EPR Properties (EPR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2009 Entertainment Properties Trust earnings conference call. My name is Dan 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 presentation over to your host for today's call, Mr. David Brain, Chief Executive Officer. Please proceed, sir.

Thank you, Dan. Good morning, everyone. Thank you for being with us this morning. This is David Brain. I will start with our usual preface that as we begin this morning, I would like to 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 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 reported Form 10-K for the year ending December 31, 2008.

Let me say again, this is David Brain, the CEO. We appreciate your time, investment of time and interest. As always to bring you the Company news, with me are Greg Silvers, our Chief Operative Officer, and Mark Peterson, our Chief Financial Officer.

As we get under way this morning, I want to remind you and direct all of you as I have the last couple of quarters; again, I will just remind you there's a simultaneous webcast via a link from our websites, EPRKC.com. If you go there you also get the slides we might reference during this call as well as this, the audio presentation.

Anyway, I will start with the headlines for EPR for the second quarter 2009 and first its overall performance portfolio performance rises in marked contrast to most economic and specifically real estate industry reporting. Second is credit lines successfully renewed with significant liquidity capacity. Third is development projects progress, improving their contribution to earnings. And the fourth, major industry market transactions indicate strong value for our dominant asset theaters.

I will start with a recap of the per share financial performance for the quarter and as always, Mark follows it momentarily with much more detail. The per share FFO for the quarter was $0.86, which was in line with our expectations and guidance. This level consistent with last quarter puts us at $1.70 for the half year and on track to meet our guidance of $3.40 to $3.60 per share FFO for the year.

Now bear in mind that these results and our guidance exclude nearly $250 million of investments that have been toggled out of earnings for this same period and further for next quarter as well and about $130 million counted on for no returns, that is zero, for all of '09. These assets were toggled out of earnings not due to vacancies or lack of tenant commitment but due rather to project financing disruptions. Payments due were suspended to preserve cash and give the best opportunity to preserve long-term interests.

As these financings get restructured and resolved, we look for these assets to toggle back into earnings and contribute materially to our future FFO results. More on this in a moment.

In the news beyond the numbers, I will go to my first headline, portfolio performance rises in marked contrast to most economic and specifically real estate industry reporting. EPR's portfolio is still about 70% in movie theaters is riding a wave of positive performance in 2009. North America is loving the movies, pushing box office up about 12% year-over-year through the end of Q2.

Ahead of the 20-year trend line we often cite in talking with many of you, the trend line is about a 4% compound annual growth rate and even off of somewhat flat '07 and '08, the '09 growth has definitely returned us to trend as each month during the quarter set a new box office record.

The extra good news is that concession spending has not flagged but is also up marginally about 1%. All of this has helped bolster our rent coverage ratios and moves our theater profits further into or closer to percentage rent breaks, overall very good news for the vast majority of our portfolio and quite a contrast to most other news these days.

My second headline was credit line successfully renewed with significant liquidity capacity. We announced this line renewal about a month ago and many of you have called to discuss it. The line was renewed at $215 million total capacity, about $100 million more than the drawn amount at quarter end. It was renewed not surprisingly at an increased spread, but we were very pleased with the overall result. The line is fully collateralized and its capacity in terms to provide us the liquidity position generally we sought. Mark has more details on this in a moment.

My third headline dealt with our development projects and their progress through the current project financing collapse. As I pointed out earlier, two major investments were toggled out of earnings and FFO results for all of the first half of the year. Schlitterbahn, one of our projects previously described as a development, did open and toggle from accrual to cash pay late in the second quarter just as we had set forth in our guidance and is now most appropriately described as an investment, no longer a development project.

The three Schlitterbahn -- (technical difficulty). The three Schlitterbahn parks that we have as security are performing very well this year, demonstrating increased revenue year-over-year. Greg has more information on this.

Toronto Life Square in downtown Toronto continues to progress through its receivership process, wherein as we have discussed with you, we expect to retain the property or receive back our investment amount. This project, because of that process, is part of what has been toggled out of earnings for now. There's not a lot of update here to report except that occupancy has moved up from the high 80s to the low 90% range.

And our only true remaining development project, the Catskills located casino-anchored project Concorde progressed significantly also in the second quarter as the New York Legislature despite all of its internal wranglings and dysfunctionality that I'm sure many of you, particularly those in New York are familiar with did pass new legislation lowering our project hurdles to receive our unprecedented and unequaled 25% gaming tax rate.

To receive the only New York gaming tax rate of 25% in contrast with the normal state gaming tax rate of 68%, the project now need only consist of total spending of $600 million and employ 1000 as opposed to the old hurdle rates of $1 billion spend and 2000 jobs. This unique and advantageous tax rate of course is a major value component in addition to the land assembly and development entitlement features we have at that location.

Now due to the legislature procedural problems, this was not passed in finality until late July, so that's about the extent of the update I have for you at this time, although progress is being pursued by the developer to restart the physical project.

As it stands now, and as I have said before, this project is not counted on for any contribution. It is at zero in our guidance for 2009.

My last headline, major industry market transactions indicate strong valuation for our dominant asset theaters. I just thought I would take a moment on this call to point out several recent market transaction data points that we believe indicate value for our assets and for the Company.

Three major -- really the three major theatrical exhibition companies, AMC, Cinemark, and Regal, all three are customers, sold hundreds of millions of dollars of unsecured senior debt in Q2. AMC about $600 million, Cinemark nearly $500 million, Regal about $400 million. This unsecured paper that arguably is subordinate to our leases sold at yields of about 8.25% to 9%.

Now this occurred while our dividend yield, which although now is about 10% was nearly 13%. If you connect the dots here, we believe these trades are indicative of a tremendous value in our Company today.

I will turn it over to Greg now and be back with you in a minute after he and Mark go through their information and talk to you then.

Thank you, David. Today I would like to begin with a discussion of our operating businesses starting with our core segment. Our primary tenant business, theater exhibition, continues to outperform the general economy with overall box office revenues up approximately 12% and real attendance growing about 4%.

