 million, and included the acquisition of the underlying land at our Fresno theater, which was previously a ground lease interest, the continued funding of our three theater development projects, continued expansion of our Canadian retail centers, development of our Suffix retail center and the funding of the Schlitterbahn Vacation Village, a project I'll discuss in detail a little later.

Subsequently to the quarter end, we also acquired two additional ski assets for approximately $73 million. These assets represent a continued involvement with Peak Resorts, with whom we've completed previous transactions. I direct your attention to our slideshow for a further description of the assets.

Mount Snow is located in Southern Vermont and includes approximately 2,378 acres, 590 of which are currently skiable. And Mount Attitash is located in Bartlett, New York -- I meant Bartlett, New Hampshire. And includes approximately 1,250 acres, 280 of which are currently skiable.

As we've discussed before, we are interested in ski developments that provide significant opportunities to enhance the experience of visitors, by applying the new advances in snowmaking technology and which also have the ability to control their own resource needs.

Both of these properties offer the opportunity to significantly upgrade the customer experience through the introduction of new technology. And they're well positioned to take advantage of their close proximity to major Northeast cities.

Mount Snow in particular is the closest major ski mountain to the New York City metropolitan area. For years this mountain has maintained a devoted following which produced consistent economic results. However, a significant part of the mountain was limited by snowmaking capabilities, largely brought on by a reduced water supply.

Currently the water capacity for snowmaking is limited to approximately 175 million gallons of water. This limitation, however, is about to change as we, along with Peak Resorts have successfully negotiated with state and local governments to allow us to install a new water main from the local reservoir, which will increase our water supply to 450 million gallons of water annually.

This additional water supply, when combined with new snowmaking technology and enhanced transportation systems, will create significant revenue enhancements for the property. I also point out that we accomplished securing this new water supply with little or no additional annual expense for water usage other than the cost of the water line and the pump stations.

As noted previously, we've also invested approximately $82 million in the Schlitterbahn Village located in Wyandotte County, Kansas. As you will see in the slides currently displayed, the planned family destination resort is to be located adjacent to the Kansas Speedway and the Village West and Legends Retail projects.

As many of you know, Schlitterbahn is the premier name is water park resort development, and has been consistently listed as the number one water park in North America. The current plan for the Vacation Village provides for multiple entertainment venues including a water park, marine park, lodging, and a river walk with shops and restaurants. The current project budget is in excess of $600 million with public incentives providing in excess of $200 million of this amount.

We have committed up to $150 million for this project, and have advanced approximately $82 million in the form of a mortgage for the acquisition of 368 acres, upon which the development will be located. In addition to the land, our mortgage is guaranteed by the Schlitterbahn New Braunfels Group, which owns the Schlitterbahn Resort in New Braunfels, Texas.

We structured this transaction initially as a mortgage primarily for two reasons. First, so that we'll provide the senior position during construction, but also due to the substantial economic incentives being provided, it was necessary for the operator to the owner of the property while these improvements were being constructed.

Following construction it is our intent to convert this into a traditional sell-leaseback structure. On the mortgage point, we've received several questions regarding our increased use of the mortgage structure, and I wanted to spend a second explaining our rationale. It is not our normal mode of operation to utilize a mortgage structure. However, there are certain temporary and permanent situation for which it is the appropriate structure.

In projects like Metropolis and Schlitterbahn, where there are additional construction lenders and/or economic incentives, it makes sense to utilize the mortgage structure to strengthen and clarify our senior position to that of the operators' equity. In both of these situations it is our intent to convert these mortgages to traditional sell-leaseback structures following the completion of the improvement.

In other situations such as ski properties, the mortgage structure is appropriate for a long-term solution. We use the structure primarily for two reasons. First, the tops of many of these properties are subject to federal leases, which are afforded significantly better protections as a mortgage as opposed to a lease interest.

Additionally, given the opportunity for injuries regardless of insurance, we can limit our exposure to claims, and virtually eliminate this exposure within the mortgage structure. It should be noted, however, that in these permanent mortgage situations we stylize our mortgages to be substantially similar to our lease provisions with payment escalators and other provisions, which put us in the economic equivalent position to our sell-leaseback transactions.

