EPR Properties (EPR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Entertainment Properties Trust earnings conference call. My name is Britney, and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS)

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. David Brain, President and CEO of Entertainment Properties Trust. Please proceed.

Thank you very much. Good afternoon all and thanks for being with us today. This is David Brain. I'll start with our usual preface. And that is we begin this afternoon let me inform you the conference call may include forward-looking statements defined by the Private Securities Litigation Reform Act of '95, identified by such word as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms.

The Company's actual financial conditions and results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause results to differ is contained in the Company's SEC filings, including the Company's report on Form 10-K for the year ending December 31, 2008.

All right. Thank you for joining us. We appreciate your investment of time and interest. As always, I hope this new timing of our quarterly call turns out to be convenient and beneficial for all.

As we announced on our call last quarter we are changing the sequencing of our call to more immediately follow our press release outside of the trading day to provide for a more informed market.

To provide you all the Company news and updates, with me, of course, are Greg Silvers, our Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

Thanks, gentlemen. As we get underway this afternoon I'd like to remind all and direct you once again to a simultaneous webcast that's available to you via our website at EPRKC.com. If you can, please go there now to catch the visual as well as just audio portion of the presentation.

There you'll see a slide going over our headlines for the third quarter for EPR for 2009. First headline is the Company raised substantial equity in the quarter, $50 million, reducing leverage and increasing transaction capacity.

Number two, fundamentals for the vast majority of our portfolio continue to outperform most retail categories and the economy in general.

Third, substantial non-cash reserves were posted for unrealized but possible losses on assets that large were already negligible earnings contributors and/or removed from guidance.

Fourth, the cinema industry expected to reach a tipping point in 2010 for new content due to digital conversion financing placements.

And the fifth, EPR's recurring FFO and dividend paying per-share capacity outlook for 2010 is an increase over 2009 by about 1% to 4% before considering our growth opportunities.

Now for this news beyond the numbers I'll go to my first headline, and that is that the Company raised substantial equity in the quarter, $50 million, reducing leverage and increasing transaction capacity.

During the quarter, EPR utilized its direct share purchase program to raise an additional $50 million of equity. We sold about $1.6 million shares and an average price of about $32. These transactions are very important in their contribution to our liquidity, our stability as we reduce our leverage position and create capacity in the Company to resolve issues and execute growth transactions. This brings the total equity raised from 2009 to date to just under $100 million.

Turning to a second headline, it was fundamentals for the vast majority of our portfolio continue to outperform most retail categories and the economy in general. Well, during the third quarter cinema box office slowed a bit from its [toward] pace in the first half of the year, but did keep up a decent pace compared to retail generally.

Q3 2009 box office was flat compared to 2008, but that left the industry up over 7% on a year-to-date year-over-year basis as of the end of fourth quarter.

For your information to date in Q4 the box office is tearing it up again, right now up over 9% over the prior year. There is also news this quarter about our public charter school portfolio. The third calendar quarter is when we get our first enrollment counts for our public charter schools. This, of course, substantially determines the reimbursement revenue for the school year.

Our aggregate enrollments were right on top of where they were last year. About 12,700 students representing 86% occupancy this year compares with 12,900 students, 87% occupancy for last year. This level of performance correlates with about a 1.8 times coverage of their rent obligation, a level with which we are comfortable and is consistent with our underwriting.

I'll turn now to our third headline. Substantial non-cash reserves were posted for unrealized but possible losses on assets that largely were already negligible earning contributors and/or removed from guidance.

EPR is, in its third quarter results, taking non-cash charges and creating reserves of nearly $100 million. These are for unrealized losses that might occur in the future. They are almost entirely related to two portfolio positions; our downtown Toronto theater-anchored mixed-use project and our investments in New York with Louis Cappelli.

In terms of current earnings impact, these assets essentially have not mattered. Please remember that, as we communicated before, these assets had largely or entirely been taken out of our earnings guidance and/or had virtually no contribution to earnings throughout 2009. It is also unsure that such loss provisions will ever be realized.

Despite these noncash charges I want to be clear that we expect to pursue collection and realization of all of these items in full. We are posting these charges and reserves, however, to get ahead of such issues. Or said another way, to move beyond these issues.

