EPR Properties (EPR) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2007 Entertainment Properties Trust earnings conference call. My name is Carol, and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. David Brain. Please proceed, sir.

Thank you Carol, and good morning to all. Thank you for joining us. This is David Brain, and I will start, as usual, with our preface, which follows, we will begin this morning, let me inform you, this conference call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate, or other such comparable terms.

The Company's actual financial condition, and results of operation may vary materially from those contemplated by such forward-looking statements. And 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, with that said let me -- I will thank you again for joining us. We always appreciate you being here and being with us. We are pleased you could be here to go over the second quarter 2007 report and all the recent company news. I want to start by introducing the other EPR executives on the phone with me this morning. To bring you up-to-date on everything I'm joined by Greg Silvers our Chief Operating Officer.

Good morning.

And Mark Petersen our Chief Financial Officer.

Good morning.

As before we get fully underway this morning I want to remind you all that if you are in listen-only mode in this call you probably not getting the full show or your full money's worth. You need to tune in to the visual dimension that is the supplemental slide presentation. It is a simultaneous web cast available via our link from our website at www.eprkc.com. So if you can -- it's the second time we've been doing this, I know it's kind of new, but I will advise you to go there now.

If you have arrived at the right website and taken the right direction you should be looking at our new logo and name presentation slide that we presented in our last call.

All right. I have a couple of thoughts and headlines to share with you before I turn things over to Mark who will detail the financial results of the quarter and Greg will run down all our investment activities of the quarter. First, I would just want to check in with you with regard to the performance of one of our key tenant industries. The first run film exhibition industry in case you haven't been paying attention box office results for the year up about 6% over last year, which is just about how much they were up last year at this time over the prior year and last year box office ended up about 6%. So we have a very favorable sustained trend going on here.

Greg has a lot to go over with you regarding our investment activity specifics but conceptually I want to point out to you that we are making good on our strategy outlined in our last call of expanding our investment universe, while maintaining focus on the core underwriting and investment principles that have been the foundation of our decade of success that is our five-star investment guidelines. These are the key investment criteria I went over in detail on last quarter's call and you can review at our web site or in our annual report. We had to report to you this morning investments not only in market dominant megaplex theatres but also investments in a theatre anchored entertainment retail center, ski properties, vineyard and winery assets and a super regional water park anchored entertainment retail center. All of these investments have been guided by and subject to our five-star strategy and standards.

On the capital formation front these have been equally active and significant strides taken to continue the trend of improving our capital structure. We replaced nearly 60 million, 9.5% coupon preferred stock with 100 million series D at more than a 200 basis point improvement. Amended and improved key features of our revolving credit facility. We converted $50 million of floating rate debt to very attractive sub six pricing of fixed rate debt. Very attractive, particularly, in light of the last couple of weeks of activity, I got to tell you. When I come back to you in a few minutes after the details the quarter covered by Mark and Greg I will have more to say about the current market conditions and the still very robust outlook for EPR. But first, I will turn it over to Mark for our financial review of the quarter.

Thank you, David. In reviewing our financial performance for the second quarter as you can see on the first slide. Our net income available to common shareholders increased 15% compared to last year from $18.2 million to $20.9 million. Our FFO increased 3% compared to last year from $25.9 million to $26.7 million. On a diluted per-share basis FFO is $0.99 compared to $0.97 last year for an increase of 2%.

Turning to the next slide. For the six months ended June 30, 2007, our net income available to common shareholders increased 14% compared to last year from $34.3 million to $39 million. Our FFO increased 7% compared to last year from $49.4 million to $52.9 million. On the diluted per-share basis FFO is $1.97 compared to $1.87 last year for an increase of 5%.

Now, looking at the details of our second quarter performance. Our total revenue increased 11% compared to the prior year to $57.1 million. Within the revenue category, rental revenue increased 2% to $45.7 million an increase of about $2 million versus last year. It should be noted, however, that last year's rental revenue included a $4 million lease termination fee received from a ground lease tenant in Hialeah, Florida. Excluding that fee rental revenue increased 12% versus last year.

