EPR Properties (EPR) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q1 2010 Entertainment Properties Trust earnings conference call. I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today, David Brain, Chief Executive Officer. Please proceed, sir.

Thank you, Katrina. Good afternoon and thanks all for joining us. This is David Brain. I'll start with our usual preface and that is I need 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 conditions, results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of factors that could cause such actual results to differ materially from those forward-looking statements is contained in the Company's SEC filings including the Company's report Form 10-K for the year ending December 31, 2009.

All right. I'll say again thank you for joining us. We always appreciate you tuning in. With me to provide all the Company news are Greg Silvers, our Chief Operating Officer,.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

I'll remind you again, there is as always the simultaneous webcast at our website at EPRKC.com. There you'll see a visual dimension of the presentation. If you can, pick that up, it will be helpful.

I'll start the call with our first quarter 2010 headlines for Entertainment Properties Trust. First, earnings and business operations are in line with expectations and guidance, despite some complexities in appearance and reporting. Second, portfolio tenant fundamentals continue to outperform general economic and retail data. Third, portfolio acquisitions outlined in our recent stock offering were completed and significant opportunities remain. And fourth, the Toronto Canada Dundas Square acquisition was completed as planned and discussed in our prior calls.

I'll elaborate on these headlines a bit, Greg then will review the portfolio and recent transactions in detail, Mark will go over financial results and of course we'll take your questions following all that. I want to start, though, going back to our per share performance for the quarter, that's in the first headline. Seems almost like an odd coincidence, so I want to clarify for those of you who might be looking at our press release that the additions and take-aways translating FFO to its as adjusted form are equal, both of them are equal to the same $0.78 a share.

You'll note both the pluses and minus largely the result of the same event, the purchase of the equity interest in the 10 Dundas Square project in Toronto. A project in which we previously just held a Mezzanine loan position. Our resulting payout ratio for the quarter of 83% is a touch higher than our usual position in the mid-70's but one with which we are comfortable at this time as we have significantly lowered leverage and look forward to the annual effect of some acquisitions and the realization of further growth.

Now, before leaving the earnings topic, I want to make one additional important point and that is that our White Plains, New York investment, which is the theater anchored retail center, further is the only one in our portfolio that can be described as dominated by soft goods and fashion retail, is dragging down our credit statistics, our reported FFO with non-cash charges, and looks to continue to do so until we can get to a point of eliminating it from our financial statements. We've spoken about this project often and I'll summarize it to say that this was a highly levered project when we bought controlling interest and it has incurred two major vacancies, Circuit City and Filings Basement that has rendered it uneconomical beyond the nonrecourse loan value, in our opinion.

We are not supporting the project with any further cash expense or investment, but we are still carrying its leverage and book losses in our reported financial results and likely to do so until the mortgage loan matures in the fourth quarter. You should know that without it in our results, our FFO would be increased by $0.04 to $0.82 a share. Our leverage ratios would fall by about 300 basis points and our debt service coverage would be improved by about 0.2 times.

Now, taken as a whole, I want to express that our reported results for the quarter are consistent with our plans, expectations, and guidance. Now, our second headline today dealt with the stellar performance of our investment portfolio, particularly as compared with the economy and retail generally.

Our primary investment industry, the first run exhibition industry, continues to provide a great show. Year-to-date, box office is up 7% over last year, which if you'll remember was up 10% over 2008 for the full year. That's become so repetitious, begin to feel like old news. In new news, we can now report to you that our ski properties are reflecting very strong results, through the end of March, which is nearly the end of the 2009-2010 season. With admissions and revenues both up about 7%, another great portfolio performance.

My last comment on portfolio performance leads me to also the third headline where I said portfolio acquisitions outlined in our recent stock offering were completed and significant opportunities remain. That's because my final comment about portfolio performance is that enrollment utilization of our recently acquired charter public schools is 86%, very consistent with the level with which we talked about all of our other charter public schools investments.