We are actively and aggressively moving forward to advance our core business interests and will use these positions to resolve these asset situations. It is important to understand that absent these noncash charges, the Company is on track with its recurring FFO per-share guidance adjusted for delevering capital raise as well as the timing of the Toronto project receivership process that we do not control.

Based on all that we now know, including our recent equity sales and adjusting our estimate of the Toronto property receivership conclusion to the end of the calendar year, we are now revising our recurring FFO guidance for the year to $3.35 to $3.40 per share for 2000-- that's for 2009.

Our fourth headline was that the cinema industry is to reach a tipping point in 2010 for new content due to digital conversion financing placements. During the third quarter '09, two major financing announcements were made concerning digital cinema conversion equipment financing. Both Digital Cinema Implementation Partners, that's DCIP, most may know it by (inaudible), announced capital formation achievements totaling $625 million.

These two entities are referred to as integrators and are the interface entities between the production studios and the exhibitors. They're established to receive payments from the studios called virtual print fees, amortizing the conversion equipment financing.

The announced financing capacity is expected to shift into high gear. The digital conversion of exhibition that has been stuck in neutral due to the capital markets dislocation of 2008.

Currently, and for a while now, there have been about 7,000 screens, or about 20% of the industry converted to digital. This financing is expected to more than double that conversion to about 15,000 screens by the end of 2010. This will bring the industry across the critical threshold we have referenced before of converting the leading 40% of screens that represent the bulk of attendance in key viewing markets.

After this happens, it's expected that major segments of entertainment content will open to the selective and premium presentation channel of theaters. With this conversion progress will come content beyond the New York Metropolitan Opera, the occasional concert and the rare sporting event that due now appear in the cinema channel at price points two to three times the average movie ticket.

It's hard to say just how big or important this will be, but there is little down that it will drive incremental admission revenues. The increased revenue streams will improve our client financial results, increase the value of our properties and advance us toward, if not through, our percentage rent thresholds.

Our last headline for the quarter concerns our outlook towards earnings growth in 2010. It is that EPR's recurring per-share FFO and dividend paying capacity for 2010 is an increase of 2009 by about 1% to 4% before considering our growth opportunities.

You know, the last year or so has been the most tumultuous for the national economy in at least a half a century, and certainly it has been likewise for this Company considering its 12-year history. Associated with the non-cash reserves and impairments I described earlier, we have between $200 million and $300 million of underperforming investments that we need and will work to get back into full contribution mode.

The timing and immediate level of some of these efforts is not completely under our control, which makes definitive estimates difficult. However, despite these few clouds and cross currents there is high visibility to a majority of very large and very positive elements.

First, the vast majority of our portfolio continues to perform at very robust market-leading levels. Second, we have a solid position of low leverage and modest maturities for a couple of years. Third, we have high visibility of several large and attractive transaction opportunities in our core lines of business.

These strong positives lead us at this time, based on our best estimates, to expect we will exhibit increased recurring per-share FFO and dividend paying capacity in 2010. We are expecting earnings growth of 1% to 4% before any accretive effective acquisitions.

The additional good news is that we have strong visibility transaction opportunities in our core business lines that could add to this level of growth in the coming year.

I'll now turn it over to Greg. Later you'll hear from Mark. And I'll join you as we go to questions.

Thank you, David. Today I'd like to begin with a discussion of our operating businesses starting with our core segment. Our primary tenant business, theater exhibition, continues to demonstrate its strength with overall box-office revenues up approximately 7% year to date over the prior year.

As we approach the last major segment of the box office calendar, the holiday season, the outlook appears strong with the planned release of several major titles throughout the balance of the year. Overall, we are pleased with the performance of our portfolio and the now demonstrated recession resistant characteristics of theater exhibition. Our theater portfolio continues to be 100% occupied.

I am also excited to report that we are beginning to see movement on opportunities for growth in our theater business. These opportunities are at various stages. And while no transaction is complete anymore until it closes, we are very hopeful that in the near future we will once again be discussing our growth, which we expect to be largely fueled by accretive theater transactions.

With regard to our Schlitterbahn investment, it has been a tale of two regions. The Kansas City park was open for a limited season this year, which combined with the cool and wet summer experienced in the area resulted in a lower-than-expected operating result. However, these results were offset by the second best year ever for the Texas parks. As a result of our restructured transaction in which we combined all of the parks, we will benefit from the Texas parks performance and have ample free cash flow to service our debt.