Our theaters continue to perform very well and while there's no guarantee that this performance will continue, we are substantially through the summer season, which constitutes a major portion of the overall year in terms of revenues.

We are also very happy to report that the Schlitterbahn waterpark in Kansas City opened in July and while we do not have any meaningful data on these early weeks, we do have data on the performance of the New Braunfels and South Padre parks that constitute additional collateral for our investment. Overall revenues at those parks are up 1% to 2% compared to last year's record performance, which should provide ample free cash flow to service our debt.

Furthermore, these strong revenues despite the general economic woes demonstrate that people are continuing to seek out entertainment value at these quality destinations. As a reminder, we have reduced our commitment to Schlitterbahn to $164 million, added the two Texas water parks as collateral, and improved the interest rate from a LIBOR floating base rate to a 7% fixed rate. We also included a favorable performance-based participation that should produce meaningful results as the Kansas City Park matures.

We now have final numbers on the performance of our ski portfolio and are pleased to confirm that our overall property coverage improved from 1.7 times to 1.8 times for the year. Overall revenue numbers were slightly down on a year-over-year basis, less than 1%, however, expense numbers were improved, resulting in a rent coverage increase. Furthermore, given the escrow provisions of our agreement, the tenant is obligated to escrow 12 months of rent by the end of ski season so our entire rent for next year already sets in a fully funded escrow account.

With regard to our public charter school investment, there is little to report on during this period as schools are generally not in session at this time. However based on discussions with the operator, the portfolio continues to perform well and the expectation is that fall enrollment will meet or exceed this year's numbers. Based on last year's enrollment that produced an occupancy rate of 88%, the operator generated a 1.8 times coverage.

Our winery and vineyard portfolio continues to present some challenges relative to the overall portfolio and while it constitutes a small percentage of our Company EBITDA, about 4% this quarter, we do have two properties from which we are not receiving rent at this time.

We continued to market the Cosentino property and have entered into temporary agreements to farm the vineyards and to sell the grape production for this season. Additionally during the quarter, Billington Imports, the parent of our tenant at our Havens property, lost the wine import contract that generated 85% of its company revenues, a matter completely separate from Havens. However, as a result, it has elected to cease operation and has stopped paying rent. The Havens investment is approximately $7.5 million and we are currently marketing that property.

With regard to Toronto Life Square, we continue to proceed through the receivership. During the quarter, the court approved the sales process with the employment of Brookfield Financial Real Estate Group as the sales agent to manage the process. It is our expectation that the marketed materials will be available shortly with an eye toward concluding the sale in the fall as we previously discussed.

With regard to the performance of the property, we are pleased to report that the theater is consistently one of the top performing theaters in Toronto and overall occupancy at Toronto Life Square is now at 91%, and we continue to make progress on leasing up the remaining vacancy.

As David indicated, we did have positive news on Concord. The New York Legislature has amended the hurdle for qualification for reduction in the gaming tax from 68% to 25%. Formally the legislation required the developer to spend at least $1 billion and employ 2000 people. As amended, the legislation reduced the spend requirement to $600 million and the employee requirement was reduced to 1000. Additionally the site was approved for electronic table games which substantially expands the gaming operations available for an operator.

We continue our discussions regarding the resolution of the Concord Project; however, we have yet to reach a definitive conclusion on this matter.

With regard to occupancy, our theater assets continue to be 100% occupied. With regard to our non-theater retail occupancy, we remain at 87% occupancy, the same as last quarter. Our significant vacancy continues to be centered at our White Plains project, with approximately 113,000 square feet of availability comprised of the former Filene's and Circuit City space. Absent these vacancies at White Plains, the non-theater occupancy rate would have been approximately 95%, consistent with our historical trend. We continue to negotiate on tenancies for the White Plains vacancies, but do not have anything definitive to report at this time.

With respect to capital plans for the balance of the year, as we have previously discussed, our plan involves simply completing projects that were already underway. As a result, our capital investment for the quarter totaled approximately $26 million, with the majority of the investment dollars, approximately $18 million, being directed to the completion of the Schlitterbahn waterpark in Kansas City.

The balance of the investments consisted mainly of expansion of pre-leased space in our Canadian centers, completion of our [Suffolk] development, and continued funding of a wine facility in Sonoma, California. All of these investments are consistent with our stated guidance and for the year, we have completed approximately $47 million of our stated plan of approximately $60 million.

With that, I will turn it over to Mark for a discussion of our financial results.

Thank you, Greg. Let me begin with a review of the numbers from our recently completed second quarter, which as David mentioned was in line with our expectations. As you can see on the first slide, our net income available to common shareholders decreased compared to last year from $23.9 million to $20.2 million. Our FFO also decreased compared to last year from $33.5 million to $30.1 million. On a diluted per share basis, FFO was $0.86 compared to $1.08 last year for a decrease of $0.22.

Turning to the next slide, for the six months ended June 30, 2009, our net income available to common shareholders decreased compared to last year from $45.4 million to $37.9 million. Our FFO decreased compared to last year from $65.3 million to $59.1 million. On a diluted per share basis, FFO was $1.70 compared to $2.19 last year for a decrease of $0.49.

Now turning to the next slide, before I get into more details about the quarter, it is important up front to understand what is driving the year-over-year decreases. As I described last quarter, we are not currently recognizing any income related to our mortgage note investments in Toronto Life Square and Concord as payments have not been received according to the contractual terms.

As shown on the slide, if we had been able to recognize income on these investments per the original terms of the agreements, FFO per share would have been higher for the quarter by $0.25 and higher for the six months by $0.50, more than accounting for the year-over-year declines. In fact, both our FFO and dividends guidance for the year reflect no income from Concord and income from Toronto Life Square only in the fourth quarter of the year.