I apologize about the length of my presentation today. However, given the size of these recent developments, I thought it appropriate to provide the additional detail. As I promised earlier, I would like to spend a second on our revised capital expenditure plan. Our initial plan called for $175 million of spending. However, we are now revising our plan upward to $250 million.

This plan includes an expenditure of $30 million related to the acquisition of a majority interest in a New York metropolitan area theater anchored entertainment retail center that we had hoped to announce today. However, we're still finalizing the agreements, and I cannot provide additional detail at this time.

Additionally as I discussed earlier, while the number of our development projects may not change, their timing will be later than initially planned, with a significant number of them commencing in the latter part of the year. So as you can see, we have a very robust pipeline of theater, entertainment, and recreational properties.

And with a bright outlook for the coming exhibition season, we hope to further grow our capital plan for this year and beyond. A quick update on occupancy, we continue to have 100% occupancy of our theater assets and 95% occupancy of our non-theater retail assets.

With that, I'll turn it back over to David.

Thanks, Greg, and thank you, Mark. Another record setting quarter of financial results, more good advances with our capital funding arrangements, all in line with our plan of delivering another year of double-digit shareholder metric increases. Even a bit ahead of our prior expectations, as I'm sure you noted Mark's mention of increased guidance from $4.09, to $4.09 to $4.18 after the non-cash charge of the call of our Series A Preferred.

From Greg we heard a high level of investment activity and even higher guidance for the year. As I said at the outset, I wanted to give you some context for all of this and I do. I often comment at length on the film exhibition industry, and I'll do some of that. But I'm going to add some comments about our recent non-theater investing as well this morning.

The film exhibition industry for the first '07 quarter continued its solid performance of '06 wherein box office revenues were up about 5% domestically. For the first quarter of '07 box office revenues were up again about 7% in North America, with admissions growth representing the majority of that increase. I also wanted to share with you a statistic from year-end '06 that we think is important.

Box office performance for our portfolio on a per-screen basis for the year 2006 was approximately 40% higher than the average at about $340,000 box office rev per screen, versus $240,000 for the North American average. I say about 40% higher because there are a variety of sources for total North American box office and screen counts that have the premium ranging anywhere from 30% to 50%.

But by any source, our portfolio outperformed the North American average by a substantial margin. The underwriting process that has led us to this point of superior property investing is something we have been refining, and co-define both for its continued application in our cinema property investments. But further, so to make it available and potentially useful in evaluating other potential entertainment, recreational, and special use property investment opportunities.

It only makes sense to do this, (to) leverage our business technology assets, as well as our financial assets for the benefit of our shareholders. The summary of our efforts we have to share with you is represented on the slide that I'd like to flip through, read, and comment on.

The first slide really describing Five Star Properties is a bit of what is, and what do we mean by Five Star Properties. You see it's really introducing a way to describe our unique brand of underwriting and investing. It's a way to sum up the discipline central to our repeated success. And it's a way of tethering the expansion of our productive capacity to our core principles.

Really Five Star Properties defines an approach. It's an approach to where we drill deep into industries and to properties with underserved capital demand, really enabling what we think of as consumer preferred properties. Our approach is to acquire and develop high quality properties in markets with sustainable consumer demand, lease to quality operators, properties that set new standards for end user experiences.

Now this slide is really the five stars of the Five Star approach. Now, what we are looking for and what we evaluate investment opportunities against is, is there an inflection opportunity? Is there enduring value, excellent execution available to us, attractive economics, and an advantageous position? I want to go through each one with you, these five stars.

The first, inflection opportunity, maybe the most uncommon of terminology of the five. But at the same time, I think it is very critical description. We invest in industries that what we think of as an inflection point. A point where significant capital demand need -- there is significant capital demand needs, resulting either from growth, renewal, or restructuring.

It's really when things are in flux. We look for change. Change is a way to create an opportunity for insightful capital, and an opportunity to hopefully transform a misunderstood asset class into a stable, investment quality cash flow. To create a first mover advantage, where we're more than making deals, we're making markets.

If you think about this particularly in terms of our theater investment over the last nine to ten years, I think it becomes abundantly clear what we're speaking about. The next one is enduring value. We're interested in investing in real estate devoted to and improving upon long-lived activities.