As the ski season has yet to begin, we have little to report beyond the numbers of last season. If you recall, last year's numbers demonstrated an overall rent coverage of approximately 1.8 times. Furthermore, as we indicated, our entire rent for next year already sits in a fully funded escrow account.

With regard to our charter public school investment, we now have our 2009-2010 enrollment certifications. And we're happy to report that our portfolio stands at 86% occupancy and should generate a strong 1.8 rent coverage.

Our total numbers reflect a reduction of approximately 200 students across the entire portfolio of schools. This reduction, however, can generally be identified as a few schools in which the local economy has experienced a severe downturn, which has caused significant family disruptions and relocations. Specifically, we've seen this scenario being played out in our Las Vegas school.

It is important, however, to remember that our school portfolio is structured as a master lease for all 22 locations. And as I stated earlier, on an overall basis the portfolio is demonstrating strong rent coverage.

As we discussed in our last conference call, our winery and vineyard portfolio continues to present challenges relative to the overall portfolio. Our current rents coverage is about 1 times, including the Havens property but excluding the Consentino properties.

From discussions with our tenants, it appears that sales continue to be good. However, there has been and continues to be increased pressure on margins, which is creating the stress on these companies.

Our winery and vineyard investments constitute approximately 6% of our Company EBITDA for the third quarter. However, our experience in this space has resulted in a reevaluation of continued investment in this category. This does not mean that we will not support our existing tenants, but rather we will look for the existing portfolio to stabilize prior to seeking any new investments.

With regard to our downtown Toronto investment, we continue to proceed through the receivership process. Due to confidentiality requirements of the process, I cannot comment on where we're at in the process. However, our intent has not changed from our previous calls. While we had anticipated becoming the owner of the property in the fall, the receiver now expects the transaction to be completed by the end of the year.

During the quarter as part of our acquisition process, we had the property reappraised. As part of this appraise-- as part of the appraisal, the appraiser considered many factors, including existing occupancy levels, signage utilization and the effects that a receivership process may or may not have upon overall evaluation.

As a result, the Company realized a $34.8 million loan loss reserve on its mortgage note receivable relating to the property, after taking into account various factors, including the appraisal and the costs related to acquiring the property. It should be noted, however, that the existing property level NOI, net operating income, is substantially similar to those levels that existed at previous appraisals. Overall, occupancy remains at 91% for the project.

The other news involving one of our entertainment retail centers is the impairment charge recorded in this quarter relating to our investment at White Plains City Center. As we have disclosed this investment is held in a partnership, and the principles of our minority partner are either personally or through related interests in default on one or more obligations to EPR.

Furthermore, these minority partners personally guaranteed the mortgage financing for this property, which at the time of the acquisition had a loan-to-fair value of over 70%. As we've previously disclosed this property has lost two major tenants over the previous year, which has placed increased pressure on the financial viability of the project given its existing debt levels.

Absent any improvement in the performance of the prop-- of the asset, we believe it is likely that the lender will require additional credit support and fees to extend the loan, which will require the cooperation of the partners. Without a resolution of our disputes with the minority partners, the Company cannot assume the partnership will act in a cooperative manner.

Given this information regarding the performance of the property and the dynamics of the partnership and the fact that the property debt is currently nonrecourse to the Company, we may elect not to further support the joint venture, which may include a decision to surrender the property at the loan's maturity.

As a result we've determined that an impairment charge of $35.8 million is necessary for this asset based upon Management's determination of the estimated fair value of the property at September 30, 2009, taking into account an independent appraisal.

The Company's remaining entertainment retail assets continue to perform very well. Absent the White Plains City Center, our retail occupancy stands at approximately 95%, and we have no significant vacancy at any other center.

With regard to Concord, we continue our discussions regarding the resolution of the Concord project. However, we have yet to reach a definitive conclusion on this matter.

With respect to capital spending plans for the balance of the year, as we've discussed previously, our plan is focused on simply completing projects that were already underway. As a result, our capital investment for the quarter was limited, totaling approximately $11.4 million. All of these investments are consistent with our stated guidance for the year. We have completed approximately $58.5 million of our previous of approximately $60 million

At this time we're raising our spending guidance to approximately $70 million, which includes certain expansions of our existing charter school portfolio.