Our recently acquired public schools are five schools for an investment of approximately $44 million the this Q1 purchase was the second installment of the two investment transactions we outlined in our November 2009 common stock offering. The good news is we got this transaction closed. The even better news that is we have visibility of additional opportunities in several of our established investment categories that makes us comfortable and confident in our guidance of about $125 million of additional acquisitions through the balance of the year.

Now, my last headline also concerns rather the completion of a transaction in the first quarter. And that is the Toronto Dundas Square acquisition was completed as planned and discussed in our prior calls. Talked a lot about this asset and I won't go into a lot of detail here but I just want to be clear, that this has been a well performing asset. We've been unable to recognize its performance in our financials due to an unfortunate series of really unexplainable decisions by the property's original equity owner that led it into receivership and we're pleased to now have it as a consolidated part of our portfolio having bid our loan. With those comments I'll turn it over to Greg and then further to Mark and I'll be back for Q&A.

Thank you, David. In the first quarter of 2010, we continued to execute our plan of acquiring high quality properties in our two primary asset classes, theaters and public charter schools. Furthermore, our existing portfolio continued to demonstrate its resilience in today's economic environment. I will discuss overall performance later, but first I would like to discuss the major acquisitions for the quarter.

On January 21st, we completed an additional investment of approximately $48 million with Imagine Schools. This transaction involved five schools with a cost of approximately $44 million, located in Florida, Indiana, and Ohio, as well as a commitment to provide approximately $4 million of expansion capital for two schools. The investment was structured as an addition to our existing master lease which is triple net in design and passes substantially all of the obligations for the expense and operation of the property to our tenant.

On March 4th, we completed our acquisition of the Toronto Dundas Square project by paying off the existing first position construction financing. The property is a 13 level entertainment retail center anchored by a 24 screen AMC theater that is located in downtown Toronto. It contains approximately 330,000 square feet of leasable square footage as well as 25,000 square feet of static and digital signage.

As we discussed in previous calls, we along with the construction lender, place this property into receivership when the developer was unable to execute a refinancing of the property. Given the nature of our receivership it was very difficult to execute a cohesive plan for the long term success of the project. As leasing property management and signage management were all handled with temporary service providers that were focused on marshalling assets rather than positioning the asset to achieve its best financial results.

Upon acquiring the assets we have selected three different groups to manage these functions, each of which bring a wealth of experience to the property. Specifically with regard to signage which constitute a major component of future NOI growth we have retained Clear Channel of Canada to manage our signage assets on the square. By affiliating with such a large advertising platform, we believe that we can leverage our assets as a component of a larger advertising campaign, which should drive utilization as well as rate.

In addition, subsequent to the end of the quarter, we advanced approximately $15 million to pay off the mortgage financing on our Contera property which is held in an unconsolidated joint venture. We're currently working with our German partners to identify a substitute financing strategy for the property. I would now like to discuss the portfolio and its performance for the quarter. The box office continued to demonstrate its strength through the first quarter with overall performance up 7% year-over-year.

Box office receipts continue to be strengthened by the introduction of additional 3D project which is also accelerating the digital conversion in many theaters. As we have discussed before, we are very pleased with an acceleration of this conversion as it brings us closer to the widespread rollout of alternative content which could significantly drive top line revenue at our theaters and enhance our chances for percentage rent. As David said, we now have preliminary numbers for the 2010 ski season. And the results reinforce our message of the strength of the metropolitan daily ski model. Through March year-to-date ski revenue is up approximately 7% and skier visits are up approximately 8%.

As we discussed at our year-end call our overall charter school portfolio stands at 86% utilization, that is the actual enrollment compared to the authorized enrollment capacity. The introduction of the four new schools did not change the overall utilization rate which speaks to the high level of enrollment at these schools despite being less seasoned.

We continue to closely monitor our winery and vineyard assets. However, general industry metrics indicate some marginal improvement in the industry. Subsequent to the end of the quarter, we along with Farm Credit, placed the EOS Winery and Vineyards into receivership. We chose this course along with with Farm Credit as together we believe that for purposes of maximizing the value of the assets, either through sell or release, it is important to maintain the physical assets, the inventory and the brand together.