Percentage rents, which are included in rental revenue, increased to $0.6 million from $0.4 million in the prior year. This increase was due primarily to an increase in percentage rents at one theatre in the New Orleans area that had been negatively impacted by Hurricane Katrina during its lease year ending in 2006. During its lease year ending in 2007, the revenue from this theatre rebounded to pre-Katrina levels and once again triggered our percentage rents. We also had one additional theatre moving to percentage rents due to strong box office performance.

Tenant reimbursements increased 23% or $0.8 million. This increase is primarily due to the acquisition in May of a two thirds interest in entertainment center in White Plains, New York, which has been consolidated into our financial statement. Greg will further address this acquisition in his comments. Other income was $0.5 million compared to $0.8 million last year. The decrease of $0.3 million is due to the closing of a restaurant we previously operated in Southfield Michigan as a TRS is now under lease to an unrelated restaurant tenant.

Moving on to (inaudible) mortgage and financing income was $6.6 million for an increase of $4.3 million versus last year. As of the end of the second quarter we had seven mortgage notes outstanding totaling $253 million. The mortgage notes relate to our Metropolis projects in Toronto, a megaplex theatre under construction in Louisiana, our investment in the development of a water park anchored entertainment complex in Wyandotte County, Kansas called Schlitterbahn Vacation Village. And our Crotched Mountain Ski Resort in New Hampshire, as well as our new ski resort investments during the quarter in Vermont and New Hampshire. I did want to make a comment on the nature of our mortgage investments. Of the balance of the $253 million at June 30, only about $82 million relates to what we would expect to be part of a permanent financing structure. $82 million relates to our mortgages on our ski properties. The remaining mortgages are expected to be temporary in nature as in the case of Metropolis, where we have an option to purchase a 50% ownership interest at completion, and in the case of the water park investment where we expect to ultimately move to a sell-leaseback structure once our customer can make that structure work with their sales tax revenue bonds or STAR bonds.

Moving to the expense side of the income statement. Our property operating expenses increased approximately $0.7 million for the quarter. As with tenant reimbursements this increase is primarily due to the acquisition of our interest in the entertainment retail center in White Plains, New York. G&A expense decreased $2.5 million versus last year. This decrease is primarily the result of two significant non-recurring expenses in the prior year related to share based compensation expense. First, we recorded $1.4 million last year in connection with the retirement of a former officer of the Company. The $1.4 million represented the fair market value of his share based awards as of his retirement date. Second, we recorded $1.7 million last year related to all unvested restricted share awards from prior years issued under our annual bonus plan. Management has determined that it would be more appropriate to expense these awards in the year earned rather than amortizing them with a future vesting period. So excluding these items from the prior year our G&A expense increased by about $0.6 million and this increase is primarily related to an increase in personnel related expenses versus the prior year.

Interest expense increased $2.9 million or about 25%. Approximately, $1 million of this increase resulted from the $120 million of debt assumed in our White Plains acquisition. The debt assumed consists of two notes, the first note had a balance of $115 million at the date of acquisition and bears interest at 5.6% and matures in October 2010. This note can be extended for an additional two to four years upon meeting certain conditions.

The second note had a balance of $5 million at the date of acquisition and requires interest only payment at 5% so (inaudible) attractive financing that we assumed in that transaction. The remaining increase in interest expense resulted from increases in debt associated with financing our real estate investments and our new mortgage notes receivable. Moving on, the discontinued operations reflected in our income statement relate to parcel of real estate adjacent to our megaplex theatre in Palmetto, Florida. The development rights along with two income producing tenancies were sold to a developer group in June.

Annual net operating income from the property at the time of sale was only about $300,000 and the total proceeds received were $7.7 million reflecting the inherent redevelopment value of this property at the time of sale. In conjunction with this transaction and given our ongoing interests in the adjacent megaplex theatre we reviewed and improved the developer's preliminary plan for redeveloping this parcel. Accordingly, we recognized a gain on sale of $3.2 million and development fees of $700,000 in the second quarter. Income from the operations of this parcel for both the current and prior periods as well as the gain on sale will be reflected as discontinued operations for all periods presented.