As I indicated earlier, we are looking at some attractive acquisition opportunities. And I am hopeful in the near future that we will once again be discussing our growth strategy for the future.

With that I will turn it over to Mark.

Thank you, Greg. Hopefully everyone listening to the call is aware of our quarterly investor supplemental, which can be downloaded from our website.

We received positive feedback from many of you on our initial supplemental that was published in conjunction with our second quarter results. And we are pleased to report that we have significantly expanded a third quarter supplemental to provide even more user friendly data on the Company and its performance. We are firm believers that the more information you have about APR, the more you will like the Company.

Before we get into the details of the various line items, I think it is first important to help you understand our results, excluding the impact of the noncash charges recorded during the third quarter. We will provide additional color on these charges when I go through the variance analysis. But for now I simply want to draw your attention to these noncash amounts so you can clearly see our strong operating results.

As illustrated by the first slide, during the third quarter we recorded $65.8 million or $1.86 per share in loan loss provisions and an additional $35.8 million or $1.01 per share for an impairment charge. As such, FFO for the third quarter was a loss of $71.2 million or negative $2.01 per share.

If we add back the combined $2.87 of loan loss provisions and the impairment charge, we get back to $0.86 of FFO per share as adjusted for noncash charges, or what David referred to as recurring FFO.

A similar exercise for the year-to-date numbers results in $2.56 of FFO per share as adjusted for noncash charges. It is also worth noting that the equity we raised during the third quarter also reduced our per-share results by $0.01. Said differently, had we not issued the $50 million of equity during the quarter, our FFO per-share results would have been $0.01 higher or $0.87 as adjusted.

I will now walk through the quarter's results and explain the key variances from the prior year.

As you can see on the next slide for the quarter our net income available to common shareholders decreased compared to last year from income of $28.5 million to a loss of $66.8 million. Our FFO also decreased compared to last year from $38.9 million to a loss of $71.2 million. On a diluted per-share basis FFO was a loss of $2.01 compared to $1.19 last year for a decrease of $3.20.

Turning to the next slide.

For the nine months ended September 30, 2009, our net income available to common shareholders decreased compared to last year from $73.9 million to a loss of $28.9 million.

Our FFO decreased compared to last year from $104.2 million to a loss of $12.1 million. On a diluted per-share basis, FFO is a loss of $0.35 compared to $3.39 last year for a decrease of $3.74.

Now, looking at the details of our third quarter performance. Our total revenue decreased 9% compared to the prior year to $68.1 million. Within the revenue category, rental revenue decreased 2% to $51.3 million, a decrease of approximately $80,000 versus last year related to primarily 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 $591,000 versus $573,000 in the prior year.

Tenant reimbursements decreased 10% or approximately $500,000. 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.

Mortgage and other financing income was $11.7 million for the quarter, a decrease of $5.5 million versus last year. This decrease is due to less interest income recognized during the third quarter of 2009 due to the impairment of certain mortgage and notes receivable, offset by the growth in financing income associated with the note additional note investments made in 2008 and 2009.

On the expense side our property operating expense increased approximately $0.1 million for the quarter. The increase results from an increase results from an increase in expenses at our retail centers in Ontario, Canada, partially offset by the impact of a weaker Canadian dollar exchange rate and decreases in our expenses at other of our retail centers.

Interest expense increased $1.7 million or 9% resulting from the increase in the average long-term debt outstanding used to finance our real estate acquisitions and fund our new mortgage notes receivable as well as an increased interest rate on our amended and restated revolving credit facility.

Provision for loan losses was $65.8 million for the third quarter of 2009. We recorded a loan-loss reserve of $34.8 million on our previously impaired mortgage note receivable related to our Toronto Dundas Square project. This resulted from an assessment of fair value determined by Management, taking into account various factors including a recent independent appraisal of the asset.

As Greg described, the receiver continues to proceed with the sale of the property, and we are planning to become the owner of the property at the conclusion of the process. No income has been recognized on this mortgage note in 2009.