Now looking at the details of our second-quarter performance, our total revenue decreased 3% compared to the prior year to $66.7 million. Within the revenue category, rental revenue increased 1% to $50.5 million, an increase of approximately $600,000 versus last year related primarily to additional investments we made in 2008 and base rent increases on existing properties. These increases were partially offset by reductions due to an increase in vacancy as well as the impact on rental revenue of a weaker Canadian exchange rate.

Percentage rents included in rental revenue were $211,000 versus $326,000 in the prior year. Tenant reimbursements decreased 18% or approximately $900,000. This decrease is primarily due to vacancies related to certain non-theater retail tenants and the impact on tenant reimbursements of the decrease in the Canadian dollar exchange rate.

Other income increased $237,000 o $728,000. This increase is due to approximately $300,000 in gains recognized on the settlement of foreign currency forward contracts during the second quarter of 2009, partially offset by a decrease in income related to our family bowling center in Westminster, Colorado that is operated through a TRS subsidiary.

Mortgage and other financing income was $11.2 million for the quarter for a decrease of $1.9 million versus last year. This decrease was due to less interest income recognized during the second quarter of 2009 due to the impairment of certain mortgage and notes receivable offset by the growth in financing income associated with the additional note investments we made in 2008 and in 2009.

On the expense side, our property operating expense increased approximately $0.1 million for the quarter. This increase is primarily due to an increase in bad debt expense versus the prior year of $0.3 million. Partially offsetting this increase was the impact on property operating expenses of the decrease in the Canadian dollar exchange rate.

Other expense was approximately $854,000 compared to approximately $622,000 last year. The increase of $232,000 is primarily due to an increase in property operating expenses at our Cosentino Vineyard and winery properties that are now being operated through a TRS subsidiary. This was partially offset by the fact that expense was recognized upon settlement of foreign currency forward contracts in the prior year versus a gain that was recognized in the current year included in other income.

G&A expense increased $340,000 versus last year to approximately $4.3 million for the quarter. This increase is due primarily to increases in personnel-related expense including share-based compensation as well as increases in professional fees and franchise taxes. Partially offsetting this increase was a decrease in costs associated with terminated transaction of approximately $400,000.

Net loss attributable to non-controlling interest, which was formally called minority interest, was $1.7 million for the quarter and as in the prior year relates primarily to our White Plains investment, which is excluded from reported FFO.

As I mentioned last quarter, the change in terminology on our income statement relates to the implantation of FAS 160 called non-controlling interest in consolidated financial statements but this new standard had no effect on the bottom line.

Turning to the ratios for the quarter, interest coverage was 3.1 times. Fixed charge coverage was 2.2 times. Debt service coverage was 2.3 times. All of these ratios remain very healthy.

Now turning to the next slide, I want to give you an update on our line of credit as well as update you on our liquidity position. On June 30, 2009, we successfully amended and restated our revolving credit facility. The $215 million credit facility bears interest at LIBOR plus 3.5% with a 2% LIBOR floor and includes an accordion feature of up to $300 million subject to lender consent.

The facility matures in October 2011 with a one-year extension option. The facility continues to be fully collateralized by a borrowing base of assets and is secured by a pledge of the equity of the entities which hold such assets. As a result of this amendment and restatement, we expensed unamortized financing costs in the second quarter totaling $117,000.

As a closing comment here, we were very pleased with the execution of this facility in a very difficult credit environment and we think this speaks to our bank group's confidence in the Company and the overall quality of our assets.

At quarter end, we had total outstanding debt of approximately $1.2 billion, of which $1 billion was fixed-rate long-term debt with a blended coupon of approximately 5.9%. We had $116 million outstanding on our revolving credit facility at quarter end and our book leverage was 46%.

With respect to liquidity, we continued to maintain a strong position. We do not have any debt maturities in 2009. Additionally, our only 2010 or 2011 maturity on a consolidated basis that does not have an extension option is the $56 million note related to our Concord investment.

As you can see on the next slide, we have a total of $121 million of liquidity available under our existing credit facilities and unrestricted cash. This total is comprised of $91 million of availability on our revolver, $16 million in unrestricted cash, and $14 million of availability in our Vineyard and winery debt facility. When we consider our estimated or anticipated investment spending of $13 million that Greg described for the remainder of 2009, we find ourselves with a cushion in excess of $100 million. To be clear, this analysis excludes any spending or debt proceeds related to the Concord Project. Additionally, this analysis excludes any spending or proceeds related to the resolution of the Toronto Life Square receivership process.

Turning to the next slide, we are confirming our 2009 guidance for FFO per share of $340 million to $360 million. This guidance continues to exclude any expenses related to the potential acquisition of Toronto Life Square or any changes in status regarding the Concord Project. We are also confirming our investment spending guidance for the year of $60 million, $47 million of which has been spent through June 30. This guidance again excludes any potential spending related to the acquisition of Toronto Life Square or the Concord Project.

Now I will turn it back over to David for his closing remarks.

Thank you, Mark. Thanks, Greg. Just recapping with you all as we go to Q&A, the headlines that I gave you broadly, we have had very good tenant level fundamental performance in really the most difficult economy in the last half-century. We have an excellent credit line renewal to report in a very difficult credit market. We have had progress with some of our points of challenge in the portfolio and a very good comp for the Company in the capital markets all here in the quarter.

So -- and it's also, I might reiterate as you heard from Mark's remarks and his slides, the performance change over last year is about 100% due to our suspended recognition of revenue on a couple of investments. And as these get resolved and it will bring us back fully into our prior level of shareholder results, so we are anxious to report more on that.

So one other thing that I want to mention before we go to Q&A is next quarter we expect we may well change the timing of this conference call rather than being the morning after our release of earnings, we expect we may well do the call at the time we release earnings after the close of market, so late in the afternoon. I just wanted to give you a heads up on that. We have kind of been advised that it might be a better practice to have our call more simultaneously with the release of our earnings.

With that said, Dan, we might open up to Q&A. Are you there?

(Operator Instructions) Paul Adornato.

