EPR Properties (EPR) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter 4 2007 Entertainment Properties Trust Earnings Conference Call. My name is [Nikita], and I will be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating 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 presentation over to your host for today's call, Mr. David Brain, President and CEO. Please proceed, sir.

Thank you, Nikita. Thank you all and good morning. Thank you for being with us this morning. This is David Brain. I will start with our usual [preference].

as we 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 '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 and 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, soon to be our filing of 2007.

All right, let me again say thank you for joining us. We always appreciate your investment of time and interest. As always, I'm pleased to be with you. We will go over all the current results for the Company for the year 2007 and for the last quarter in particular, but I first want to introduce my key Associates also joining you this morning, Greg Silvers, our Chief Operating Officer --

Good morning.

And Mark Peterson, our Chief Financial Officer.

Good morning.

Before we get fully underway, I want to remind all once again there is a simultaneous webcast available with via a link from our Web site, www.EPRKC com. Mostly, the slides will be useful in relation to the detailed financial review from Mark, so if you can, I would advise you to get there now to catch the full presentation. If you have arrived at the right Web site and taken the right direction, you should be looking at our logo and main presentation slides at this time.

Okay, we will turn the page now on the Web site and go to our agenda. We will run through all of these topics this morning with you, starting, as it indicates there, with some introductory comments from me. Once again, we had an action-packed quarter, so there's a lot to review, but before we launch into the detail, I want to share a perspective with you that often gets too little focus but seems particularly relevant in these highly turbulent and volatile market-condition times.

My thought, the perspective I want to share, is that EPR is a pillar of stability. Stable and reliable performance of our properties and our leases has been our most prominent characteristic for ten years. Even in through the bleakest of times of film exhibition industry restructurings and bankruptcy, many ironically almost due directly to the success of our megaplex investments, we have yielded stable and reliable results. We have exhibited this with consistent quarterly results like this quarter that complete another year with results on guidance and up over the prior-year period by over 10%.

This is the fifth consecutive year of double-digit shareholder return metric increases, including, importantly, FFO per share. In this time of great turbulence and uncertainty of value, particularly relative to real estate, I wanted to point out our track record and our dedication to this type of reliable performance.

Now, speaking of reliable performance, I also want to take note of our most dominant tenant industry, the first-run film exhibition industry for the past year. With the Academy Awards just this past weekend, there's been a lot of industry publicity. I hope everyone noticed that domestic box office was up nicely in 2007 over the prior year by 5%. Notwithstanding the skeptics and pundits, the industry also continues to perform steadily and reliably in very positive fashion.

Now, onto company news -- during the final quarter of 2007, we finalized investments in four different property categories -- cinemas, ski properties, Charter public schools, and an outdoor live performance amphitheater. The latter two categories, Charter public schools and the outdoor amphitheater, represent new areas of investment that were initiated during that quarter just completed.

Although completed during fourth quarter, the Charter public school investment was on the books at the time we held our last conference call. I spoke then at length about the rationale, the five-star underwriting, and the transaction structure of supporting that investment, so I won't repeat myself today.

I will say a word about the last investment type, though, the outdoor live performance amphitheater. This is an investment we described and previewed in one of our calls over a year ago but has been slow to get out of the gate. We are excited that it's time has arrived. The proposed facility is planned to be an approximate 9000 fixed-seat open-air amphitheater with a roof spending the entire (inaudible) Presidium and all of the seating. An artist's rendering of the project is being displayed on the webcast now.

The proposed site for this facility is next to the Sears arena adjacent to I-90 and Hoffman Estates, suburban Chicago, Illinois. Importantly, this site is nearly identical to the location of the popular Creek Amphitheater that was the most well-attended outdoor performance continued in the Chicagoland area for decades before it was raised in 1995. We are excited about this investment and this whole category, as it fits in nicely with our much-referenced five-star investment principles.

First, we're optimistic about the potential renewal cycle that is pending in the amphitheater category as increasingly the attendees at such facilities want fixed rather than festival or lawn seating and they, along with the performers in the circuit, want covered facilities that can reliably play their scheduled dates, whatever the summer season weather. Therefore, this category meets our requirement of an inflection opportunity.

Second, although portions of the music industry, particularly sales of recorded material, are struggling with rapid changes, live-performance circuits, particularly those associated with modern right-sized facilities, are strong and have been so for decades if not longer, and thus this category meets our criteria of enduring value.

Third, this facility for Chicago and others we might embark on in other cities will be the finest in their markets, meeting our criteria of excellent execution.