We recorded a loan-loss reserve of $28 million related to the three notes totaling $30 million from Capelli-related entities. In addition to the loan-loss provision, we also impaired the last of three $10 million notes, which are secured by our partner's minority or non-controlling interest in White Plains City Center as the interest payments were not received in accordance with the contractual terms.

Our decision to record the $28 million loan loss provision during the quarter on all three Capelli-related notes receivable was driven by the fact that we did not collect interest income on any of these notes during the quarter and our assessment of each loan's underlying collateral.

We only reserved $8 million of the $10 million note due on the note secured by the new (inaudible) non-controlling interest due to our estimate of the value of the collateral that would revert to us upon a foreclosure of this interest.

Recall that we earned a preferred return on this investment, and we ranked higher in the capital event waterfall, which explains why the value of our partner's minority interest in this project is not higher.

Also note that the $28 million is a loan-loss reserve and not a write-off as we will continue to pursue the collection of these notes.

Lastly, we recorded a $3 million loan-loss reserve related to $11.8 million of notes receivable that we had previously impaired during the first quarter. Interest income, which is being recognized on a cash basis for these impaired notes, was only $234,000 for the third quarter of 2009 and $597,000 for the nine months ended September 30th.

The impairment charge for the quarter was $35.8 million related to White Plains City Center. Since Greg has given you the background already, I will simply out that the accounting rules require us to write the asset down to estimated fair value, which has been determined to be essentially the same as the project's $118 million offsetting debt that is non-recourse to EPR.

If we work on the sale of our partnership interest or the lender eventually forecloses on our collateral, we would expect to deconsolidated the various assets and liabilities related to this center. I will provide more color on what this would mean to our credit metrics in a few minutes.

It is important to note here that for all the assets for which we recorded noncash charges, the grand total FFO contribution for the quarter, before such charges, was under $50,000. Clearly inconsequential.

Net loss attributable to non-controlling interests, formerly known as minority interest, was $16.1 million compared to $0.5 million in the prior year. The primary driver of the 2009 amount is an allocation to our partner of a portion of the previously discussed impairment charge related to White Plains City Center. Consistent with prior quarters, the activity in this line item related to this center is related to FFO.

Now, turning to the next slide, I would like to turn to a discussion to some of the Company's key ratios. Please note that our expanded supplemental summarizes these key rations on Page 14.

We have been reporting a number of these ratios in the past. However, this quarter we are formally introducing a couple of new important ratios, such as our AFFO payout ratio and our debt to adjusted EBITDA.

We continue to report healthy levels of interest coverage at 3.0 times, fixed-charge coverage at 2.1 times and debt service coverage at 2.3 times. Our supplemental now includes a calculation of AFFO, or adjusted funds from operations, and AFFO per share on Page 10 of the supplemental.

Given the significant noncash charges in this quarter as well as other items considered in the calculation, we believe that AFFO per share provides the best measurement of our operating performance. You will see that for the quarter we had AFFO per share of $0.85. When we divide our per-share cash common dividend of $0.65 by this amount, we show our AFFO payout ratio as 76%. This is certainly a top-notch metric for REITs that still payout a significant cash dividend.

Next I'd like to point out our debt to adjusted EBITDA ratio, which was a very healthy 5.1 times for the trailing 12 months at September 30th. Adjusted EBITDA in this calculation is defined as EBITDA adjusted for the noncash charges.

Note that the adjusted EBITDA ratio will go up if we become the owner of the Toronto Dundas Square project. However, it should also be noted that the impact of deconsolidating the White Plains City Center joint venture would be to reduce the debt to adjusted EBITDA ratio by about 0.4 times. And this would also reduce our book leverage by about 200 basis points.

At quarter end we had total outstanding debt of approximate $1.2 billion of which $1 billion was fixed-rate long-term debt with a blended coupon of approximately 5.9%. We had $73 million outstanding under our revolving credit facility at quarter end, and our book leverage was 46%.

Let me now turn to the discussion of our-- of the quarter's capital markets activities and then update you on our liquidity position.

We are pleased to report that we raised approximately $50 million during the quarter through our direct share purchase plan. We sold approximately $1.6 million shares at an average price of $31.97 per share.