In our last call we discussed that we initiated legal proceedings against Louis Cappelli along with various entities controlled by him relating to various payment obligations and our obligations under the Concord project. We filed this action in Missouri State Court and has been subsequently removed to Federal District Court in Missouri.

Mr. Cappelli and various entities controlled by him filed a complaint in Westchester County, New York, against the Company and certain of our subsidiaries for declaratory and monetary damages related to the Concord project as well as the White Plains City Center. The Company intends to vigorously pursue its claims against Mr. Cappelli and his related entities and to vigorously defend the claims asserted by Mr. Cappelli and his related entities for which we believe we have meritorious defenses.

As Mark will discuss with you later, during the quarter an entity controlled by Louis Cappelli, our partner in the New Rock Entertainment Retail Center, who through an affiliate is also the property manager made an unauthorized loan to itself. As a result, as the general partner of the partnership, we exercised our rights to terminate the management agreement and seize all bank accounts related to the project. We have subsequently installed CB Richard Ellis as the day-to-day manager of the property.

As we discussed in our last call, our 2010 capital plan calls for additional investment spending of approximately $100 million, with majority of that number targeted for the latter half of the year. I'm very pleased to report to you that we're looking at a number of significant opportunities that could materially accelerate this time frame.

These opportunities exist for both theater and public charter school acquisitions, however, as with previously anticipated transactions, we do not discuss specifics until we have a definitive transaction or we are otherwise compelled to disclose it legally. At this time we are slightly increasing our current 2010 capital plan to provide for investment spending for 2010 of approximately $300 million. Of which, $175 million has already been completed.

With regard to occupancy, consistent with the previous 12 years, we remained 100% occupied on our theater assets and our remaining retail portfolio stands at 91.5% occupied. With that I'll 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. Before we get into details of the various line items, I think it's first important to help you understand three offsetting items that impacting our results for the first quarter. I want to go through these with you up front so you can more clearly understand our operating results.

As illustrated by the first slide, during the first quarter we recorded two items associated with the March 4th acquisition of the Toronto Dundas Square. Want to first discuss the gain on acquisition of $8.4 million or $0.19 per share. Recall that in the third quarter of 2009, we recorded approximately $35 million US in loan loss reserves related to our mortgage note receivable on this project.

The net carrying value of the note at the time of the acquisition was approximately $96 million Canadian or $93 million in US dollars. In conjunction with the our acquisition of this project, at the conclusion of the receivership process, we paid off a first mortgage which totaled approximately $122 million Canadian or $119 million in US dollars. We obtained a third party appraisal at the time of the acquisition which valued the project at $229 million Canadian or $223 million in US dollars. Accordingly, net of working capital acquired, a gain on acquisition of $8.4 million US was recorded at closing. In addition, we expensed $7.5 million in US dollars or $0.17 per share in transaction costs during the quarter, primarily related to transfer taxes and other costs associated with this acquisition. We had previously provided guidance for these costs of up to $8 million.

Finance this acquisition we obtained a new $100 million Canadian first mortgage from a group of banks. I will discuss this new loan in more detail later. Additionally during the quarter, we recognized $700,000 in loan loss provisions or $0.02 per share related to an unauthorized loan to our minority joint venture partner in the New Rock Entertainment Retail Center who is also the project's manager.

As Greg mentioned, we have replaced the manager and have seized the bank accounts for this project. Accordingly, FFO for the first quarter was $33.8 million, or $0.78 per share. If we subtract the $8.4 million gain on acquisition, and add back the combined charges of $8.2 million, our FFO per share as adjusted was also $0.78 for the first quarter.

I will now walk through the quarter's results and explain the remaining key variances from the prior year. As you can see on the next slide, for the quarter our net income available to common shareholders increased compared to last year from $17.8 million to $22.5 million, an increase of 26%. Our FFO also increased compared to last year from $29 million to $33.8 million, an increase of 17%. Our per share results reflect the impact of more shares outstanding as a result of the Company's deleveraging versus a year ago. FFO per share was $0.78, compared to $0.84 last year for a decrease of $0.06.