The key to long-term health in real estate investment is the enduring value of the property itself. We're keen on this, where lasting intrinsic value will be created that outlasts individual tenants. It's really based on the industry outlook and an excellent property location and execution.

Very different from most REITs, very often where you hear a focus on tenant brand or tenant credit. We're very focused on industry credit. We view this as a critical risk management metric. Next is excellent execution. We demand premium locations in investment executions that lead to market dominant performance.

Again, this is creating credit beyond the particular tenant. It's been a hallmark of our properties and all we've invested in. It's applicable across the board to out of home destination properties. And once done it really creates those that cannot easily be duplicated. Comments about our properties are best of class, market dominant, A execution. The key is we have built in barriers to competitive entry.

The fourth star, attractive economics, we require accretive initial returns with growth and yield over the life of our investments. And they must be opportunities in categories that are a meaningful size, to be meaningful to our shareholders and our total company results. Unlike a commodity supplier of capital, EPR becomes as much a development partner as a financing solution.

Now this often means our cost of capital it a little higher. But also, we believe also we get a higher risk adjusted yield premium for the way we do business. We invest in opportunities with attractive economics and they must offer scale, solid coverage, and alternative tenanting, utilizing our expertise in structuring to really create us as a long-term real estate financing solution to partner to our customer.

With this star, advantageous position, it's really a way of saying we're looking for sustainable competitive advantage. This can be based on knowledge, relationships, or access to key investment elements. Sometimes I often say all we're really looking for is an unfair advantage. This really embraces our value added philosophy. Knowing the category, access to tenant information, preferred tenant relationships is what we're all about.

We invest in ideas not just in real estate. Certainly the real estate, as I say, is the four stars going before, but in ideas as well. We're creating destination properties we think has sustainable value offering standard setting experiences for end users. The unmet consumer needs represent untapped potential for unmet -- for efficient capitalization solutions.

In summary, Five Star Properties is really a shorthand way of describing a consumer driven approach. It's a comprehensive rigorous set of metrics with a simple, underlying principle that end use demand drives investment value. So we bore through the tenant all the way to the end user demand. Five Star Properties are properties that reliably demonstrate enduring consumer preference.

I think as you reflect upon that Five Star Property criteria and concepts I just went through, I think and hope it is clear how our theater investments relate and fit with each of those five stars. I believe the same is very true for all of our recent non-theater property investments. Each has been scrutinized on both an individual and an industry niche basis, [where it's] adherent to these standards.

Now with all that we've gone through this morning in the interest of time, I won't belabor this topic anymore this morning except as you choose to ask about it in Q&A. I'm going to stop here and say that these same concepts, these five-star concepts, are described and discussed in both my President's letter in our annual report, and the growth strategies discussion of our Company's report on Form 10-K. I encourage you to look at those, and of course I'm always happy to talk to any of you individually. Feel free to call.

With that, we're going to back and open it up to Q&A for all that we've covered so far.

(OPERATOR INSTRUCTIONS)

And your first question comes from the line of Tony Paolone with JP Morgan. Please proceed.

Thanks. Good morning, everybody.

Good morning, Tony.

Wanted to start off with the Schlitterbahn deal and just ask a few questions on that. Can you just describe right now what the current physical status of the property is?

The current physical status is it's just being cleared and raised for development. And so, the first part of that development will go in with the infrastructure improvements. And a lot of those are provided through the economic incentives that I discussed.

Tony, as I earlier indicated, it's a highly undeveloped parcel now. There are a couple of houses and a couple of -- there's a county maintenance building and a couple of things there. But essentially it's an undeveloped parcel.

And so I think in the description, the press release talked about a two-year construction period. Is that realistic to get everything -- the $600 million --?

Well it's probably Tony, going to be staged. And so we'll see --. From our perspective it may be a couple of years. It may have additional development that goes out beyond that.

Okay. So when you think about your $150 million commitment, how does that right now work in the capital stack, if you can work through that?

Right. Well currently, like I said, we're the owner of the land. And so, the thought process is -- we're currently mortgaged, and in the end we think we're going to be owner of the land. And as improvements get built, we will [fund] that some additional improvements, some of the entertainment and recreational improvements, and we'll own those. As it moves to more lodging and things of that, we don't anticipate that we'll be part of that.