This news about our $50 million equity raise provides a nice segue into our discussion about our liquidity 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 Greg described, the debt on White Plains City Center, which is nonrecourse to EPR, has a maturity date in October 2010. There is an option to extend the maturity date of this loan by two to four years under certain conditions. However, due to our disputes with the principles of our minority partner, the partnership has not been able to reach a definitive agreement with the lender on an extension of the maturity date or other key debt terms and conditions.

As Greg also described, absent any improvement in the performance of the asset, the lender will likely require additional credit support and fees. Without a resolution of our disputes with the principles of our minority partner, we cannot be assured of such cooperation, and we may elect to surrender the property at the loan's maturity.

As you can see on the next slide, we have a total of $163 million of liquidity available under our existing credit facilities and unrestricted cash. This total is comprised of $138 million of availability under our revolver, $11 million in unrestricted cash and $14 million of availability on our vineyard and winery debt facility.

When we consider our anticipated investment spending of approximately $12 million for the remainder of 2009, we find ourselves with a cushion of approximately $150 million. To be clear, this analysis excludes any spending related to the resolution of the receivership process for Toronto Dundas Square-- for the Toronto Dundas Square project or any amounts related to the Concord project.

Turning to the next slide, we are revising our 2009 guidance for FFO per share to $335 million to $340 million, excluding charges, from our previous guidance of $340 million to $360 million. This FFO guidance reflects the revised outlook on the timing of the resolution of the receivership process for our Toronto Dundas Square project, the impact of the Company's issuance of common shares in the third quarter and the impact of lower contribution from notes receivable.

Additionally, we are revising our 2009 investment spending guidance to approximately $70 million.

Turning to the next slide, we are also providing guidance for 2010 FFO per share of $3.40 to $3.50. This guidance excludes any new investment spending in 2010.

Both the revised guidance for 2009 as well as the 2010 guidance excludes any transaction costs that must be expensed or any change in the status of the Concord project.

Now I'll turn it over to David for his closing remarks.

Thank you, Mark. Excuse me. Thank you, Mark, and thank you, Greg.

Before we go to questions I just want to add emphasis to what Mark mentioned about our supplemental reporting. We have continued to take your input on this and have significantly expanded our reporting. Just as with the extensive remarks this afternoon from all of us, transparency is our goal, subject to some client confidences and guarded of minor proprietary business practices.

Please look at this supplemental. Use it. Talk to us about it if you have any comments. I think you'll find it informative and helpful.

With that I guess we'll go to questions. Britney, are you there?

Yes. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Anthony Paolone with JPMorgan.

Thank you. My first question is just on just full-year guidance. At the low end of your range it implies like I think $0.79 in the fourth quarter. And so I'm just curious, like, what could cause your FFO just sequentially to drop potentially so much?

Well, we tend to focus on kind of the midpoint of that. And really if you kind of look at our run rate coming out of the third quarter and take into account the common stock issuance, which is outstanding for the whole quarter, as slightly lower contribution on notes receivable, I think you kind of get to the midpoint of around $0.82, $0.83 for the fourth quarter.

Okay. And then on the White Plains project, can you just refresh my memory and do a quick sketch on how much you paid-- what the implied total price was when you bought it, the yield then, the yield now and what FFO is actually coming off of the asset at the moment?

The original purchase price of the asset was $165 million. I think that was a little over a 6% to 7% cap, but remember we had a preferred interest.

Yes, I think it's hard to say a straight cap rate because of the preferred nature of where we were, whether you take in total consideration or just our consideration. Go ahead, Mark.

What I can tell you is the-- with the vacancies in the project, our FFO for the third quarter was actually a negative of about $200,000. So kind of on a run rate basis on an FFO on a kind of annualized basis it would be something like negative $800,000. Of course, there are two big vacancies that make a big difference with Circuit City and Filene's. But that's where we find ourselves today.

So how much original cash did you put into the deal?

$35 million.

$35 million. Right.

Okay. So if you gave the keys back it sounds like you would actually get an FFO pickup, is that right based on the current situation?

From where we are with the leasing where it is we would have an FFO pickup. Interestingly, we'd not only have an FFO pickup; we'd also have a-- quite a big leverage decrease. That's a fairly highly levered asset. That's where I mentioned our leverage would go down something like 200 basis points just by handing back the keys.

Right. This is one of the higher-levered assets if not the higher-levered asset in the portfolio. And thus, as Mark points out, it's not only, Tony, as you say, an FFO pickup, but it would improve our debt ratios.