Yes, I was wondering if, David, perhaps you could look forward and look past this crisis and kind of give us a preview of how you think it might play out with respect to Entertainment Properties. That is other companies are talking about building a war chest, etc. And when acquisitions do make sense and when there are potentially opportunistic acquisitions to be had, what do you think those might look like? Do you think they could be busted developments that others are not able to complete or traditional theater investments? What kind of a preview do you think you could give us?

Okay, Paul, I guess the best insight I could give you is that our expectation is now is the capital markets really were in a position, capital formation is not really good. So is Greg indicated, Mark also reiterated, we're just finishing our progress, our progress on projects we already have. Right now just really because of the valuation capital formation being very, very expensive, I think we're being over penalized for a couple of these development projects.

But as we clear these up and we get back and we get our pricing more in line, our expectation is we will be looking at more theater acquisitions already in some of the developed business lines and possibly also the charter schools. We know we have an option still remaining with a customer we like in that space as well, so those are transactions.

The theaters, we know of some good transaction opportunities in theaters. They really aren't distressed theaters as they are distress -- they are more stressed owners and so we do expect to be focusing on that. So those are kind of the near-term orientation I take you to as we get back to more of a reasonably priced capital and available debt market.

Okay, and with respect to the theaters that you do own, given that as you said the owners might be stressed these days, are you satisfied that they are maintaining the properties according to the contractual obligations?

Yes. Let me clarify, Paul, the stress I was talking about is not in our portfolio. It's of other theater ownership that we don't own. The theaters -- there's ownership of theaters we don't own. We are very conscious of the maintenance of our properties during this time and are very comfortable as we have been, the relationship we have with our kind of customers, our tenants that they take care of the properties. So that's demonstrative in the performance of the properties.

Paul, we're not talking about the stress of the operator. We are talking about the stress of the underlying real estate owner of those theaters. So two different kind of stresses and generally the operator is very well engaged on making sure that property is kept up and enforcing their lease provisions so that if at some point in time we want to acquire that underlying property and the lease associated with it, we are definitely going to make sure that those properties are kind of consistent with the quality that we see in our portfolio.

Really with the double-digit increases of the box office, the health of the operators is probably better than ever.

Right, that's not really what's stressed, as Mark indicates, Greg. So we think our tenant population is not in the stressed position right now. I think that's indicative is not in the stress position right now. I think that is indicative as I just referenced is all the majors going out and selling a bunch of unsecured debt at very attractive pricing is indicative of the confidence and the market in them.

Okay, and can you point to any theater transactions and pricing?

Not really. There have not been a lot of theater trades right now. That's why we have been seeing some that we think are attractive to us if we had -- if we really had the access to capital formation that we had in years past as -- but there aren't a lot of trades going on right now that I have to report to you. Greg, do you know of any (multiple speakers)?

No, no, we're getting a lot of calls about potential trades that people would like to do with us. It's just a reflection of where our pricing is and where we are going to be able to acquire those relative to our cost of capital. And right now, we are not happy with that number.

Yes, I mean this is reminiscent to us of when our stock was really overly penalized in 2000/2001, and we didn't do a lot of transaction work there because it just wasn't accretive. So too we sit a little bit on the sidelines until we get back to our pricing where it's economically feasible for us and accretive.

Okay, great. Thank you.

Mike Bilerman.

It's Greg here. I'm here with Mike Bilerman as well. Just touching on that tenants, what exactly happened with MUVICO this quarter? Revenue contribution seemed to be chopped in half. Maybe talk about that situation.

They -- (multiple speakers) one of their theaters, one of our theaters from MUVICO was sold to Cinemark, so Davie, which is a top 20 theater in the country, was sold to Cinemark. So it's no longer reporting under MUVICO.

Yes, it was just a --

A circuit like an organization of names.

Shouldn't that still fall into the top 10, right?

Yes, but we would be reporting in MUVICO -- I mean it would be reported under Cinemark not MUVICO.

That is our only lease with Cinemark. (multiple speakers)

Shouldn't that not be $1 million? Shouldn't that rank ahead of MUVICO at this point on your schedule?

No, I don't think so.

No, no, no. We have more business with MUVICO still, but we did -- one of the theaters did sell to Cinemark.

We had three theaters with MUVICO. We have two now and we have one with Cinemark.

But your lease with Cinemark should be the difference between what you had last quarter, which was $1.9 million, and the $900,000 you report this quarter, right? So it is about $1 million?

I don't know, was it the whole quarter?

I don't know if it was the full quarter even.

It wouldn't have been a full quarter because it occurred in the (multiple speakers) let us take a look at that. There shouldn't have been any fundamental change there.

No, there's no real change. There was just change of operator. (multiple speakers)

There was no mark down on the lease at all?

No.

Greg, how about the wineries? The revenue stream that you are currently getting outside of the two vineyards that are in trouble, how do you get comfortable with that revenue stream going forward? What metrics do you track? If you could talk about cash flow coverages --

Yes, look at that. We also look at kind of the level of reinvestment that people are putting into the property. I mean our other major operator of that is our Ascentia deal, which is a well-capitalized deal that has significant equity backers behind there that are putting in more capital in -- into their project rather than trying to find a way to cut expenses. So we monitor -- overall industry, we will monitor our properties. As David said, the Havens property was one in which we do know, it kind of caught us -- if we monitor the property level idea -- the property was performing fine and then the parent entity lost -- as we said, this import contract that cut out their overall revenues. So we think we have a good property. We had a very disjointed situation that occurred where you had a company that lost 85% of its topline revenues.

Yes, the good news in wine is that we don't have systematic problems in that industry. It's actually holding up very well in this economy. We have spotty performance. Havens is a very unique thing where the parent falls into financial trouble and the subsidiary, our customer, is in good shape. But it goes into the basket of -- with the parents. And so it's kind of unusual, but that's what it is. But otherwise, there is not a systematic problem in that area at all.

Do you have a sense on how much cushion they have for declines on their bottom line before they started to run into trouble with the rent coverage?

At Havens? What kind of coverage?

Generally on the other vineyards.