Now, looking at the details of our first quarter performance. Our total revenue increased 13%, compared to the prior year, to $75.5 million. Within the revenue category, rental revenue increased 13% to $57 million, an increase of $6.6 million versus last year and related primarily to our 15 theater acquisition completed in December 2009 as well as our acquisition of Toronto Dundas Square during this quarter.

Percentage rents included in rental revenue were $729,000, versus $438,000 in the prior year. This increase reflects the increase in box office at certain of our megaplex theater locations. Mortgage and other financing income was $12.6 million for the quarter, up $2.1 million from last year. This increase is due to our January 2010 acquisition of five public charter schools, as well as increased real estate lending activities during 2009.

Other income was $0.2 million for the quarter, down $0.9 million from last year. The decrease is due to a $0.4 million decrease in revenues from a Family Bowling Center in Westminster, Colorado, previously operated through a wholly owned taxable REIT subsidiary. The bowling center was converted to a third party lease in February 2010. Additionally, other income decreased due to a $0.5 million gain recognized upon settlement of foreign currency forward contracts for the prior year quarter, versus a slight loss recognized in the current quarter that is reflected in other expense.

On the expense side, our property operating expense increased approximately $1.7 million for the quarter, versus last year, due to our acquisition of Toronto Dundas Square as well as an increase in property operating expenses at our retail centers in Ontario, Canada.

G&A expense increased approximately $1.1 million versus last year, to approximately $5.1 million for the quarter. This increase is due primarily to an increase in payroll and benefit related expenses as well as professional fees. I will also point out that the first quarter G&A expense includes $573,000 of section 79 employee life insurance premium expense versus $148,000 in the prior year. This first quarter expense was anticipated in our annual guidance, and does not repeat itself over the remainder of the year.

Turning to the next slide. I would now like to turn our discussion to some of the Company's key ratios. Please note our expanded supplemental summarizes these key ratios on page 14. We continue to report healthy levels of interest coverage at 3.2 times, fixed charge coverage at 2.3 times, and debt service coverage at 2.4 times.

Our supplemental included a calculation of AFFO or adjusted funds from operations, and AFFO per share on page 10. Given the gain in charges for this quarter, as well as other items considered in the calculation, we believe that AFFO per share provides an important measurement of our operating performance. You will see that our AFFO per share for the quarter was also $0.78. With our cash common dividend of $0.65 per share, we had an AFFO payout ratio of 83%, which continues to be a top notch metric compared to other REIT's.

Next, I'd like to point out our debt to adjusted EBITDA ratio which was a healthy 5.7 times for the quarter. Adjusted EBITDA in this calculation is defined at the trailing 12 month EBITDA adjusted for the gain on acquisition, non-cash charges and transaction costs.

Debt is the balance at March 31st. Please note that acquiring Toronto Dundas Square in March with a new $100 million Canadian first mortgage negatively impacts this calculation since we count all of the debt and only one month of the adjusted EBITDA. Our debt to total assets undepreciated was 42% at March 31st. I will come back to these two key metrics shortly.

The next slide details the impact of White Plains on certain financial measures. As David mentioned, we are not currently financially supporting White Plains. However, this project continues to have a negative impact on our reported results. FFO from White Plains for the first quarter was a loss of $1.6 million or $0.04 per share. The property has been written down to essentially the non recourse loan balance, thus at the reported leverage on this project is 100% on our financial statements.

Turning to the next slide, excluding the impact of White Plains, FFO per share as adjusted would have been $0.82. Debt to adjusted EBITDA would have been 5.3 times. And debt to total assets undepreciated would have been 39%.

Now let me turn to a discussion of our capital markets as well as our liquidity position. As I mentioned earlier and during our year end earnings call. In conjunction with our acquisition of Toronto Dundas Square we closed on a credit facility with a group of banks to provide $100 million Canadian first mortgage financing.. The interest rate is 6% at today's rates and the term is two years with an extension option of one year, subject to lenders' approval. The we consolidated the financial results of this property subsequent to the acquisition date.