There will be hospitality as part of the scheme. We do not expect to own those improvements. We may own the land under -- the original plan is we're going to be primarily the landowner. Although maybe not under some of the hospitably assets that's being worked out. But effectively we're going to be more the landowner than not, leasing. And we'll own some improvement in the water park, but -- amusement attraction.

So with your $150 million you effectively own the land. It sounds like the money to be spent to build a lot of this other stuff and improvements, there may be mortgages and equity to fund that. But would most of that have to get wiped out before you get put in a loss position --?

That's our structure that we're looking at. Remember an important piece of it is that $200 million of that public incentive.

And the public incentives don't create --

It's not lienable. They're sales tax revenue bonds and they have no lien against the physical assets.

Okay. What kind of coverage do you anticipate on the cash flow here?

The initial coverage, and part of this is we feel very good about this because it has to be driven based upon for the sales tax projections to support the sales tax revenue bonds, is the initial projection is slightly above two with growth toward a three.

Okay. And then when you ultimately do take a fee interest in the land, how do you think that yield will stack up relative to just your other deals? And how do you think the risk profile compares there?

Well I think our yield will stack up very favorably in the sense that we think it'll be commiserate double-digit yield. And given the structure that we have we think that's a significantly good risk adjusted yield given the capital stack that we're dealing with.

Okay. And then on Peak Resorts, moving to that for a minute. How does the capital being extended there compare to their loan to book to cost, say? What percentage of the purchase by Peak Resorts from, I think it's American Skiing, are you guys funding?

Well we're funding, as I said, we're funding the acquisition of the land improvement and we're funding some additional amounts for, as I discussed, the water main, some enhanced transportation systems. So I think we're targeting this at when we settle out it's additional to a theater on kind of an 80/20 basis.

So Peak Resorts you think will have about 20% equity in this thing?

Yes.

Okay. And on that third loan that you all provided, that $25 million, is that cash payable or does the interest just accrue?

That interest is accruing while we're doing some of these enhancements and getting them online to the property starts to reflect all of the enhancements that we're going to make over the next couple of years to take advantage of some of those water main enhancements and some of the transportation enhancements.

So, but the interest will still be recognized in earnings?

Yes.

And will that be disclosed, I guess, as part of a straight line just to kind of get to a cash number?

Interest will not be straight lined.

I'm sorry. I meant I'm sorry, like in the non-cash adjusted.

Yes. It'll be in our operating cash flow.

Okay.

It'll be an add back [that's] not paid, certainly.

So you'll disclose what sort of what part of revenues?

Yes. It's sort of like Metropolis is accruing and we disclose what that interest, you can see what that grows by in our 10-Q each quarter.

Okay, and then -- just last question. Now that you're moving into these other areas, how do you think about your financing strategy and your ability to tap, for instance, mortgage financing on these other property types?

Well, overall positive, Tony. I mean you saw the liberalization and the unsecured line to accommodate the additional property types Mark spoke of. And overall, we've gotten a high level of receptivity. We're in the early stages, but we're getting a high level of receptivity.

Again, because we can I think reflect to people the same sort of scenario we had in theaters of underwriting and scrutinizing these investments and structuring them so that it's strong coverage.

It's strong coverage.

Yes, strong coverage.

Okay, thank you.

Your next question comes from the line of Paul Adornato with BMO Capital Markets. Please go ahead.

Hi, good morning.

Good morning.

Was wondering if you could just quickly walk through some of the development projects that are already underway. And just let us know initial expectations compared to current expectations?

Initial expectations as to performance or as to, Paul, as to completion or spending?

As to performance and completion, if there are any.

We have underway right now; we have Panama City, which is. So we have Panama City, which should open in May. It's in a Simon Development in Pier Park brand-new entertainment and retail center in Panama City beach. We have Kalispell, Montana, which is still undergoing and is planned to open in June or July. And it's likewise on budget. And our third one that we have going on is, I'm trying to think where it is.

We have Greensboro, North Carolina that's underway. And it just started this quarter. The walls are up and it's planned to open. It's current plan calls for it to open in the Thanksgiving timeframe, although it may actually open earlier than that because we're having really good strength and good weather to build those.

All of those projects right now, we underwrite these to [2, 0] performance level. And none of the metrics we have not seen any additional theaters come into the area or open that would affect our performance in that.