As previously announced, during the second quarter we also completed the redemption, as David mentioned, of all our 9.5% series A preferred shares and as expected recognized an expense, primarily non-cash, of $2.1 million or $0.08 per fully diluted common share. So in summarizing our results we had another excellent quarter if we add back the Series 8 Preferred redemption cost in the quarter of $0.08 per share, FFO for fully diluted common shares increased by over 10%. With another quarter behind us we are solidly on track to deliver our previously disclosed FFO per share guidance for the year of $4.09 to $4.18, which includes the $0.08 charge to earnings for the preferred share redemption.

Looking at our ratios for the quarter interest coverage was 3.4 times. Fixed charge coverage was 2.5 times and our debt service coverage was 2.6 times. All these ratios remain very strong. Okay, moving on to the next slide. Want to provide you with an update on certain capital market activities. As we have previously reviewed with you we completed an amendment to our revolving credit facility on April 18. The major provisions of this amendment are outlined in our press release and was reviewed in a last call. I won't reiterate these changes today but suffice to say that the changes improve our flexibility and enhance the valuation we receive for our assets in determining borrowing capacity under our revolving credit facility. Also as noted on this page of the presentation we completed 10-year mortgage loans in the second quarter as well as loans subsequent to the end of the quarter in July totaling $83 million. The $55 million that closed in the second quarter at an average interest rate of 5.81% and a $28 million at closing July at an average interest rate of 5.85%.

While credit spreads in the debt markets have certainly widened significantly in the last couple of weeks and real estate equities have retreated it is comforting to know that our model of nine and ten cap investments is still very accretive despite the recent rise in the cost of capital.

Now, turning to the next page. As I have already mentioned we redeemed all of our 9.5% Series A Preferred shares in the second quarter and took a related $0.08 per share charge. The cost of this redemption was $58.4 million which included the accrued dividend up to the date of redemption. Also as previously announced we completed an equity offering of 4.6 million 7 and three eighth series D preferred shares during the quarter. Net proceeds from this offering were approximately $111 million that we used to fund the series A preferred redemption and to pay down our revolving credit facility.

Our bankers tell us that this was the second lowest non-rated perpetual preferred offering ever executed and one of the larger non-rated preferred deals in the last couple of years as well. I'm pleased to report with this equity raise behind us we can complete our current plans for the remainder of the year without having to access the equity capital market.

A few comments on the balance sheet before I wrap up. At June 30, we had $980 million in debt and our overall leverage on a book basis were just under 50%. Our overall leverage as a percentage of total market capitalization was a conservative 36%. Our debt balance included approximately $815 million in fixed-rate long-term debt with a blending coupon of approximately 6%. And our floating rate debt was $130 million represented by our unsecured credit facility and that carried a spread of 130 basis points over LIBOR.

Also during the second quarter we entered into two significant foreign currency hedging transactions to take advantage of historic highs in the Canadian dollar. The first transaction hedges $100 million Canadian of our equity in four entertainment retail centers located in Canada. We will receive approximately $0.96 US per Canadian dollar, which compares very favorably to the exchange rate of approximately $0.75 US per Canadian dollar when we purchased the Canadian entertainment retail centers in 2004. This means we have locked in around 21 million of US dollars gains through February 2014, which is when the third-party debt on these four entertainment retail centers matures.

It is important to note that this hedge will not create any earnings volatility this is mark-to-market adjustment will stay on the balance sheet in other comprehensive income until we sell the Canadian centers. The second hedging transaction a cross currency swap designed to hedge Canadian denominated FFO and cash flow locks in an exchange rate of $0.95 US per Canadian dollar on $13 million per year of Canadian denominated cash flow in FFO from 2008 through February 2014. Both these hedges significantly reduce our foreign currency risk.

Finally, there has been a lot of discussion lately about the accounting for convertible debt with net share settlement features and the FASB has released for comment its plans to change the accounting -- the current accounting for this security. This change would increase the amount of interest expense recognized and possibly require a restatement of prior periods' financial statements with those who have issued such security. It should be noted that we have not issued any such convertible debt securities. The accounting for our series C convertible preferred shares that we issued in December '06, would not be impacted if the proposed change is adopted by the FASB.

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

Thank you, Mark. In the second quarter of 2007 we continued the execution of our capital plan that we discussed with you at the conclusion of the first quarter. As you will recall on our last earnings call we've revised our capital plan upwards to $250 million of acquisitions for 2007. I'm happy again to report to you that we have made significant progress towards that target and at the end of the second quarter we closed approximately $240 million of acquisitions and financings. As a result of this success we will again be revising our capital plan upward. I will have more of that detail shortly but first I would like to highlight the accomplishments of the second quarter.