Turning to the next slide, at quarter end we had total outstanding debt of $1.3 billion, of which approximately $1 billion was fixed rate, long-term debt with a blended coupon of approximately 5.9%. We had $107 million outstanding on our revolving credit facility at quarter end leaving approximately $108 million of availability and our unrestricted cash on hand was $21 million. Our debt to total assets undepreciated was 42% as I previously mentioned. Subsequent to quarter end, as Greg mentioned, we funded a debt maturity of $15 million related to an unconsolidated joint venture, Atlantic EPR 1.

As we have previously stated our only consolidated debt maturity in 2010 and 2011 without a contractual extension option is the $56 million secured by our Concord investment. The $114 million note on the White Plains project matures in October of 2010, is nonrecourse to EPR and has a stated extension option for two to four years. As we have discussed previously, we are not currently supporting this project financially and thus do not view this debt as a hard maturity.

All of our debt maturities beyond 2011 are manageable. And thus, we believe we are well positioned for future growth. With that I will turn it over to David for his closing remarks.

Thank you, Mark. Thanks, Greg. My closing comments, we go to questions, just to reiterate, I think the summary points we made at the quarter was in line with our expectations including the reported results and the really the completion of the transactions described in our last offering as well as the consolidation of the 10 Dundas property that we talked about many times as that being the end result of this process we're in. With that, I'll conclude it and in line, I think, as Mark indicated, we're in good shape on the progress and we have an outlook of some transaction opportunities. We'll open it up to your questions now.

Thank you. Ladies and gentlemen, (Operator Instructions) Questions will be taken in the order received. Our first question will come from the line of Jordan Sadler from KeyBank Capital Markets. Please proceed.

Thanks. Good afternoon. Mark, could you -- I may have missed this because I hopped off for a second, but did you discuss guidance? I know previously it was $311 million to $326 million, after the acquisition charges. Do you have an update for us or does that still stand?

I think we're still comfortable with that guidance. As David said, the quarter was in line with our expectations.

At this time we're not really revising guidance. We said that the quarter is in line and we're staying the course with the guidance previously offered, Jordan.

Okay. But for the -- sounds like the acquisition expectations, may have nudged up another $25 million; is that fair?

That's fair, Jordan. We're trying to determine when -- you know, kind of the velocity of when that will come and if that's later or earlier, how that will impact us and so we don't really change those until we have nose kind of definitive.

We like to get more definition to it before we revise guidance.

Sure. That's fair. Also accurate in terms of characterization, previously you thought that would shake out later in the year, the investment activity, and now it sounds like you've got a bit more flurry of activity?

That's fair to say, Jordan, yeah, that we think we're accelerating the velocity of that.

All the same, that's one of the reasons we have a range and we're not really prepared to adjust that range yet, so --

sorry. Go ahead.

When we confirm guidance we're talking about X items. We had the gain on acquisition that really is part of the FFO. We're talking about X the unusual items in terms of being right on our expectations.

In terms of the activity, Greg, maybe could you frame it up. I know you said theaters and charter schools mostly. What are you seeing on the pricing front? How are -- what's going on in sort of your world? Is it getting more competitive? Cap rates coming down? Or is it still pretty attractive.

Jordan, I think it's still really attractive. I think there has been -- I mean, we said when we did that grave transaction, that was probably a high water mark. We said earlier that we think, you know, in the 10 to 11 range, we're comfortable operating in and we feel that there's opportunities out there in that range.

Okay. That's helpful. And then just one last before I jump back in the queue. Can you give us the current yield on Dundas Square, the occupancy, and then just as you're getting in there, any sort of near term opportunities you see?