On the other vineyards, Greg, generally our reference, our overall coverage ratio is --

Well, I don't have that because we're just coming into what is their big selling season. So I have to get back. What we've said is historically those have been running at about a 1.5 coverage.

A 1.5 coverage.

But then I am saying do you have a sense on what would have to happen to sales, say for example, for that 1.5 to go down to 1?

Well, I don't really have that math for you. We've done that repeatedly for the theater business. We've shown you the dynamics given the variable fixed cost elements of their business, what kind of declines it would take in order to get down to a 1.0 coverage. I don't have that in the wine space to give you but given the little bit of turmoil we have had there, we will look into providing that to you.

We could do it on a total sales basis, but if you look at some of these which have -- call it eight or nine brands, it would look kind of -- you have to almost break it down by brand.

Essentially it is broken into several different operating entities.

(multiple speakers) Some of them have better -- the thing with a theater is the margin is pretty much the same across all the products. Whereas in this wine, it's not.

That's not true. Yes, you're exactly right. The upper end of the margins are completely different than the more the lower end of Ascentia particularly is one that has brands and labels across a lot of price point lines. So -- so it's not as easy as the theater, but we will look into try and provide you some reflection of that.

Great. And then just on Toronto, could you remind us again what' the total sum of the third-party equity in that project?

Approximately -- if you go -- what sets behind us, Mark, you got your calculator there?

Yes, it's 335.

335 minus 240, approximately $95 million.

Right. And then any updates on the two term sheets? Are they still in place?

I'm sorry.

(multiple speakers) and Toronto life?

Yes.

Let me comment on that. The term sheets obviously will need to be refreshed as they get the additional data that comes from the receivership process in terms of the financial information, but I will say we are in contact with those lenders and they very much have expressed a continued interest in financing that project. But they do need to get the updated numbers and refresh their term sheet, but we feel confident, still feel confident about what we've said before.

And who are the lenders behind that?

I don't think we gave that out.

We haven't disclosed that.

Okay.

[Mitchell Leeds].

Hi, guys. I am not an accountant but I am heavy with theater change stocks in my portfolio. When do you anticipate the Concord operation will go into operation?

You know, into operation is probably going to be still 18 months to two years because of the construction -- so this construction was begun and a lot of progress was made, but now it's been suspended. So it still has a ways to go. The good news was it took substantial steps still towards reflection of value during this quarter. But it's a process that unfortunately we are not completely in charge of as we've referenced before. The developer is. We do feel like the progress made is indicative that the fact this thing is moving forward and we expect -- we expect results early, but I don't really have a timeline to give you.

Okay, I have a question that's technical. I think it's technical. You used the word I believe automated tables in a casino. Now does that mean you can play blackjack at an automated table as opposed to a dealer?

Well, yes, it's table games and there are features of the ability to -- for the table games to be allowed to be also in compliance with the lottery commissions -- I guess their permission of the table games that there is some level of automation to them but there are physical cards dealt. So it is blackjack. It is baccarat. It is roulette. They are the physical table games that you see in other casinos.

Okay, but an imaginary lady. Okay, listen.

No, no, not with physical dealers and physical cards.

I've got you, I've got you. I guess that's it. I really don't have any specific question. Thank you.

Anthony Paolone.

Thanks, good morning. On Concord, can you maybe give us a little bit more of your thinking as to how this proceeds over the next few quarters, things to maybe look out for? And then also, it seems like EPR has the most capital at risk and you seem to have a lot of collateral. Why not maybe be more aggressive and just going after your capital here?

Well, I don' know. Here again, Tony, I have a hard timeline. I think indicative of one of the reasons we haven't gone after it is the progress made in the state legislature and I think it was part and parcel of the developer and his relationship with the legislature that we don't necessarily have. So there are pieces like that that are important -- that we think are important to preserve to preserve value.

So I don't really have a timetable. All I can tell you is because this is -- it is ongoing. There's events occurring on a regular, regular basis on this. This is not a static but I really -- due to the nature of the negotiations and things going on, I really can't give you a lot of insight into this. Our only progress -- my only point is I think time is everybody's enemy on this. The developer -- everything to move faster, the New York state the reason they pass the legislature they do, they are very strongly desirous of having this gaming property in place and producing tax revenue.

So there are a lot of incentives. There's a lot of momentum. The table games that were allowed, the tax incentives were allowed, they are further also grants and tax credits allowed for the project, things to help thing move along because they want it to be sooner rather than later. So with that said, it's still going to take us -- I just told the earlier caller something like 18 months, two years to get it online because of the construction process. But I don't think it's going to -- we think it's going to resolve sooner rather than later. I just don't have a timetable to offer you. We hope.

Got it, and do you think or has there been any discussions with your lenders that provided you capital to make part of your Concord investment in terms of getting that September 2010 maturity changed?

Yes, part of the discussion.

It's part of our discussions, I've got to tell you, but again, we don't have anything definitive to tell you.

Okay, then just last question on Concord, I know a number of bond markets seem to be opening up. Has there been any change to maybe the project's ability given what's gone through the Legislature to tap the industrial revenue bond market, which I think was what was part of the original financing package.

Yes, that is.

Although it gets very much an issue right now.

All those things are on the table for us, which would allow a lot of financing at a very attractive rates to get done, yes, very much so.

Okay, and then I just have a separate question. I think as you look out to 2010, it might be the first time as a Company you have notable theater maturities. I'm just wondering if you can give a sense as to how to expect that to play out.

Yes, I think we are in discussions with AMC on those theaters and we are going to see how -- what their approach is to them. I mean there are -- you know, most of those theaters are high-performing theaters. We may have some that we are looking at downsizing a little bit, but I do think they all continue as theaters and so it may create some additional opportunities for us with regard -- we've talked about before with regard to the size of the parking fields that we have and the ability to put some other things in there that we previously haven't engaged in. But we are in active negotiations -- negotiations implies -- we are in active discussions with AMC on those issues.