Fourth, although we are not at liberty to discuss or disclose all of the details of this investment at this time and although it is structured as a loan for some very particular tax reasons, its yields are consistent with our portfolio average and our risk underwriting, thereby meeting our requirement for attractive economics.

Fifth, our advantageous position requirement of our five-star underwriting is met by both our first-mover position in what we believe will be an emerging market, as I said, and by the key relationships we're forging with customers in this transaction. Jerry Mickelson of Jam Productions and in the [Rheinstorp] Organization, who will collectively operate and book this facility.

Now, although I've spent considerable time with our investments, I want to equally put in focus before you the excellent job of capital formation achieved during this, as I've said, a very turbulent and frankly difficult time in the capital markets. Approximately $175 million of debt was placed at rates very consistent with our other recent activity before the subprime meltdown, and that is at about a 6% coupon. This level of debt financing and pricing is very supportive of our continued growth and performance at double-digit levels I spoke of earlier. Similarly, we priced 1.4 million of shares at $54 during the quarter, and that also goes to support the continued high level of company performance. Mark will detail these transactions and the liquidity position we've achieved for you, but I just want to point it out as well.

Well, with that, I will turn it over to Mark and Greg, first to Mark to detail the financial events and results of the quarter, and then I will join you again in a moment.

Thank you, David. Let me begin with a review of the significant items from our recently completed fourth quarter. As you can see on the first slide, our net income available to common shareholders increased 18% compared to last year from $18.3 million to $21.5 million. Our FFO increased 21% compared to last year, from $26.1 million to $31.3 million. On a diluted per-share basis, FFO was $1.11, compared to $0.97 last year for an increase of 14%.

Now, looking at the details of our fourth-quarter performance, our total revenue increased 33%, compared to the prior year, to $65.7 million. Within the revenue category, rental revenue increased 18% to $49.2 million, an increase of $7.4 million versus last year. Percentage rents included in rental revenue increased 90% to $512,000 versus $269,000 in the prior year.

Tenant reimbursements increased 57% or $2.1 million. This increase is primarily due to the acquisition in May 2007 of a two-thirds interest in an entertainment retail center in White Plains, New York, which has been consolidated into our financial statements, and increases at our four Canadian entertainment retail centers.

Mortgage financing income was $10 million for the quarter, or an increase of $6.8 million versus last year. As of the end of the fourth quarter, we had eight mortgage notes outstanding during $325 million. The mortgage notes relate to our Toronto live square project, formerly known as Metropolis, in downtown Toronto; our investment in the development of a water park-anchored entertainment complex in Wyandotte County, Kansas called Schlitterbahn Vacation Village; our ten metropolitan ski areas covering approximately 6000 acres in six states; and our investment, as David just mentioned, in the development of a 9000-seat amphitheater in suburban Chicago. Greg will further discuss some of these investments in his remarks.

I do want to reiterate a comment I have been making the last couple of quarters on the nature of our mortgage investments. Of the balance of $325 million at December 31, only about $126 million relates to what we would expect to be part of a permanent financing structure. $126 million relates to mortgages on our ski properties, as well as the amphitheater development. The remaining mortgages are expected to be temporary in nature, as in the case of Toronto Live Square where we have an option to purchase a 50% ownership interest at completion, in the case of the water park investment where we expect to ultimately move to a sale-leaseback structure.

On the expense side, our property operating expenses increased approximately $2.7 million for the quarter. As with tenant reimbursements, this increase is primarily due to the White Plains acquisition, and increases at our four Canadian entertainment retail centers.

Other expense was $1.6 million compared to $0.6 million last year. The increase of $1 million is primarily due to $0.8 million in expense recognized upon settlement of foreign currency forward contracts.

G&A expense increased $1.4 million versus last year to approximately $3.9 million for the quarter. This increase is due primarily to increases in personnel-related expense, including share-based compensation, as well as an increase in franchise taxes.

We added three people in 2007, and we added one more person so far in 2008. This increases our staffing by 29% to a whopping 18 people.

Interest expense increased $4.6 million or 36%. Approximately $1.7 million of this increase -- $1.7 million of this increase resulted from the $120 million of debt assumed at our White Plains acquisition. The remaining increase in interest expense resulted from increases in debt associated with financing our additional real estate investments and mortgage notes receivable.

Equity and income from joint ventures increased $793,000 versus last year to $986,000. This increase is a result of our acquisition in October of 2007 of a 50% interest in a joint venture that owns 12 public Charter schools.

Minority interest income was $447,000 for the quarter and relates solely to our White Plains investment. Remember, as I discussed last quarter, this accounting nuance does not impact our reported FFO.