In terms of capital spending, those three projects will have a total of about $38 million when they're complete. And we've got about $18 million to go after the end of the first quarter.

Okay. And could you provide an update on the Toronto opening?

Absolutely. Metropolis continues to perform very highly and get -- we've now as I said I think our leasing on our retail and restaurant levels I think we're almost completely leased out at this point. We still anticipate a fall soft opening for part of the facility, with the full opening being scheduled for the spring of '08. That's when the theater will open.

And so, we're still -- continue to be very happy with that asset. And fortunately we've had moderate weather that's not created any significant delays. So we see that still as on time.

Leasing is [100 per] square foot and is as good or better than we planned.

It's in excess of plan. Our current NOI as we saw, I just happened to look at it the other day, is I think $1.5 million above our NOI estimates that we originally underwrote this project at.

And if we were look out let's say three or five years, what would the pie chart look like in terms of exposure to theaters, skiing, water parks, and other asset classes?

Paul, I mean one of the things we continue to say is, I think now the pie graph we view as we've shown people about the composition of the assets is kind of an 80/20 rule and other.

And as Mark indicated, our unsecured line we -- our expectation within reforming that and allowing for these additional property types allows it to about 25%. So I think that's the best guidance we can give you. That's what we've negotiated for, our kind of expectation. And that is, we expected some business as we are demonstrating in the non-theater property type. But at the same time we are continuing to build our market position in the theater cinema. We're not diminished there at all. And so one grows as the other grows.

And so, I still think our expectation is as we look out it's still 80, 20 or 75, 25 type of composition that we see in the future for the makeup of our assets overall.

Okay. Thanks, very much.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Michael Salinsky with RBC Capital Markets. Please proceed.

Good morning, guys.

Good morning, Mike.

As you start to move into some of these non-traditional, non-theater related assets, what kind of competition are you facing? It's not the traditional REIT or --. Can you kind of give us a sense of what the kind of competitive landscape is on these transactions?

Well overall, Mike, it's probably akin to the way theaters were at the outset, as we started in this business in the late 90s. And that is it's very fractured and it's disorganized and it's kind of piece meal.

And so, our ability to present an organized, and reliable, and knowledgeable financing source, I think will be warmly and aggressively received. And we'll be able to garner the best of the projects. I think that's the best way to characterize it. It's just going to vary.

But we do see kind of similar people that we see sometimes in theaters where that C&L income or formerly Spirit or some of those.

Occasionally some of those crop up. But as I say, it's not a regular competitive set. And it's very reminiscent as we saw with our pioneering work in the theater area.

Okay, that makes sense. Secondly I mean you just had over subscribed IPO offering from Cinemark there. There's rumors about AMC later in the year there. I mean how does that, is that having a material impact on your development pipeline as you're look over the next two years, first of all?

And second of all, given that they're reducing their debt, how does that impact your credit standings essentially going forward there with the regulators?

I'll take this, Greg. I'll take the first one on the development pipeline. First of all, I think it's more than they may come out in the next -- in the coming year I think they're going to come out very quickly.

AMC is just around the corner.

Yes. It'll be very shortly. From the development pipeline we're actually seeing no slowdown from AMC. And in fact we will be, I think we will be announcing this year our first development projects with AMC to where typically we purchase their theater assets at the completion.

They now want to get on to our development pipeline, where we're providing development financing from the ground up. So we have several projects on board with them. So we're seeing still very robust and still think we're the preferred capital provider to them.

From a credit standpoint, David, I don't know if you want to --.

Well I think the credit will be increased. And if you think about it, as these guys go public they're going to be under pressure to demonstrate a growth program that's really more robust than you might have been in private. In private it was a little more about harvesting the cash flow.

So as growth is important I think we're going to see a higher level of deal flow. I think -- take AMC for example. Our relationship with AMC and our ability -- their I guess decision to utilize us has endured year after year under a variety of structures. So our expectation is they see us as a very positive financing source. And we're going to continue in that relationship. And as they ramp up the growth we ought to see a higher level of deal flow.

Cinemark has never been a close relationship with Entertainment Properties. It has been somebody we have been talking to for years. I continue to think that they will find their way. We will both find our way to a more robust relationship and we'll do some deals, particularly as a public company, they'll find their way to see it to be advantageous to do business with us.