Who holds the note? Is it a bank or securitized?

Union Labor Life Insurance Company.

And then another question on the capital spending you outlined for $70 million for the year. Appreciate you detailing the line items in the packet. Which ones of those don't have, you know, explicit returns attached to them? I think it's Page 17 of the packet.

We're walking through here, Tony.

Just the bottom two.

The bottom two, yes. Capitalized building improvements and other capital acquisitions.

Okay. So all the other ones roll into, say, a bigger lease or note or whatever it is?

Exactly.

Okay. And then just last question on your four expirations for 2010 can you give us an early read on what might happen there?

Yes, as we've talked about we're talking with AMC right now. We have maybe one or two of those that are probably too big that we're going to downsize on. And we're in discussions with them, yet we have to kind of moderate it and see are they willing to pay the most rent for a downsized facility, or do we have other parties. And we're out there talking with other people as well trying to create some tension, Tony, with regard to that to get the best transaction for our shareholders.

Okay. Thank you.

Thank you.

Our next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Thank you. Good afternoon. First question is regarding the transaction opportunities you alluded to. I know nothing in guidance, but maybe you could frame it up for us.

Well, I mean, it's difficult to talk, Jordan about any specific ones just because we don't do that. What we can say in general is there are transactions out there. It's something that we're spending a lot of time on here lately. We think they're highly accretive. They're in the $11 million to $12 million cap zone that we've talked about. We think there are-- it's in our core area.

The two areas that we've talked about we've said were theaters and charter public schools. We think there's opportunities in both of those. And I think it-- we're positioning ourselves to take advantage of those.

And the opportunity-- the sellers are generally-- is this paper or is this just a distressed sellers or do you know?

Generally these are distressed sellers. Not necessarily properties but distressed sellers.

Right. Not distressed properties, as Greg points out, but sellers needing liquidity overall. And this is actually assets that they can realize then.

And are they one-offs or portfolios?

No. Generally they're portfolios.

And then just coming back to the Capelli loan write-downs. You said you evaluated the collateral before making the assessment and taking the reserve. I know-- and this is a measure of conservatism in terms of your write-down, I'm just interested in the fact that you evaluated the collateral and then went ahead and actually wrote it down to zero. Because I had thought on previous calls you said it was-- that this stuff was personally guaranteed and there was substantial net worth. Maybe just speak to that a little bit.

Jordan, I think as clearly as we're involved in negotiations on either these projects or the Concord project, we're getting more and more information about the level and breadth of that individual's contingent liabilities and a conservative nature. As we've gained more information we believe that was the wise thing to do to take those to that level.

And why, I guess, wouldn't the Concord fall under the same level of analysis, I guess, at this point, seeing that it is stalled?

It would. No, it would, it's just backed by a collateral for which there's an appraisal that indicates it has a value in excess of the balance of the loan.

When was that last appraisal completed?

Spring of '09, wasn't it?

No, we ended up (inaudible) since then. What's the latest date on that appraisal?

I think it was spring of '09.

I think--

April '09.

April '09.

April '09 is when our last appraisal was, so it was during the-- you know, it was still during-- while into the whole crisis period. And as Greg indicated, we have an appraisal on that asset on those that you just referenced. They're backed by a personal guarantee. There's none such reference point on those. And so we're taking a conservative position, but it's-- I want to reiterate that I said, Mark said, we touched on-- we are pursuing full collection of these items. It is an expectation. We're just going to put them in a [carrying] value of zero.

Okay. And then just lastly clarifying one of Tony's questions on City Center. Is the book value now zero?

Essentially it was written down to the debt amount. So on a fair value basis, yes, essentially zero.

Thank you.

Our next question comes from the line of Gregory Schweitzer with Citi.

Thank you. Just on the impairments, looking at the mortgage note receivable on Page 7 of the supplement, the Toronto receivable, it looks like it went down about $22 million versus the reported on the release of $35 million. Why is there that discrepancy?

Well, we have additional costs that will be necessary to the acquisition. You know, we had acquisition costs and everything that tie together to that, Greg.

Okay. And the impairments on the notes receivable, could you provide with more detail on those individual notes?

The Capelli related ones?

No, the $3 million you took on $11 million of notes receivable.