Now, turning to our full-year results on the next slide, our net income available to common shareholders increased 15% compared to last year from $70.4 million to $81.3 million. Our FFO increased 13% compared to last year, from $101 million to $113.7 million. On a diluted per-share basis, FFO was $4.18 compared to $3.79 last year for an increase of 10%. That represents our fifth year in a row of double-digit growth in this important measure, as David mentioned.

Our total revenue increased 20% compared to the prior year to $235.7 million. Within the revenue category, rental revenue increased 11% to $185.9 million, an increase of $18.7 million versus last year. Included in rental revenue for the year ended December 31, 2006 was $4 million of lease termination fees received from a ground lease tenant in Hialeah, Florida. The ground was subsequently used to another unrelated tenant. The increase in rental revenue would have been 14% at 2007 without this termination fee from 2006 -- in 2006.

Percentage rents were approximately $2.1 million for the year versus approximately $1.6 million in the prior year. This increase of over 30% is reflective of the strong box office in 2007 that David referred to.

Tenant reimbursements increased 28% to $4 million. As with the fourth quarter, this increase is primarily due to the White Plains acquisition and increases in our four Canadian entertainment retail centers.

Mortgage financing income was $28.8 million for an increase of $17.9 million versus last year. As discussed earlier, at the end of the year, we had eight mortgage notes outstanding totaling $325 million.

Moving onto the expense side, our property operating expenses increased approximately $4.3 million in 2007. As with the tent reimbursements, this increase is primarily due, again, to the White Plains acquisition and increases at our four Canadian entertainment retail centers.

Other expense was $4.2 million for the year, compared to $3.5 million last year. The increase of $0.7 million is due to $1.7 million in expense recognized upon settlement of foreign currency forward contracts, partially offset by a decrease in expense related to the closing of a restaurant in Southfield, Michigan operated as a TRS that is now under lease to an unrelated restaurant tenant.

G&A expense for the year increased $455,000 versus last year to approximately $13 million for the year. G&A for 2006 included $3.1 million in non-recurring share-based compensation expense related to the retirement of an executive with the Company and recognition of expense related to awards from prior years in connection with implementing FAS 123R. Excluding this prior-year expense, G&A increased approximately $3.5 million, primarily related to personnel expenses, or costs, including share-based compensation, as well as increases in franchise taxes and professional fees. G&A as a percentage of revenue for the year was about 5.5%, which continues at a rate well below the industry average.

Interest expense increased $11.6 million or 24%. Approximately $4.4 million of this increase resulted from the $120 million of debt assumed in our White Plains acquisition. As discussed above, the remaining increase in interest expense resulted from increases in debt associated with financing additional real estate investments and mortgage notes receivables.

Equity and income for joint ventures increased $824,000 versus last year to $1.6 million. Again, this increase is the result of our acquisition of a 50% interest in the joint venture that owns the 12 public Charter schools as I discussed earlier.

Minority interest income was $1.4 million for the year and relates solely to our White Plains investment.

Looking at the ratios for the year, interest coverage was 3.2 times. Fixed-charge coverage was 2.4 times, and debt service coverage was 2.5 times. All of these ratios remain very healthy.

I'd like to provide you an update on our capital market activities. Moving onto the next slide, we were very active in the debt and equity capital markets in the fourth quarter. On October 15th, as David mentioned, we completed a 1.4 million common share offering raising approximately $74 million. This was a [bought] deal and is based on a closing price of $56.17 on October 9.

In addition -- turning to the next slide -- on October 26, we completed a $120 million secured term loan to [syndicator] banks. The fully funded loan is for a four-year term with a one-year extension option and has a $50 million accordion feature. The loan is prepayable without penalty after the first year and the interest rate is LIBOR plus 175 basis points. Subsequently, in November, we entered into two interest rate swap agreements (inaudible) fix the interest rate at 5.81% on $114 million of this term loan through October 26, 2012.

The security for this loan is a borrowing base of assets and the loan is recourse to the Company. The purpose of the loan is to provide financing at a 55% advance rate for our non-theatre investments, including our ski, wine and water park assets, and to free up availability on our existing unsecured credit facility.

Turning to the next slide, additionally in October, we closed a $27 million, five-year, nonrecourse CMBS loan at an interest of 6.63%. Also subsequent to year-end, in January, we closed a $17.5 million, ten-year, nonrecourse CMBS loan at an interest rate of 6.19%. We are pleased that we were able to close these loans in a difficult credit environment and still achieve attractive rates.