So I think it's going to be positive overall. And I think it'll improve the credits. I think it will improve the deal flow. And we see positive things out of it.

Just to add to that from a credit perspective they certainly are going to have more leverage constraints as a public company than they might as a private company. So we're looked at as a credit up, if you will, from them going public.

And the increased visibility of being a public company, they'll be ready access to their numbers.

Makes sense. I guess final question there is you guys look to basically take your preferred back in the second quarter there. Also with the amount of spending that you have, when you factor in also the preferred issuance in the fourth quarter. How much capacity do you guys estimate you have right now before you need to revisit the capital markets at some point?

Well certainly if we did it all against our line we would run out of money. We have a $235 million line. However, as you saw in the quarter and as we go forward we continue to access the debt markets. CMBS activity has been strong. We certainly are looking at all options as we go forward in terms of debt and/or equity solutions to finance our growth.

We've got a low level of leverage, Mike. We've got good access to the secured debt market. To relieve pressure what [other items] we might create in the line. Because we've got an abundance of properties, unpledged properties we can use in that regard. But at the same time I've got to say, the equity markets are still -- we see as well priced. It's not bad. It works well with our business model.

So we may be back to the equity markets. At this time we certainly don't have any announcement to provide. But that could be because the pipeline is that robust for us.

Okay, I'm just looking at it from an unencumbered asset standpoint. I mean how much capacity do you feel is from that standpoint?

Well, we have enough to do CMBS type activity and still keep our line fully collateralized. And fortunately with the amendment we did to allow other assets to be a part of that line, it certainly provides us a lot of flexibility.

Okay, fair enough, just a final question then on Metropolis there. Have you guys started working on the billboard leasing for that yet?

We actually just, the signage package we're working through. Right now the additional -- it's starting to be constructed. And so we have certain signage packages out there right now with the courting and everything else that's going as it's being built.

But we're also actively negotiating right now for the permanent signage. But we're now in for the approvals for the actual sign design and construction. So we'll see a lot more of that coming on, Mike, shortly.

And I just want to emphasize when we say we it's -- this is not really being handled out of this office of 15 people. This is our partner and other professional resources that are doing this on behalf of the project.

The all encompassing we.

Great. Thanks, guys.

Thank you, Mike.

Your next question is a follow-up question from the line of Tony Paolone with JP Morgan. Please proceed.

Thanks. Greg, can you put some numbers around what the deal pipeline looks like or the volume of deals crossing your desk now that you're looking at theaters and water parks and all these other items, compared to a few years ago, just looking primarily at theaters?

Right. I would say for the theater deals I would say, at any one time, Tony, we have several hundred million that's out we kind of -- as we've talked before rolling season from season. Because there is just a lot of excitement about this exhibition season and so you have a lot of people.

And the other thing I think you'll hear from us in the coming months is some new names, some people that we've not dealt with, but some names that will be familiar to people on this call. And so you'll hear those both as I mentioned earlier AMC going into our development pipeline and us starting to take advantage of them. But also, some of our relationships with mall developers and some other people that we're trying to get -- much like as we do with Simon on a preferred list.

As far as the other assets, the water park assets are large, and I wouldn't -- those are very kind of opportunistic and to a certain degree they're economic incentive driven. And there are some places where we could create an efficient capital structure and take advantage of a superior position, and get a leverage return that is in line with what we think is a risk adjusted demand. We're going to pursue those.

Again on the ski assets, I would see -- we've got several ski deals that we're looking at. Right now I would say over the next year with what we have on our pipeline, I would say somewhere $50 million to $100 million. But those deals, if they don't follow them and meet the metrics that David went over earlier they could fall out. I mean our meat and potatoes day in and day out is theater and entertainment related theater assets.

And therefore, the other ones that we talked about are a little more on an opportunistic basis. David, I don't know if you have --?

That's a pretty good summary.

Okay. And then just on the theaters, a couple items, coverage levels. Any update on those numbers?

No. In fact, this call we're a couple weeks ahead, Tony, and we've got AMC who we rely on for some information with regard to store level statements and coverage. They're A) at their fiscal year-end, B) they're IPO. And we have not been able to extract current information on that. We don't think there's really any change. I don't mean to be --

From our third party information it looks like, it's still in the coverage range that we've been in before.