Tony, on some of those, as Greg indicates, some of those were the early deals we did were some of the larger theaters. Some of the density has increased in the retail model and downsizing might be in order for a couple of those. The good news is those are also done with the most liberal of parking ratios. They have -- and so the capability of -- and most of the jurisdictions in the areas they are in, the cities are interested in allowing us development. They want to see that to happen, so there will be a lot of opportunity in that portfolio and by and large they are also very, very good theaters and expect to operate as such generally.

Yes, all of our discussions are for their continued operation of theaters.

Okay, but it's not as simple as AMC just exercising like a renewal option or anything like that?

In some cases, yes. In some cases where we may have a 24-screen that probably can operate the same revenues as an 18-screen. So -- and with the parking ratios and everything, maybe we can reclaim four or five acres in the parking lot where we have interest from restaurant providers to go in to these areas. And so we can take back part of the GLA and take back part of the parking field and convert it in. But in most cases, that's the rare situation. In most cases, it is what you're talking about, just an exercise of the option.

Okay, that's helpful. Thank you.

Jordan Sadler.

Just wanted to follow up on sort of the war chest question from earlier and you spoke of charter schools as well as the theaters. I'm just curious. The color was good on the unsecured deals the operators have done. I'm curious where you would be interested in theater assets opportunistically? What kind of cap rates?

It's really a function of our -- if you look at what our cost of equity is.

And availability of debt.

And availability of debt, this is clearly saying that right now that's probably in the mid teens. So as that number comes back and our cost of equity comes down because we've never -- Jordan, we have never highly levered these things. So if we look at these things on a 50-50 basis, we'd like to see them get closer to the low teens to make the deals work what we think are on a long-term basis.

The good news, we think there are some double-digit -- strong double-digit cap rates in the 10, 11, and 12 type areas in theater transactions. And we are interested in those. We just need to have a capital formation round that's commensurate with a number like that that gives us some positive investment spread.

And lately our price is making progress towards that.

And then the good news, exactly right. We've got some things going our way and we're making progress towards that.

And those would be for assets that would be comparable to your existing portfolio quality wise?

Exactly. We don't want to move down the quality scale. I think we want to maintain kind of what we've always said, kind of top quartile market execution and with quality operators and I think those opportunities are out there. We just have to get a capital cost in line with where we think long term that makes sense.

Okay, and just beyond the new vineyard that you spoke about as having a challenge, any other additions to the watch list this quarter?

Nothing really to report. I think we have more of a single tenant in the school space. We said it is very strong. We have really a single tenant in the ski space who we said is very strong. The theater we always talked about the wine, probably if there is an area of more spotty performance as I talked about, overall there's no systematic problem there, but that's it. But again, it's a small part of our portfolio and certainly not systematic. So we don't really publish a watch list or anything like that.

We do have $11 million of notes receivable that are not impaired in terms of a write-down, but we are recognizing interest on a cash basis as we are kind of watching the cash flow associated with these notes receivable. We did receive payments this quarter, so that wasn't an issue. But we are as far as watching them since they are not paying in some cases timely, we are keeping an eye on that portfolio of notes receivable.

Would that be if default, the notes, or --?

In default? They are -- we generally work with them if we know payment is coming, so they are not technically in default. One of them we have put in default.

That was another vineyard did you say?

No, two of them are associated with a vineyard. $8 million of the $11 million is associated with a vineyard and that is a vineyard that has grown very fast. And in terms of its growth has had some cash flow issues. Again, we did get paid, but it was a little bit behind -- different than the terms of the contract. So technically it's impaired. There's no collateral issue. No write-down, but we went to a cash basis on those notes.

That's again a pretty small part of the overall landscape, and as Mark indicated, we are getting paid. It's just a little off time.

We just mentioned the watch list. We have to obviously keep an eye on someone who wasn't paying us timely.

And Schlitterbahn comes in in the third quarter from a contribution perspective, the $164 million for modeling purposes. Is that a 7% number or --?

Yes, just to clarify, we were accruing interest prior to that at a lower rate, LIBOR plus 350. So there is a nice pop that we get midyear here to a 7% rate with some participating interest possibility beyond it. But yes, 7% beginning in July.

Yes. The other thing to remember, Jordan, for that asset as we talked about is the feature that we put in that agreement is they are currently escrowing all of next year's rent -- interest payments as well. So by the time that we get out of this season in September, much like our ski asset, we will be fully funded for a year in advance.

Okay, but in the second quarter you were accruing at some other -- at LIBOR plus 350?

Exactly. Of course, it wasn't on the whole $163 million because that -- gradually we got up to $163 million. We spent $18 million on the project during the quarter, but at the end of the quarter it was approximately -- actually it was $162 million at the end of the quarter.

Sequentially the pick up will be a couple of hundred basis points then I think, right?

Yes, we'll get -- yes, I think the pickup is very close to 300 basis points.

Lastly, any update on the exposure to Cappelli outside of Concord?

No, we talked about White Plains has the vacancies. New Rock continues to perform pretty well. Payments on the notes --

We did get payments on the notes. He is still on the White Plains note that's not impaired, the personal -- the note associated with White Plains, the $10 million for that that's not impaired we got paid. And actually got paid on the other two notes. The personal notes I think you still are approximately a month behind on those two notes, but we did get cash payments and recognized some interest income related to that. So it's really not that far behind right now.

Again, those are part of the ones kind of on the watch list we are getting paid.

Okay, thanks.

Mike Bilerman.

I just want to go back to the wine business, I guess you may have some sour grapes in terms of some of the things that are not going towards the way you want them to go. As you think about Cosentino and then Havens, what is sort of the recovery value or the releasing rate effective from your prior yield that you expect?

Well really --

On Havens, we to expect a full recovery. On Cosentino right now, we -- the expectation is at least from the brokerage community that we are talking about is that we should see similar -- it really becomes a function of how quickly do we want to release it or sell it? We are holding it right now for lease. The anticipation is yes that we can get the rates that we had before; however, if we want to expedite that asset sooner, we may suffer some loss if we wanted to make it quick.