Also during the fourth quarter, we closed on a $10.6 million economic revenue bond secured by a theatre in Slidell, Louisiana. This low-cost public financing, also known as Gulf Opportunity or [Go] zone bond, has been made available as an incentive for companies to rebuild Gulf state areas following Hurricane Katrina. Interest on this bond resets weekly and was 3.43% at the end of the year. As noted on the slide, the rental rate on the theatre moves in tandem with interest rate changes on the bond.

In addition to the bond on our books at December 31, we have also guaranteed an additional $22 million of such bonds issued to one of our tenants, Southern Theatres, for the construction and development of three megaplex theatres. For providing this guarantee, we earn a fee at an annual rate of 1.75% of the outstanding principal balance of the bonds.

Now, turning to the next slide, all in all, in the fourth quarter of 2007, we raised a little over $230 million in attractive long-term debt and equity, and for all of 2007, we raised in excess of $500 million of such capital.

Summarizing our success in the capital markets provides an excellent segue to my comments on the strength of our balance sheet. As of December 31, our total assets were approximately $2.2 billion, an increase of approximately 38% over last year. We had total outstanding debt of approximately $1.1 billion, and our overall leverage on a book basis was about (technical difficulty) overall leverage on a market basis was a conservative 40%. Substantially all of our debt outstanding at year-end is fixed-rate long-term debt with a blended coupon of 6%. We had nothing outstanding on our unsecured credit facility at year-end.

In summary, our capital markets activities in 2007, particularly those that took place in the fourth quarter of the year, have positioned our balance sheet well for continued profitable growth in 2008, even in this difficult credit environment.

I can turn to the next slide. Finally, turning to the next slide, we are confirming our previously provided 2008 guidance for FFO per share of $4.52 to $4.62 and our 2008 estimated investment spending of approximately $250 million.

Before I turn it over to Greg, I would like to make a comment about our plans to finance our investments in 2008. As always, we will look to find these requirements through a combination of debt and equity. In sourcing our debt capital, we expect to primarily utilize our credit facility, which had a 0 balance at December 31, and secured bank debt, as opposed to the CMBS market. This change is driven by both the disruption in the CMBS market and the fact that we rolled many of our theatres into new CMBS deals over the last several years. We have an option to extend our line of Credit into January of 2010 and our commercial banking partners continue to offer attractive loans collateralized by assets that are not currently encumbered by CMBS debt.

Now, finally, let me turn it over to Greg for his comments on leasing and (technical difficulty).

Thank you, Mark. As David and Mark have discussed, 2007 was another great year in which we made significant investments in our core asset classes of entertainment and entertainment-related retail while also expanding our recreational specialty property assets. We made these investments at very attractive cap rates while maintaining our adherence to our five-star underwriting criteria.

As you will recall, our original capital plan provided for capital expenditures of approximately $175 million. However, we revised this plan upward in each successive quarter, and I am pleased to report to you that we completed 2007 with total capital spending of approximately $428 million.

Today, I would like to recap our accomplishments for 2007, including those investments made in the fourth quarter, and also discuss our visibility to our 2008 objectives. We invested approximately $128 million in entertainment and entertainment-related retail for 2007. These investments included the acquisition or development of five theatres, the expansion of two existing theatres, our acquisition of a controlling interest in White Plains City Center, continued development of our Metropolis project in Toronto, and continued expansion of our retail holdings in and around our theatres in Canada and the US.

For fourth quarter, we completed the development of the Four Seasons Station 18 in Greensboro, North Carolina, and also entered into agreements for the development of a 9000-seat live performance amphitheater in Hoffman Estates, Illinois. During the year, we also received an $8 million return on investment related to our financing of the development of three properties for Southern Theatres, which were subsequently permanently financed with go-zone bonds. As we discussed, we agreed to enter into this transaction to allow Southern to take advantage of this highly attractive financing, which was made available for the Hurricane-ravaged areas of the Gulf Coast. We are earning an ongoing fee on these theatres by providing a guarantee on the bonds, and these payments are secured by mortgages on the properties.

While agreeing to the go-zone bonds removed three theatres from our acquisition total, it permitted our tenant to secure this advantageous financing and cemented our ongoing relationship with Southern Theatres, along with demonstrating to the exhibition industry that EPR understands their business strategy and can provide innovative solutions to their capital needs. We also financed approximately $208 million in recreational properties in 2007, including additional investments in ski properties and our investment in the Schlitterbahn Vacation Village in Wyandotte County, Kansas.

Highlights of the fourth quarter included our $31 million mortgage with Peak Resorts which is secured by seven metropolitan ski areas comprising approximately 1400 acres.