Yes. I think essentially the performance of the assets and the box office being up 5% to 7% we're going to be in the same zip code of the [2 0] coverage we've been. I don't have that data today. But I don't have any reason to think it's other than that.

And I know you've got a lot of duration left on your theater leases. So it's not a near-term issue. But if you were to just take maybe some of your weaker properties in the portfolio. And if the leases were to expire today, what do you think would happen to the rent rates?

Well I think, Tony, it's Greg. I think one of the issues that we'd have to -- that we'd look at first of all is most of our properties are located in prime retail areas. And as we've talked about a lot of times, if we took a 90,000 square foot theater, let's say, one of our 85,000, one of our 24s. And say somebody wanted to shut that down [upon its] lease term. We could probably turn that into 250,000 square feet of retail with the parking that we have, and the parking requirements generally provided in retail by zoning.

So, I think it's not as simple as we turn around and re-lease that building, as much as we rework that property, and then unlock that other retail value of that destination that we've created.

But thinking about if your average coverage is 2 times and if there was a store where the coverage was maybe 1.3 times where it's still profitable. The operator would still want to renew that lease and continue to run it, right?

Correct. Correct. But what you may see and this is -- we're four to five years out for some of these things. But what you may see, Tony is some of the things that we're actively looking at now. Because the fact that you always want to be looking ahead in these matters is, the same situation I just described that you have a 24 screen.

Well maybe we take that down to a 14 screen, and we enhance the amount of retail that we have around that so that we take it from a 24 to a 14. It goes back to a 2 0 cover because of the dynamics of the amount of people that you're running through. Plus we enhance and create other retail opportunities be that restaurant or traditional retail opportunities around that property.

And as Greg indicated, because of the multiplier effect, because of the lower parking ratios, when we start reducing the square footage in the theater, you get a 3X pop in GLA allowed for other retail. So you can -- we can do some creative things, should we need to do that. As indicated, we're not there. It's a problem we have thought about, but we don't really have that --

Nor do we have anybody talking to us about that right now.

No. We don't really have anybody who's approached us about that. We have thought about it. But we don't have any dialog about that.

Okay, and one just final question for Mark. What was the percentage rents number in the quarter?

500,000

Okay. Thanks.

Thank you, Tony.

Your next question comes from the line of John Litt with Citigroup. Please proceed.

Hi, this is Ambika Goel with John Litt. Given the increased credit quality of AMC and Cinemark, do you think that'll cause a change in megaplex cap rates or development yields?

Ambika, I don't think so. I still think really the landscape is fairly barren with regard to other people that are there from a development standpoint. Because people -- as we've seen over the recent years, there are a number of people that are willing to buy an operating theater based on its performance numbers. But there aren't too many people that are willing to kind of underwrite it, because it's a lesser-known industry.

So I don't think our cap rates there are going to change. I think that there will be some more in terms of opened and seasoned theaters, as these guys get more transparent in the public market. And as Mark indicated, likely with lower debt loads and better credit profiles. Yes, those cap rates may even improve there in the valuation of our portfolio improves.

But our business is largely now a build to suit development business and less of a buying existing assets business. So I don't think it really is going to heavily impact our expectations except possibly the valuation of the company.

To further what David said, that's especially true for AMC, which has virtually none of their assets now on their books. For Cinemark that may be a different story, they own a substantial amount of their assets. So there could be some cap rate issues if they wanted to offload a substantial portfolio of their real estate. But we'll take a look at that and see if it makes sense, if and when that's presented.

Okay. Can you give us an overview of cash flow coverage for the ski slopes?

The two that we announced today, the Attitash and the Mount Snow, have currently prior to the enhancements we're looking at for the two of them about a 1.5 going initially. Based upon current -- and they've had that 1.5 history, if you go back over time, for substantial period of time. And what we're really saying is that we're going to make these enhancements and grow it to if you look at the projections it's above a 2, once we get all of these snowmaking and vertical transportation and other enhancements that we've talked about.

Okay. And then given that Schlitterbahn, sorry about my pronunciation --

It was better than if you dropped some other letters.

You should try spelling it.

Given that they own water parks in Texas, would you be interested in a sell-leaseback with that party?