We completed, as you note on the slide, we completed the acquisition of a 67% interest in the White Plains' City Center. The 400,000 square foot entertainment retail center anchored by Target, Circuit City, Barnes & Noble and a 15 screen cinema deluxe which is leased to and operated by National Amusements. Our investment in this project was approximately $30 million. We continue to fund the development of four theatres under construction during the second quarter. These theatres include the Panama City Grand an 18 screen theatre which opened in June 2007 in the Pier Park development of Simon properties. This total also included the commencement of our first AMC development project in Glendora, California. As we discussed in our previous call we also acquired the Mount Snow and Mount Attitash ski assets during the quarter along with closing on our [Dunkin Peak] vinery acquisition.

Additionally, we continue to increase our density at our assets in Canada and have recently increased our leasehold area at our Kanata location to include a Best Buy retail store and three restaurants. We also continue to make progress on our Schlitterbahn investments with a planned opening in 2008. For the quarter our capital expenditures totaled approximately $179 million. As I promised earlier I would like to spend a second on our revised capital expenditure plan. Our initial plan called for $175 million in capital which we revised upwards to $250 million at the end of the first quarter. At this point given our robust opportunities we are again revising this plan upwards to $300 million for 2007.

I would also like to take a minute to discuss the effect of the recent dislocations in the capital markets on our business plan. As you can imagine the recent widening of the credit spreads may have significant impacts on companies that were acquiring assets at increasingly lower cap rates. However, as Mark previously mentioned, our acquisition and development cap rates at 9 to 10% are substantially better than some traditional categories. And as such provide sufficient accretive returns even in these turbulent times. Furthermore, it is during these times that many of our competitors who dabble in the entertainment and recreational space abandoned their interests, which create significant opportunities for those of us who are dedicated to this space. So while we may not be enjoying the same return spreads that we enjoyed six months ago there is still ample spread and may be increased opportunity for us to continue executing our business plan.

A quick update on our occupancy. We continue to have 100% occupancy of our theatre assets and the occupancy of our non-theatre retail assets has increased from 95% to 96%. With that I will turn it back over to David.

Thank you Greg, thank you Mark. Another record setting quarter of financial results, execution on our expressed investment strategy, more good advances or our capital funding arrangements. All in line with our plan of delivering another year of double-digit shareholder metric increases. Before I go to Q&A I just want to re-emphasize the outlook for EPR even in the context of the current tightening credit markets and declining equity markets. Things that Greg and Mark touched on as well. EPR is certainly not immune to the somewhat adverse market conditions but I do submit to you that we are one of the few that has a business model that affords the opportunity to continue to progress and prosper. EPR has never operated at the outside edge of the aggressive debt market that are basically closed now. Rather, we have always operated with conservative debt arrangements and coverage ratios that are not only acceptable but still desired in the debt capital market. EPR has never chased deals up in price and downing cap rate yields such that we do not have any spread or overall cost to capital or contribution to our equity returns.

Overall, we never operated at the razor-thin margins or aggressive structuring that could not tolerate such movements in the capital markets as we have had lately. Certainly, higher debt rates and lower share price is less -- are less desirable than the alternatives, but I want to be clear that we are not among those whose business model is disabled in the current environment.

You heard Greg and Mark speak of increased guidance in our capital spending and I want to reinforce that. Our business model is fully functional and accretive to our shareholders in the current tightened environment. In fact, historically, as pointed out by others we found that tighter market conditions such as the present have often been beneficial to us, just as they might be to any another who reserves a good bit of capital capacity for just such times when potential customers have fewer and more costly real estate financing alternatives.

All right. With that I'm going to open it up to Q&A. Carol, operator, if you're there, if you'd open the lines for questions I'd appreciate it.

Thank you, sir. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Paul Adornato. Please proceed.

Thanks. Good morning. David, I appreciate your macro comments on business the outlook. I was wondering if you could address the possibility or the attractiveness of buying back EPR stock here at just $43 per share.