In 2007, we also invested approximately $100 million in specialty properties, including our acquisition of various vineyard and winery properties in our fourth-quarter acquisition of a 50% ownership interest in a joint venture that currently owns 12 public Charter schools.

We continue to see significant opportunities for investment in 2008. As you can imagine, the disruption in the credit markets and the related withdrawal of many of the alternative capital sources has generated an increase in the number of inquiries for acquisition and development financing. We continue to evaluate these opportunities and maintain our overall capital investment forecast of approximately $250 million.

With regard to occupancy, we are again pleased to report 100% occupancy in our theatre assets and an increase in our non-theatre retail assets to a 99% occupancy rate.

With that, I will turn it back over to David.

Thank you, Greg. Thank you, Mark.

Before we go to Q&A, I just want to make one remark about our dividend plans for the coming year. The Board has not had a chance to meet on this topic, and so there could be no assurance of results, but I do want to point out that we've had a very definite history of raising our dividend annually in the first quarter, consistent with our increases in FFO per share and achieve a payout ratio around 75% of it. Based on the fine performance for the year you just heard reported and the robust outlook for the coming year, I expect we will be back with you soon with an announcement in this regard.

Now, with that said, I will open it up to Q&A. Nikita, are you there?

(OPERATOR INSTRUCTIONS). Ambika Goel.

This is Ambika Goel with Michael [Billerman]. Given the writers strike, is there any impact to future theatre development projects?

Ambika, at this point, we don't see anything. As we had spoken I think at several times, if the writers strike had extended out to probably six months or so, it could have impacted us. But at this point right now, our relationships with the studios and the discussions that we're having indicate that there is really no impact -- shouldn't be or much of an impact on the exhibition season.

Yes, and unlike television, basically the industry operates with 9 to 12 months of product in the can, so they will absorb this (inaudible) just put things into more rapid production going into a strike outlook and coming out of a strike settlement. So it doesn't expect to affect the year '08 or '09 beyond. So things are pretty much motoring on in spite of that.

Okay. Then on the amphitheater investment, could you give some more background on just what expected cash flow coverage is, what's the length of the mortgage and the rate as well?

Yes, just (inaudible) I guess background on coverage, it will operate about 110 to 120-day season, consistent with most summer-opener business type things. The rate is running at LIBOR plus 350.

That's during development.

-- during development, and our expected coverage upon completion is really, astoundingly for the season, is about going to be 2.0 cover. We're very excited about that, and the note extends through 2029, Mark?

Yes, a 20-year note upon completion.

Again, as we've talked before, this is a lot of ways a mortgage that's structured like a lease, so you would see a lot of indicative terms of our lease in a mortgage closing.

Okay, great. Then if we think about your mortgage balance of $325 million, can you split that out between what's actually fixed and what's floating, if we think about how LIBOR is moving and the fact that you have very -- you have nothing on your line of credit at this point?

Sure. Of the $325 million, approximately about $100 million is LIBOR-based.

Okay. Then just on the go-zone bonds, I'm not sure if I pronounced that correctly, but how are they reset on a weekly basis?

They are like similar to a seven-day low floater on a municipal bond or an IRB, so they are reset and basically we are paid a spread on that, so our number isn't reset monthly. It's really what our tenant pays. So the amount that we receive is fixed. It's just the difference is the change in the spread. So, they pay a month in arrears on those, so we see that we have visibility to what that reset is.

Okay, so this has nothing to do with what's going on in the auction rate securities market?

No, no, no, not at all.

Okay, I just wanted to clarify that. Thank you.

Paul Adornato.

Good morning. Back to the amphitheater business, could you tell us how many of these outdoor amphitheaters there are in the country and what kind of potential you see with either with this operator or others?

Well, the number count, it depends really where you want to draw the lines with regard to the characteristics of them, Paul, but probably conservatively, there's something on the quarter of 100 of these facilities around the country.

There's 100 facilities, amphitheaters. There's not very many like that are being resized like we're doing.

Right. I mean, of the generation we're talking about, this new generation, there's virtually none. I mean, I think what we're doing, in terms of with all fixed seating, the amenities, the foodservice there will be upgraded from normally what you have available. The covered nature of this, able to reliably play at [states], paved parking as opposed to grass fields and all fixed seating as opposed to lawn seating, this will really upgrade the outdoor amphitheater market -- I think what patrons are looking for, we believe, our customer believes, so it will really be a new generation.

We will have this one open for the '09 season. We're looking at some additional sites but probably grow this conservatively over the first couple of years, maybe with a couple additional but we will just have to see from there how rapidly it rolls out.