We've discussed that with them. And I wouldn't rule that out. I mean the water parks that they have are dominant and if you go out and if you look at their numbers they're just staggering the number of people and the amount of revenue that they thrown off.

We've talked to them. Their current structure that they've got it's kind of a family business with a lot of interrelated parties in there. And it's kind of difficult to sort out for them to do a sell-leaseback with the tax gains that could be generated by that. But we have talked to them about it, Ambika.

I think if it's a relationship where that's going to be done it's likely going to be us. But as Greg indicated, a lot of family members and those deals take a long time to develop.

Okay, can you give an update on your international operations? What countries you're looking at, and if you're anywhere close to actually making a deal?

Well we continue, as I said, when last we spoke right now our primary emphasis is in Asia and in China. Unfortunately with ICS coming up we have several people coming over from China. We have several meetings.

We just had someone come back from China, where we had several productive meetings. We're still working on identifying the proper structure. Other people have done this. We're not trying to cut new ground. We're trying to follow in the wake of others.

But we're just trying to make sure that we can A), ensure that we have access to the right amount of product so that both domestic product, and the international product that's going to be shown in the theaters is sufficient to generate the cash flow coverages that we're looking for.

And also, to identify the right operators with the help of both people in the industry, and candidly with the help of the government, the film, radio, and television bureau that we've been working with so that we, as David mentioned earlier, so that we can attain our advantageous position as we move forward.

Ambika, I've got to say we go right to the five core criteria, the Five Star Property. We do believe there's an inflection opportunity in China, very definitely. We do believe in the enduring value as part of the way that society will operate, despite what is sometimes talked about pirating in China. We do believe the out of home theater attendance model works there as the part of the whole social experience and entertainment experience of the culture.

What we're -- we need to be convinced of is that we're going to be associated as we talk about our five criteria with operators and properties that are going to be excellent executions, going to be attractive economically, given all that we're going to have to go through for foreign currency risk, for translation structuring or entity there, and the advantageous position.

We're going to get the level of commitment from multi-site operators there that are going to give us a sizeable, scalable enough opportunity that's going to be worth our while. So when we get satisfied on the five points -- but we are very much, as Greg indicated, we're active in our discussions, our contacts both in Asia, people coming here and looking at projects and trying to see if we can't find a way to do that, for the advantage of the shareholders.

Given that AMC and Cinemark are in Latin America, why not look there over looking in China?

Well AMC, other than Loews -- it's not that we are opposed to looking in Latin America. It's just that right now AMC and Cinemark, both of those are not really via owned properties that they're in. They're in with some in country financing into those areas in Latin American.

So the structure that they currently exist in are not something that they've asked for or requested assistance with.

Yes, they're not really (inaudible). Otherwise Ambika I've got to tell you, when you go to Latin America you can deal with a variety of currencies, and there's much more a fractured model and a higher level of risk we think than possibly with RMB. And so the growth in China and the untapped market potential is higher there. And so, it warrants going more into the first chair rather than the back chair.

Okay, thanks. And my last question is just looking out to 2010; I was just looking at the lease roll schedule. And looks like there's eight megaplex theater leases expiring in 2010. How would you characterize those theaters performance wise?

I don't think --

I think we've got to check that.

I mean currently I know we have some. I don't know if it's ten.

Eight.

Eight. I mean currently right now we have as an example, Mission Valley in San Diego is one of those. Mission Valley has, I almost said [3, 2] coverage. It's incredibly strong. And we continue to evaluate each of those properties as we look at them. But right now the performance of those properties do not indicate that we have a problem with any of those.

In our conversations with the tenants, lessees, we've had no indication of a desire to do anything but renew those properties. As we indicated in our prior discussions, we thought about it. I think we're well covered. If in fact the event arises due to the desirability of the locations we've invested in. But we don't have any indication of that. And by and large, they're very strong performers in their market.

Okay, thank you.

(OPERATOR INSTRUCTIONS)

And at this time we have no more questions in queue. I would now like to turn the call back over to Mr. Brain for closing remarks.

Okay, thank you. As always we thank everybody for joining us. I think we've made remarks we'd like to. And I want to close [out] with an invitation to contact us. If you have any further thoughts or questions we're always glad to hear from you. Otherwise, we'll look forward to talking to you next quarter. Thank you.

Thank you.

Thank you.