Paul, I guess we might take another look at that as this thing has been falling over the last couple of -- couple of weeks ago I addressed that question in a couple of forums, and that time certainly our stock wasn't attractive. I guess as you get into the fact of making, let's say we're -- given our range that price is still something about a nine yield on equity. I mean, I think we can do better than that. Essentially, on a leverage basis, we still make a higher return on making our investments in properties rather than backing the Company up. Particularly, in light of the debt market, as I indicated is still open to us. So, we're not really still at a pricing -- we're not at a pricing point yet given our alternative investments that makes buying our stock back attractive.

Just to add to that, we're doing leverage yield of say 13% and the spot price would have to drop to a price around $32 to get to about a equivalent which would be a 7 -- about a 7.8 multiple for that to make sense buying back shares versus investing in these accretive transactions. So it's got quite a bit of ways to go before that makes sense, and plus obviously buying back stock increased your leverage as well. So it's kind of a -- another side to that as well.

Right.

Right. I think there are guys out there who don't really have a game plan, a business model to continue to invest in this kind of climate, that's why they are doing that. We do.

Okay. And you talked a little bit about the capital markets and how you guys are pretty well insulated. I was wondering if you could also address the possibility that the consumer pulls back at some point in this cycle and how that might affect your tenants and your business outlook.

Well, the primary portion of our consumer spending that supports our tenant base really is the theater attendance as we talked about before, actually that functions modestly is what is called in classic economic terms a negative good. So as the economy tightens a bit that actually may well go up. Historically, if you look at -- in periods of recession actually movie attendance has gone up as it is kind of one of the cheaper forms of out-of-home entertainment so these people can still treat themselves to so the primary -- the primary portion of the portfolio. And the other thing, the ski properties we've invested in as we've pointed out to people, our ski property investments turn out to be as much resort as they are municipal daily attendance, their per caps are more at the $30 per cap model than resort skiing is more $90 per cap per day model. So it's at the lower end of the cost structure and I think it will be that which is preserved even in a little bit tightened consumer market.

So overall, I think our portfolio is still as pretty well insulated. Nobody goes without -- probably without something, and maybe we do lose some of our percentage rents, but in fact as we indicated we don't have that expectation, and even if we did that's still only what, 1.5% or so of our revenues, Paul. So we're still in good shape to make all of our -- still increases to our shareholders, still increased dividends as we've been doing consistently even in the face of that.

Okay. And finally, I was wondering if you could just talk a little bit about the gaining environment in Wyandotte County and how you guys might participate if it unfolds that way.

David.

Sure, Greg. I -- for those who do not know that there -- the state of Kansas approved gaming in four counties in Kansas, one of those being Wyandotte County where our Schlitterbahn property is located. There has been interest on part of the property. We can't really discuss, that's not public. Right now we can't discuss that, but there may be opportunities that we can discuss in the future within the next -- call it 60 to 120 days when the process of approval is handled through the local and state governments. But there is interest on our property, we are talking to people, and basically, what I can tell you, Paul, is to stay tuned.

Okay.

We have really one of the best situated parcels in an area that has just been approved for gaming. When you take the state of Kansas, the four counties that's approved, this is the most populated area. So it's the best property and the best location in the state that was approved. So we have those discussions going on. We --

And so everyone knows that it doesn't take -- we had 90 acres on our Schlitterbahn development that we held back for future development -- 360 in total. So this doesn't take away from that development.

It doesn't compromise development we had planned. We had reserved acreage for future use anyways.

Okay. And just one more question. At Mount Snow you referenced additional development that will happen. What type of development?

Well, Mount Snow, as we mentioned, we acquired that property. It has been entitled for increased density of about 900 units, some single family, and some hotel, and some commonweal condominium and town home. So that's in place. As we've told people we do not expect to develop those directly on balance sheet. We do expect to likely sell those or joint venture those with a developer that will increase that development -- increase that density at that development. So that's --

That's our expectation that if we participate it will be without additional capital.

Yes, we -- we'll contribute only the land that we have thus far, but -- we don't expect to contribute additional capital.

We do have some capital earmarked to put into Mount Snow and Mount Attitash with the operations that's not the development of property -- improvement.

On Mount improvement -- vertical transportation and skier facilities.

And the water main that we discussed in the last --

Right. And the snow making.

Okay. Great, thank you.