Do municipalities ever offer own these facilities or do they get involved in financing them?

You know, it really depends. If you look at -- I mean, there are some of those that are leased facilities. If you look, a Live Nation has several of these traditional outdoor amphitheaters that are the 20,000 to 30,000-seat amphitheaters, and just what we're -- when we are talking to people in the industry, those are now -- they lack the amenities or they are wrong-sized for the touring acts that are out there right now. Therefore, their lack of amenities with the covered aspect and things like that are sometimes not viewed as favorable, either by the patrons or by the touring acts, so our discussions with all of the parties have lead us to come up with these ideas and be supportive of the capital needs of this kind of regeneration of venues.

Have the number of touring acts been steady over the years? Can you tell us a little bit about the content side?

Yes, I will just tell you the content side, I have to go really to our partner, Jam Productions and so forth and their bookings of them, but we've looked at bookings for the past several years at particularly in the Chicagoland area and the venues that had to play or have been forced to play and what the alternatives have been, and it's very steady. I don't know, Paul, that I've really got a number to report to you on the number of acts, but it's a very strong profile, and we expect to achieve total bookings on the 110 or so available dates. I can't remember; I think it's around 70 bookings --

75.

-- 75 bookings for the dates during the summer, so it's a variety of performance acts of music and also comedy and so forth.

A while ago, you guys were involved in a gaming license in Wyandotte County. Could you provide an update there?

Yes, we're not involved in the sense there is land that's part of our land that's involved in that. That process, by way of update, there was a vetting process by which proposals were submitted to the local jurisdiction. Of those, three were forwarded to the state for selection of those three. The gaming operator, Pinnacle, was one of the three that has an agreement on our site.

That's right. They have optioned land that we have under control with Schlitterbahn for their casino location.

Now, while there's no definitive time line, it's anticipated that, by midsummer, that selection will be made by the state, and the various gaming parties will be able to move forward.

Okay. In the past, you've said that your entertainment options are more recession-resistant than others. I was wondering if you could provide an update on your view of the economy and kind of what you're baking into your assumptions for '08.

Well, in the primary industry, Paul, I've got to tell you '08, it being an election year, traditionally the film-exhibition industry usually takes a little bit of off during an election and a summer Olympic year. It's just because, particularly in the key summer season, there's so much competition for attention and for air time that -- for publicity -- that Hollywood backs off just a mite. So we're really looking really probably for '08 to be more of a flat box office year than a year of a great step forward, but that's very consistent with historical patterns.

But overall, right now it's demonstrated by the performance in '07, particularly even in the latter half of '07 and so far year-to-date the box office is very strong in '08, but we are not seeing really any kind of fall-off in the industries that are key to us in terms of tenant representation. We are not seeing any fall-off or looking for any fall-off due to the economy in '08. But probably a little more flat for the box office, which is really key for us.

Okay, great. Thank you.

Anthony Paolone.

Thank you. Good morning. My first question is can you go through your deal pipeline, I think, and tie it into for instance how much development spending is expected for 2008? I just want to kind of understand. Of your (inaudible) I think the $250 million for the year, how much of that is visible right now and what does the deal flow you're looking at look like?

Well, Tony, right now I would say we've probably got eight to ten theatres deals that we're looking at -- some standing, some development. I mean, we've got properties across the board in all of our categories. We've got some Charter school opportunities. We've got vineyard opportunities that we're looking at. I think --

Those would both be standing (multiple speakers).

Yes, those are all standing properties (multiple speakers). Our really only development properties are theatres, and I would say, of the ten (multiple speakers) -- well, that's not announced, but I said, of things we're looking at, I would say probably of those 10 to 12 theatre deals that we're looking at right now, probably 60% to 70% of those are theatres deals. So if that's $100 million to $125 million, then you're probably looking at $75 million to $80 million of that is development, of that $250 million overall.

Yes, it's about a third.

How much in development spend is kind of already budgeted on the books for deals that you've already entered into, like the amphitheater for instance, like how much will you spend on that in 2008?

It looks like about $12 million in 2008. I'm looking at our numbers here.

Yes, because it is going to extend over in '09. That's about right.

I would say it's probably close to a $100 million this year of development spending. It's in the plan.

(multiple speakers) carryover.

Or planned, that's already signed.

Okay, so I'm just trying to understand like the visibility on the $250 million. It sounds like $100 million you already have visibility on. Is that how I should take the comment?

Yes, I mean I think $100 million we are probably already committed on, and as I said, these new deals that we're looking at and other opportunities probably will get us to the $250 million if not beyond.