You know, Mike, these were -- of the spectrum of what we had there a little lower cap rates, so redeployment of capital could be even at a higher yield if we sell some of these. But overall again, as I say, it's not a systematic problem in the industry so it may take a little bit of patience. But the recovery on these is expected to be -- we're going to be --

I might also point out that Havens is out of our guidance completely as we put no expectation necessarily in the numbers in terms of releasing and Cosentino, as Greg mentioned, is being farmed and we have some of the farming amounts in the guidance. But certainly not any grand expectation or expectation to release. So if we were to do it, it would probably be upside to the guidance we have given for the remainder of the year.

But you are thinking about if you have a little over $20 million Cosentino invested and about $8 million gross in Havens, that if you were to sell those assets, you would recover at least par from a depreciated book perspective or that you would release it at least at the former rate?

Right, that what we're thinking now, yes.

And when we are looking at in terms of your EBITDA six months from the wineries, about $8 million or $16 million annualized, is there any other sort of vineyard or wine income being picked up? Sort of what NOI is being picked up in the joint ventures, or is there nothing there?

No, there's nothing. That's everything.

So effectively you are running this business right now at a 7.25 yield on cost?

Well, it's because in the quarter there's no Cosentino income or Havens, and that's why -- (multiple speakers)

That is why it looks like a lower yield.

A lower yield than what we do.

As opposed to what we've talked about being more in the 9 cap

Yes, more in the 9 cap range, right.

And then just going back to Cappelli, so they -- so you haven't recovered -- you haven't forced him to repay any of those loans?

We are collecting the interest, as Mark indicated, but no, there's not a principal repayment at this time.

So that was a change from -- in terms of the Cappelli loans from last quarter, where you weren't recording, and now you are?

No, last quarter -- what we went to was away from the accrual basis into the cash basis, because they are impaired and because they weren't paid at maturity we went to a cash basis. We actually got paid amounts in the first quarter and the second quarter, not necessarily timely, but we did get paid. So again, we recognize on a cash basis when we receive the money.

And so you had the full amount of the cash income in the first and second quarter?

I think we're short probably year-to-date -- we are probably about a month short. I think the July payment which was for June was not accrued because it hadn't been received in the month of June. So we were -- that would be the year-to-date difference from what it would be on an accrual basis, but it's pretty close.

And the total amount of capital that you have outstanding to him?

Well, we've got -- we have $30 million of notes. The $210 million notes we just talked about and the $10 million associated with White Plains. We've got about $30 million invested in White Plains.

But that's not to him. That's on a project (multiple speakers)

No, I thought you meant (multiple speakers)

Those are the only things to him.

Yes, that's it exactly.

Okay, thank you.

Gabe Poggi.

How are you doing? I wanted go back to the caps of the theater assets you're talking about with Jordan. You guys mentioned 10 to 12. Are you -- I may have missed this. Are you guys seeing that now? How does that relate to what you mentioned before about stressed owners? Where are those caps currently? I know you guys would be partaking in that 10 to 12 if you could get some capital formation, but can you just clarify that for me please?

I think what we talked about, Jordan, all along is that from -- sorry, Gabe, I said Jordan. I apologize -- was that from the operators if we do a deal directly with the operators, they are probably in the 10 to 11 range just because you can't stress that property. You can't -- you just kill your coverage. If you are doing a deal with stressed owners, that's when we are moving out to that call at 11.5 to 12.5.

Where lease is already in place.

Where lease is already in place so you can get a kind of 12, maybe even upwards of a 13 deal with a stressed operator/owner.

Gabe, the truth of this is until you come with money to close, its hard to know exactly where these cap rates are. We do know -- we've had some dialogue, but we are not -- as we talked about -- we're not closing any of these deals until we get really our capital pricing back. We are going to multiple back and then we will have really [fuller] -- but we do know some dialogue and yes, they are some strong at this point lower but double-digit cap rates.

Fair enough, thanks.

Mr. Borns.

Good morning, thank you. I had a couple of questions about Sullivan County. One, is the racetrack that is in the county moving to Concord or have they decided to stay where they are staying? What is New York, New York's relationship currently to Concord? Also what difference in the gambling rights that the state is going to grant are they between the Concord project and where the racetrack is, assuming that they stay and don't come? Also has the Union insurance lender pulled out of the deal? That's a lot of questions.

I guess let me take these -- Sullivan County, the Monticello racetrack that is in Sullivan County is operated by Empire Gaming New York, New York, NYNY trading symbol is decoupled from the project now. It is staying in its current location. Its connection now is there is -- they previously had an agreement to be an operator of the gaming portion of the resort as a result of that contractual termination. There is a payment arrangement that will go from the Concord project to New York, New York, but no money is flowing there at this time and they don't have any operational part.

The gaming entitlement for the resort is -- for the project is separate from the Monticello racetrack. And you asked us about the insurance company, the financing. No, they have not pulled out of the project.

Is the gaming at Monticello going to be -- are they including Indians like they were proposing? And if they are, are they going to get a different type of gambling rights than you are going to get at Concord?

At this time, I don't think anything has been announced about Indian gaming at the Monticello site. I know that's come up and back and forth for some time. The last I know of it really is in late 2008 was the decision where in on a federal level Indian gaming was not going to be allowed at that site. Now I don't know anything more to provide you at this time. There are certainly rumors about this. Gaming in the Catskills is a very hot topic and a lot of things are talked about in this regard, but I don't know.

So certainly there are occasional discussions, rumors, or ideas floated about this, but nothing that I know of to report to you on that note.

Is there anything about the relationship of Mr. Cappelli being a partner in Concord and being a competitor at the racetrack in the other location?

Well, Mr. Cappelli got involved financially as a shareowner of Empire Gaming and as it was contemplated, they were going to be the operator in the Concord. But at this time no. I don't think there's any problem for the project as a result of his involvement over the Monticello track.