Your next question comes from the line of Jonathan Litt with Citigroup. Please proceed, sir.

Hi, this is Ambika with Jon. You've talked about the impact of the credit market on your business. Can you quantify the amount that spreads that have changed?

Yes, I'd say CMBS spreads which is our primary source of debt financing has widened for us about 80 basis points, and the last we've talked, which was an update actually this morning. So if we did deals roughly at a 585, 580 this quarter I would say we do it -- if treasuries were the same at about a 660.

Treasuries have actually maybe even receded a little bit, so --

A little bit --

I mean, spreads have widened and treasuries have fallen a little bit, so we don't take the full, but take maybe 650 to 60 of the 80 basis points with impact.

Yes, certainly.

So Ambika, it's going to raise the cost. But it certainly, as we've indicated, and you see from the rates of return we get from our investment it doesn't certainly -- it's doesn't take us out of the game at all.

And time will tell how sustained that increase is.

Yes.

We had a blip with the sub prime and it came right back, and then now there is another recent blip up and we'll see how sustained that is.

Right. And you're saying that you're seeing more opportunities. Can you speak a bit about the new types of opportunities that you're seeing in the market with this dislocation in the credit market?

Right, I think we are -- we are seeing some more theater deals combined with the year-over-year increases in box office we're seeing people reinvigorated from the operator standpoint. We're also seeing people who are -- who have theaters, are looking to go to market with theaters that are looking to get those off their balance sheets and so some portfolio deals and we will see if those -- if the pricing on that, Ambika, is where we think it needs to be yet, but we're seeing, like I said more deal flow form both the operator side and on the, what I would say, the current owners of theaters who are looking to monetize that.

Monetize.

And is that the basis of the increased capital spending guidance?

I think they are some of that, there is also some of the other core properties that we've talked about that we will -- that we're still seeing significant opportunities. As we talked about earlier some of the things that we were looking at and really started to take off.

Well, we talked before Ambika, that we don't really have any guidance that's highly speculative in nature. So it's really all the 300 million -- the increased 300 million just stuff that we have high visibility or have under the tent. But I think Greg was alluding to and I was alluding to in my content we may even have increases beyond that because just what we talked there are some speculative things we have not included in our guidance, but we're hearing more, and we are getting more contact about opportunities that could be emerging because the alternatives for monetizing interest of these properties is being diminished and we're one of the routes that's still open.

And as you can imagine, Ambika, it's the theater opportunities from the operators are more development there is really not -- there is not a substantial capital outlay in the year in which we start those, if we start those this late the year. So if we start the project -- we may be seeing good visibility to more projects, but if we start projects in October, November that plan will be able to follow in the following year. The lion's share of the capital outlay would be '08.

Right and I guess just thinking about '08 the capital spending given that year-over-year box office revenues have been pretty strong. Do you think that we could assume at this level that capital spending in 2008 would be similar to 2007 levels, or is that maybe too robust of an assumption?

Right now I would say it's probably not a bad assumption, however it's at this period during the summer candidly, Ambika, nobody in theater -- nobody is talking about theater construction as much because they're reaping the benefits of their tenth home movie.

Right.

And it's generally in the spring and in the fall we start projects. So we'll probably have better visibility on that answer for you in the third and fourth quarters.

Okay. And then on the coverage ratio, can you -- what is it at the White Plains?

On the overall --

Project.

I mean, it's a multi-tenant deal, so the -- we don't have a kind of a consolidated coverage ratio I guess to talk about from the retailer coverage --

I know from the theater perspective -- the theater perspective is above it too.

Right. So --

So -- I mean from -- but it's hard because in that project -- the target is [condo] interest they own that, so if I report in the target sales it would look -- that's how we get, we get all the sales together but we can -- we probably need to break that out on a tenant by tenant basis and give you an average if that's what you're looking for.

Yes, that really has it.

Yes.

Okay. We can do that. We don't have --

Okay. And then can you give a timing on the remaining Schlitterbahn investment? I guess you're assuming a 2008 delivery, so that's going to be like essentially split evenly over the next couple of quarters.

I'd say it's going to be more in the first and second quarters of next year. I mean, we're doing kind of land preparation as you can imagine because the water features of this -- so you're going to see probably the majority of that come in the first and second quarter of next year.