Okay. Then how about, in terms of cap rates, have you seen any ability or do you foresee some ability to start pushing rates up (multiple speakers) environment?

I would say, as we've talked before, we didn't really ride down when the rates went down. We are seeing a little upward -- you know, when he said we were 9 to 10, I think we're moving up that closer to 10 as opposed to downward to 9 as we're looking at new deals. I think you'll see us move back into that range.

Yes, on average, we were probably closer to 9 for awhile, now on average we're probably closer to 10. So it's moved up on the order of 50 basis points in terms of the kind of median or mean cap rate we are achieving.

Okay. Then shifting gears, any update on just how your skiing operations are going? I know it's a little bit easier to track box office and things like that. Can you give us some color on how skiing is performing this year?

Well, it seems to be -- you know our early indications are that it is going to be a record year because the weather has been very cooperative across most of the United States. Also, as kind of the previous question kind of made with some of the economic pressures, we are seeing more people kind of use the daily metropolitan model as opposed to spending larger dollars to travel to resort destinations. So you know, through December, when we looked at that, I think all of our properties were up over last year and we felt really good about where they were going.

Except for I think St. Louis (multiple speakers)

Yes, that had a great January (multiple speakers).

Okay. Then Mark, on the balance sheet, I think there's a slice of your mortgage debt that could be paid later this year, or there's some accelerated payment. I can't remember exactly the terms but can you refresh us on that?

Yes, we have a $90 million maturity in July. I say "maturity". Technically, it's not a maturity. If you don't pay it off, it goes into hyper amortization. The hyper amortization, the interest rate increases if you elect not to pay it off by 200 basis points. I think the net cash flow impact of that is something in the neighborhood of $12 million on of an annual basis, is kind of what that would be if you continue to basically -- what they require is all revenues from those theatres that are secured would go to pay down the debt, and that's about -- that cost of about $12 million.

All that being said, it's not our expectation for those (multiple speakers).

Our expectation is to pay it off in July.

Absolutely.

Right. On that note, can you just maybe -- you touched on going to staying out of the CMBS market for debt. Can you just give us a little bit more detail on who you go to for debt right now, what they are willing to underwrite on an LTV, what kind of coverage they're looking at and rate?

Yes, I'll give you an example. On the wine loans that we're looking at, we're getting a good reaction from a group of banks, and the loan-to-values are strong, in the neighborhood of 65%, mid 60s. So that market -- with CMBS kind of having its difficulties, that market has been available to us and as I mentioned my remarks, we will probably continue to utilize that.

Okay. Then just the last question, on the dividend, David, you mentioned shooting for like a 75% payout. Is it fair to kind of just look at it like your FFO guidance for the year and take 75% of that as a decent proxy for where that might come out?

Look, Tony, I think that's not an unreasonable position. That's been consistent with where it's been, so that's a good basis at least of (inaudible) to look that.

The midpoint (multiple speakers).

Okay, great, thank you.

(OPERATOR INSTRUCTIONS). Jon Braatz.

My ski property question was already asked. What about the vineyards, the performance of the vineyards? Has that met up to the expectations and your performance there?

Yes, so far, Jon. I mean, we are in -- it's fairly still early in those investments, but the performance thus far is at expectations. Actually, the metrics overall, as we monitor that industry, is positive. Things are moving strongly with regard to pricing, consumption, and that all is despite what might be considered -- as people talk about whether we're in a rescission or not.

I think you said there is an expectation that there will be increased investments in that area in 2008?

Yes, that's correct.

Okay. Secondly, do you see the possibility or likelihood of sort of a new investment category in 2008 emerging, something beyond what we've seen to date and what we saw last year, a new sort of entertainment property category, so to speak?

Well, I said -- you know, we've been saying for a couple of years as some of these have been emerging, the ski or the vineyards or the Charter schools, that we've tried to preview people that we've had a variety of kind of works under study. I don't think we are entirely through with that, but I'm unsure. Most of these have taken -- you know, we started looking at them, we thought we would be at a year to year behalf and they probably to 2 to 2.5 years to kind of mature into something where we thought we knew enough and had the right opportunity we wanted to invest. So they've taken longer than usual, so I don't really know. We still have a couple other industry under-study, but right now I think the focus, the pipeline we have right now is highly oriented towards those things that you've already seen us invest in, our core business, core theatres, as Greg mentioned, and then also the vineyards and the Charter schools, and ski properties as well. So I think that's going to probably be -- it's possible but I don't have anything to really lead you to at this time.