Yes, we had previously disclosed $11 million of impaired notes, which is made up of three notes receivable. And we had previously impaired those such that we were recognizing those, interest (inaudible) on a cash basis. Again, we-- each-- we do each quarter for impaired notes is look at the underlying collateral behind those and determine that a $3 million reserve was appropriate on that $11.8 million.

Okay. Do you still have around $5 million of loans out to executives?

We do of the Company, yes.

And then just to clarify on White Plains, the-- Page 18 where you list out the EBITDA for each segment, the $8.3 million for retail, is there any White Plains in there?

Yes, okay. I'm looking at the-- Page 18?

Yes, $8.3 million.

Effectively, what you're going to have in that number, EBITDA-- let's see, that'd be before interest expense, so I mentioned that the-- it had about a negative $200,000 impact on FFO. I'd have to add back interest expense to that to see what it would be on an EBITDA basis since this is pre-interest. So I think I've got that handy. Just give me a second here.

That's about-- it's about $1.7 million of interest expense per quarter, so it would be $200,000 that you'd add back. So there's about $1.4 million, $1.5 million impact from White Plains on EBITDA.

So around about 20% of the retail exposure.

Yes, about $8.3 million for-- $8.3-- 17%.

Okay. Great. And then just one more on releasing progress, particularly at the two venues that you took back. Any upsides there?

We're running, as we talked about, the Consentino property. We don't expect anything going on that due to the seasonality that we're in. We are engaging in a process on the Havens property. We've always thought that property would be easy to release or resell. And that's going through a process right now that we hope to culminate before the end of the year.

As we talked about, other than, you know, White Plains, it's been kind of steady state. You know, we're 94%, 95% occupied across the portfolio and no real significant vacancy in any-- it's drips and drabs that make that up.

Okay. Thanks a lot.

Thank you, Greg.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Andrew DiZio with Janney Montgomery Scott.

Yes, thank you. Just a couple questions for you guys. First in relation to the theater role that you have coming up next year (inaudible). In relation to the theater role that you have coming up next year, where do you see rental rates in relation to where they are now within those properties?

I think, Andrew, what we're going to see is that the properties on a per-square-foot basis, I mean, the rental rate on a per-square-foot basis will not change that much. I think what we're really going to see is are-- is it going to be a 30-screen or a 24-screen theater. So that if it operates as a 17 or a 20-screen instead of a 30, the rental rate on that will still be basically the same rental rate. We just may have to reposition some of that excess space.

Okay. And then turning to the Dundas Square, you've mentioned a couple times your expectation that you may become the owner of that, but am I correct that that is not in your 2010 guidance?

No, I actually think those numbers--

Yes, it actually is in our--

It is. Okay.

It's scheduled-- the receivership has it closing right at-- toward the end of the year. So we have to assume that we'd own it January 1st.

So everyone appreciates that due to certain confidentiality agreements with the receiver we can't make bold statements about where we're at in the process. So we're not trying to be obtuse about this. It's just they've advised us not to make too many bold statements about we're-- us being the owner.

(Inaudible) has rescheduled the process to be closing more to the end of the quarter rather than more towards the beginning of the quarter. And thus our reference to that was not under our control, and it did change what we had incorporated in. But we're not under the control of their determination of the closing timing.

Another thing to mention on that is obviously the timing of it impacts our reported FFO, but it it's important to note that the cash flow that's being generated by the property in excess of the first mortgage requirement, loan requirement, is being retained by the estate. Such that-- that'll ultimately be available to settle our note. So we benefit by excess cash flow that's being retained at the-- in the estate. We're just not reporting it-- able to report it obviously until we own it.

Okay. Thanks, guys.

We have no further questions at this time. I would like to turn the call back over to Mr. David Brain.

Well, we-- as I said at the outset, I appreciate everybody joining us. I hope this timing works out well. We're under the impression that it does, and we hope-- I'm sorry? Oh, we have another question from Jordan? Oh, I'm sorry. Operator, Jordan Sadler, is he?

(OPERATOR INSTRUCTIONS).

No. I guess we're gone now. Okay. I had some point of confusion there. But anyway, thank you all for joining us. Please, again, as I said, look at the supplemental and call us with questions. We always enjoy talking to you. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.