And then my last question. This is more of a clarification. In the income from [disc ops] you said there was about a $700,000 development fee.

Yes.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Sarah King] with JP Morgan. Please proceed, ma'am. Ms. King.

Hello.

Thank you. It's actually Sarah King here for Tony Paolone.

Hi, Sarah --

Hi. Just a couple of questions for you. One is, could you actually quantify the pipeline of deals you were seeing and the breakdown between theater and non-theater deals. I know you touched on this before.

We have -- I don't have that, Sarah, nearby as far as what they because we've got -- candidly we've got deals that we are looking at standalone theaters, as theater anchored retail centers as -- we have vineyard opportunities and we have some ski opportunities. So they're all across all -- all the board and what I would say is, right now, as far as increased opportunities that we talked about those are primarily in the theater and theater anchored space.

Okay, great. And also just a clarification Cityplace you mentioned is consolidated. Where is the minority interest for that on the P&L?

Yes, with our preference we're receiving all the cash flow from that deal and that's the -- there is no minority interests.

Okay. Great, thank you very much.

Sure.

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

Good morning guys.

Good morning, Mike.

Kind of touch upon some questions of my peers there maybe ask it a little different way.

Okay.

Can you kind of talk about the size you see the development pipeline growing to by the end of the year and where you see kind of a stabilized runway with the development pipeline in 2008?

I think what we said all along is that our development pipeline generally runs from around $100 to $150 million, where we get -- we're -- but now, as always -- because these things take a year to build, some of that is bleeding over from last year into this year and some are projects that are starting now that will finish next year. But that's generally the way those are running.

Well, I think we traditionally talked about our pipeline being $150 million kind of out at the theater business and we still -- but we've added, as we talked about we've expanded the universe of investing and we're doing some substantial business in some of these additional lines of business. So, I think the stabilized outlook has increased from $150 million on recurring basis and that's what we're saying. We're saying that this year we've been doing for the last couple of years, kind of an average 250 to -- 225 to 250 and now we're popping up to 300 and something on that order of magnitude is not -- is reasonable on a go forward basis although we don't have any official guidance yet for '08.

But just to make -- to clarify, Mike's question was about development. We don't do really development of other areas it's in the theater development --

The water --

-- and the water -- and the one water park development.

Okay. Looking at -- just talking at -- just staying on development for a second here. If you look at the demand growth prospects for your theater pipeline currently versus six months ago would you say that tenants are looking to expand more so with the strong movie theater season less so -- I mean, what are you seeing in terms of demand for new theater assets basically?

I mean, clearly there is an intent to expand, but the issue is you got to find good locations. You know, everyone has a growth strategy that they're looking to execute on but clearly it still has to be with a quality location. So the number of deals that we're seeing are still probably 50% to 75%. We're not accepting because we don't like the underlying fundamentals of either the land or the -- or what we think the attendance model will do in those site. So we're still quite selective Mike, and as we talked about in our underwriting metrics and wanting market dominant properties we're still not seeping down into areas that we think where those properties will not be market dominant.

But overall the interest in new projects has increased.

And then finally on your last conference call you talked about pursuing different ventures internationally. I mean you guys are in Canada, are you still looking internationally or with all the opportunities. You mentioned opportunities expanding in the US, are you really focusing more so in the US right now?

I mean, I think, Mike, we still have interest there. We still -- what we said is -- all along is that we're looking at it. We're being very deliberate at how we're looking at it. We're making sure that it meets both our underwriting criteria and our investment criteria as far as return. But as evidenced by the fact that we've been talking about it for a while we are very deliberate about it. But it's still on the radar.

Yes, but we don't have anything to announce.

Nothing to announce.

So the focus is more so North America right now.

Right.

But, yes, we still have the outlook that we're still pursuing in dialog about some international opportunities.

Great, thanks guys.

Okay.

Thank you.

There are no additional questions at this time. I would now like to turn the call back over to the management for closing remarks.

Okay. I appreciate -- thank everybody for joining us again and want to emphasize that call is available for replay. Please get in touch with the Company if you have any other subsequent questions you like to discuss and we look forward to seeing you next quarter with another good report. Thank you.

Thank you.

You may now disconnect and have a great day.