Okay. To the extent you exceed your $250 million goal for investments this year, to the extent you exceed it, would it be more as more in the theatre properties or the ancillary properties?

Jon, it's Greg Silvers. You know, it's hard to say at this point in time. Part of that is a function of kind of where those opportunities exist. As you recall, and the ski and the other recreational-type properties are kind of opportunistic. They kind of show up as those things show up. The theatre is a little more programmatic and it's a easier for us to see that right now. So when somebody presents something of needing a financing or a capital solution, then we kind of apply our metrics and see if it makes sense for us. But on those opportunistic things, it's kind of hard to forecast those.

Okay. All right, thank you very much, Greg.

Ambika Goel.

Just a couple of follow-up questions. Is there a limit to the number of different entertainment property types that EPR is saying we want to max it out at this level? How are you, relative to where you start feeling a little uncomfortable on a different number of different entertainment types of investments you have?

Well, I hate to put up a lot of fences to keep us confined such that we can't take advantage of opportunities. So I don't know -- as I've said before, we don't really -- our investments have not been guided by an asset-allocation model. I don't know that we really have one. It's really been guided by what we think is sound investments, consistent with the principles we've set forth repeatedly, and the yields that we've demanded out of our investment portfolio. So it's possible.

Could it be that we've had bits and pieces of -- whether it's bowling or something, could we end up doing more of that than we are really calling out right now, or other areas of recreation, entertainment or otherwise? It's possible.

So I'm not putting hard lines around it, but we would have to feel comfortable. As we've said, we're not interested in categories we don't think there's a material opportunity in that's can be meaningful for our shareholders, that we think is kind of in a whole emerging category of properties as we've described in our five-star underwriting.

So I know there's not really a limit that we have that we only can have four areas or something like that. It just has to be that there's a material opportunity, we think we have the requisite expertise, or partners, and we are prepared, then, to the look at new areas.

Okay, great. Then, on the Charter school investment, can we get an update on that, just how the schools are performing?

Yes, again, they've been in the hopper now for all of just a few months, but they are doing very well. We've had senses, hard senses for purposes of state reimbursement is taken in September.

I think occupancy is up, enrollment is up; now we're up. I think we acquired these at an occupancy -- or I say occupancy, kind of student enrollment of about 70% to 75%. We are now moved to the high 80s (multiple speakers) 88% of capacity. So the model is playing out exactly like we thought. When you introduce these new alternatives in certain areas, they are embraced by the community. As the word gets out that they are delivering quality education, the enrollment -- and part of that is as we talked about early on, how you're adding grades and so when I say 88% of capacity, it may be that 100% is not achievable for a few years just because you haven't introduced those grades, but we're very comfortable with the occupancy that we're running.

Two of the schools, two of the 12 are going to undergo some level of (multiple speakers).

Expansion --

So we're very excited about that. So it's moving the right way, need for expansion already, and increased occupancy, so -- in terms of capacity.

And solidifying (multiple speakers) performance is on track, minority (multiple speakers) working with that category or investment here. If reminds me our great performance tracking is also very solid and according to what we expected of these properties and their operations as well.

So again, it's very new but we are tracking it and it looks very good. We're into the -- you know, we will probably get our main data point on this come kind of at the end of, yes, August and September, where the schools report on their census and also their testing.

Okay, and then on the amphitheater investment, I think you mentioned that, in the same city or nearby where nearby Hoffman Estates, where the new amphitheater is going to be, there was an old amphitheater.

Yes.

Why was the old amphitheater raised?

Well, it was actually a redevelopments project. If you recall, there's now, the Sears campus when they took that down, they redeveloped that for a higher and better use with a [Cabellas] and a large-scale retail project that increased the density and rental rates over a concert venue.

Okay, great. And then just a request -- do you think maybe you guys could integrate something into the quarterly reporting where you give an update on each business unit, for example skiing, you could update us on attendance and for the winery something on how the vineyards are performing?

In terms of the actual Q or K or do you mean just verbally?

Either.

It's probably more appropriate and for the conference call type discussion but I think we can do that.

Okay, great. Thank you.

It appears there are no further questions. I would now hand the call back over to Mr. Brain for closing remarks.

All right, well, thank you all for joining us. We always appreciate talking to you.

I'd just mention also to you, right now, scheduled -- I am scheduled to be on CNBC this afternoon at 4:40 PM Eastern, 3:40 PM Central. What does that make it? 1:40 PM Pacific, but a little interview on CNBC, so we will talk further about the Company, its quarter and year performance and the outlook ahead, so you can look for that additional data point if you are around a CNBC outlet.

Thanks and we will look forward to seeing you soon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.