Okay, thank you very much.

Rich Moore.

Good morning, guys. Just a quick one is the amphitheater project gone?

It is. We got paid back on that note fully with all accrued interest this quarter.

The developer decided to terminate. We got our money back.

Okay, terrific. Thank you.

[Rhys Williams].

Hey, really good news on some of these quote unquote problem children. You've talked a little bit about the wine industry, but it appears that's can you give me -- what percent of your overall portfolio now is really performing very, very well? And how do you think that compares to other retail REITs?

I think the thing, Reece, to focus on is it all performing -- as we talked about, the theaters are performing well. The schools, the ski, the one thing we have is there is -- and really we don't have all of our wine investments in trouble. We have a couple spots of trouble in wine as we talked about.

But if you look at it as a 96% of our EBITDA.

97% for the six months ended is from theaters, retail, ski, charter schools.

And we have talked about 100%, some of the retail, 95% occupancy there. Really this is why I say, Rhys, look about being overpenalized, we certainly have points of challenge and we've talked about these and we are working on these, but overall, as indicated here 95%, 96% coming from very strong areas of our EBITDA.

I would think there would be a lot of companies that would like to change places.

Thank you very much. I appreciate that and we think we're kind of -- as I said over penalized. I don't how else to put it but it tends to be a lot of focus on these and disproportionate really to their -- the size of the investments or the impact on the financials.

Mitchell Leeds.

Gentlemen, I was on before. You reference Concord. Coincidentally I was the stage manager there in 1957. I would like to know if you are talking about the same property as where the hotel was?

Yes, yes we are. It's exactly the same site on -- what's the lake?

Kiamesha.

Kiamesha Lake.

Are you going to run a hotel operation?

No, sir, not at all. The hotel will be run by the resort operator. We are not involved in operations.

Okay, that's it. Thank you.

[Rod Hines].

Can you talk about the leasing efforts and results on some of the space that was vacant from the Filene's Basement?

Yes. What we said is that we are in negotiations with at least two tenants for that space and we don't really have any updates on that. As you can imagine, large-scale users of that space is find themselves in high demand right now, so we are trying to figure out where we think the economics work for us. But we do have ongoing lease negotiations with two tenants for those spaces. But nothing to report at this time.

Okay, thank you.

Matt Demcheck.

Can you talk a little bit about charter school funding process and how state deficits might impact that over the next few years?

Matt, I believe it was, it's hard to say exactly. There certainly is pressure at the state level and that's where the funding comes from, but education cuts generally -- they generally start at the kind of top of the food chain with higher education and lastly work their way down to elementary education. So the key here is its elementary education expenditure levels on a state that if they change on a reimbursement per student basis, that's what would really begin to impact us.

Generally the cuts you hear about are at higher education levels. So I don't really have specifically -- we operate in a number of states. I believe 10 states with our charter school portfolio. There are varieties of stress in those states from Michigan to Arizona to Missouri, Ohio, and so forth. But we don't have any reimbursement rate cuts at elementary education levels to report to you at this time.

And what is your coverage on those properties as a group?

1.8 as of this last school year.

Okay, just curious if you have just kind of like the winery question, do you have the sensitivity analysis of how things would flow through and what kind of cut would move you closer to a 1 there or --?

As David said, we need to -- we used to do -- we used to have that and if you talk about historical, but as I said, we've had two properties that would come back. We need to -- we will freshen that and get back to you guys on that.

Yes, I'll just comment to you I don't have the math to offer to you. I have a hard time seeing that that in any kind of near-term scenario gets cut to the point it's an impact to a 1.0 cover. But the key thing is is we are right going into the season with these again -- kids will start to enroll in the schools. (multiple speakers)

Oh I was talking -- oh sensitivity analysis on charter schools. I was thinking about one. And we actually (multiple speakers)

And we actually do have that. I'm sorry, I was misquoting. We are currently running at about 88% occupancy. To get us to a 1.0 takes us down to about low 60s.

Think of the same way that's about a 25% cut in reimbursement is really what it amounts to. So if you had that kind of cut, that's almost -- that is hard to imagine.

In addition, schools do have the ability to cut expenses. They may cut a program or something to reduce expenses to keep themselves in --

Right. There are a lot of discretionary expenses.

I apologize, Matt. I didn't understand your question there. So yes, if you get into the low 60s in occupancy level, we get into approach our 1.0 coverage, so we have got -- I will tell you we are not seeing that. We are seeing our schools actually have a request for them to expand.

Yes, we are -- again, these are free to the user and in this economic environment, we think they will be well attended, well populated.

All right. And if you fund expansions at the properties, what kind of yield do you think you'd require to invest there?

Generally that's our option to fund it or they can do the expansions themselves. And if we do, it is generally commiserate with where the rate that is currently being paid at the time of the expansion.

Right. And I guess just looking forward because you brought it up as one of the two potential opportunities along with theaters, is your underwriting any different given kind of the overhang at the state budget level over the next few years or do you kind of look at it the same way?

No, no, no. We clearly -- I would say it's not different but because we start at looking at state reimbursements and the quality of that and the level that they reimburse. So that was always one of the very first things that we looked at, that there are charter-friendly states that are very aggressive and the governments are moving very aggressively to charter movements. And there are some that is not, so almost in all of these underwriting, Matt, you begin with the state analysis.

Yes, and then have there been recent transactions that you can point to kind of a yield people are getting on charter school transactions now?

Well, I can't point to any -- I can't reference any one right now, so --

All right, thanks a lot.

At this time, there are no further questions. I would now like to turn the call back over to Mr. Brain for closing remarks.

Okay, well thank you all again for attending. We always appreciate as I say your interest. We are glad to talk to you. We like to do that. We're glad to do that also between calls. We look forward as I will say again, next quarter we will probably move our conference call to more coincide with the release of our earnings announcements, which may be after close of market on the day. We'll certainly publicize that fully and we will look forward to talking to you whenever you like but particularly next quarter. Thank you very much.

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