Well, I think we've said that yield on our current investment is about 7%. That our occupancy is about 90%, 90, 91%. I think our real -- I think what I tried to lay out for you is in the signage opportunity. If you recall, the way that property, the way it was being offered, it was being offered as a standalone property with a standalone group marketing the signage and so, therefore, you couldn't be part of an entire -- if someone wanted to advertise at the airport and downtown and somewhere else, they would have to make three different phone calls. We felt it important to get with a larger group that could bring this asset into them as part of the platform and lease it as all part of a campaign and we're very excited about those opportunities and I think we'll see some improvement in those assets.

All right. That's fair. Thanks for the insights.

Thank you, Jordan.

Our next question will come from the line of Gregory Schweitzer from Citigroup. Please proceed.

Hi, guys. Michael Bilerman is on as well. Following up on Jordan's questions on the acquisitions, the 125 of potential additional acquisitions, is that all locally within the US?

Yes.

Yes.

Okay. And then regarding the charter schools, could you talk a little bit more about the yields? We have seen competition increase in that space, sort of what yield you are seeing and what you'd be comfortable with?

I think it's going to migrate around that 10% yield. I mean, I think that's kind of what we kind of set the mark and they're now it plays a little different with the way the direct financing lease has, but I think it's more a function of, you know, you want to get a yield that's commensurate with what the property can tolerate and be successful with and we think that's around an appropriate yield for that space.

Okay. Great. And then any information you could give us on the theater re-leasing this year.

Like I said, we said before, we continue to evaluate where we're going to go with that and I think as we get -- technically, the AMC's obligation to tell us whether or not they're going to exercise their options doesn't come until the summer, so we don't have a formal -- what we told you before is we thought three of those four would be just roll into their options, that one would have an opportunity to re-size and we continue to work through that and determine kind of what the right sizing of that is.

Okay. And then I just have one more for Mark. With respect to guidance, the increase in operating expenses and G&A, I know there was that small one-time insurance expense in G&A, but is this a run rate that we can expect going forward, that's in guidance?

For G&A, I would take out that $400,000 or so variance, $500,000, and that's pretty representative of a G&A run rate. We don't give G&A guidance by quarter, of course, but that is more representative I think, yes.

And the operating expenses?

Operating expenses were impacted to some degree this quarter at White Plains, which kind of a non-cash item, but they were higher than we would expect on a run rate basis for probably a million dollars, and second of all, of course the acquisition of Toronto Dundas Square certainly affects the operating expenses going forward and it's also -- also in the quarter, we had a partial quarter for 10 Dundas so that will of course annualize as we go.

What was the $1 million at White Plains?

White Plains recorded some bad debts during the quarter, related to some receivables outstanding and so that shouldn't repeat itself, frankly, that happened in the quarter.

All right. Any specific on that tenant?

It's Cappelli entity.

All right. Thanks.

And our next question will come from the line of Anthony Paolone from JPMorgan. Please proceed.

It's Joe Dazio in for Tony. Were there any legal fees related to Cappelli in the quarter hitting that number as well?

Very little. We did have some but it was probably around $50,000 or something, so it was not a significant event in the first quarter.

And you're expecting that to be steady for the rest of the year?

Well, no, we budgeted -- I think we talked about in our annual budget something like $1 million for the year for those legal expenses, so we expect that could increase as we go forward but we have that contemplated in our guidance.

Okay. And from a practical point of view, what's the status of Concord? Is there anything going on at the site? Any update on the potential to issue industrial revenue bonds or anything else going on there we should be aware of?

Physically, I don't think there's anything going on at the site. I mean, as far as kind of of discussing kind of the improvements, as you can imagine. Since we're kind of embroiled in litigation we're not getting monthly updates from Cappelli on the matter, so I think where we're at is that we're not seeing significant progress.

Okay. And then just one last question, on City Center, is that in default right now? And if so, what do you think the likelihood or I guess regardless, what do you think the likelihood of the bank's working with you on that is?

You know, it's technically not in default. It's in default of its loan to us, but it's not in default under the underlying property loan and so --

First mortgage.

First mortgage. And you know, I just hate to comment on what a lender might do. I don't know, again, since we're -- that's a note that we're suing on to one of the Cappelli related entities, I don't know that we want to talk about how you would potentially settle that out anyway.

Okay. Fair enough. Thank you.

Your next question comes from the line of Paul Adornato from BMO Capital Markets. Please proceed.

Hi, good afternoon. You talked about the speeding of digital conversion at some of the theaters and the possibility that it might speed the recognition of percentage rents. Was wondering if you could just quantify that a little? How much more growth in receipts do you need before you'll hit some of those percentage rent hurdles?

Well, I think what we've said, Paul, is it's really theater by theater and I mean some are -- I think we could cross over with as little as another 10% year growth and others are much further off, depending upon where the percentage rent rate. I think the overall aspect that we're very excited about, especially with the 3D component, you're already seeing a $3.00 upcharge that falls right to the revenue line and as we talked about, when you move to our alternative content where you're talking about maybe sporting events or music events where the ticket price is moving from an average ticket of $7.00 to $10.00 to an average ticket of $15.00 to $20.00, that's a meaningful movement that can seriously drive top line revenue substantially.

And what are the prospects of those additional events utilizing the theaters in the intermediate term?

We're seeing it now in the sense that we had an entire group of our theaters that were sigh mull casting a USC event, mixed martial arts, I don't know what the correct term in for that. We're doing that. We've seen concerts. We've seen it used for business events. I think the issue is as we've consistently talked about is the platform has to be big enough and have you to have a sufficient number of sites to where someone will contract for those rights to simultaneously proved it. And therefore, one of the issues was that the penetration level wasn't high enough. Now with the acceptance of the importance of 3D, and how that's driving the movie business, you're seeing more digital conversion which broadens that platform and allows you a greater penetration.

Okay. So in terms of the critical mass, at the exhibiter level, they're contracting with individual exhibitors, is that how it works.

The three large guys have their group through NCM where they may be handling the contractual part of the alternative content.

Okay. Thank you.

And your next question comes from the line of Andrew DiZio from Janney Montgomery Scott. Please proceed.

When you talk about your potential investment spend for the rest of the year, do you think that would be in terms of sale leaseback or. Construction of new charter schools or theaters?

Really going to be investment of in place properties.

Sole leasebacks, Andrew.

Thanks. When you talk about your utilization rates for the charter schools, is that for the 2009- 2010 school year.

It's really for the 2009- 2010 school year. Next quarter we'll begin to have some visibility on the 2010-2011

Okay. Thanks. And then just lastly, when you look at your additional land interest that you have on the property in Kansas City area, are you seeing any interest in acquisitions or additional development on that land?

Yes.

Yes. We're seeing several. At least at preliminary stages. The official ground-breaking for the casino that's going adjacent or across at the Speedway was last week. So, you know, and that project is going in at least initially without a large hospitality component so there's a lot of other kind of factors that are occurring out there that seem to be driving interest in the area. But nothing that we're at the level we're ready to discuss.

Okay. Great. And actually I do have one final question. When you look forward to, again, your additional investments and everything coming online, have you explored or do you have any interest in eventually becoming an unsecured debt issuer or do you think you'll stick with secured financing?

That's a question really we've been interested in exploring. So we have some interest in it and given the market and given the strength of that window that stayed open through the turmoil of the credit markets in a much greater sense than did collateralized lending, I think it's in our interest to continue to look at that and we have an interest in it and we'll continue to examine that possibility.

Great. Thank you.

Your next question comes from the line of Rich Moore from RBC Capital Markets. Please proceed.

Hello, good afternoon, guys. Just for modeling purposes, when did you close Dundas again in the quarter?

March 4th.

March 4th. Okay. Great. Thanks. And you had said you were trying eventually to find a joint venture partner, possibly sell it, that kind of thing and it seemed like maybe a joint venture partner was getting closer last quarter. Is there any update on your thoughts there?

Rich, I don't think our thoughts have changed. I think really what we wanted to do was stabilize the property and get the right -- get some groups in there. I mean, if we need to -- I think we're still interested in exploring those ideas. It was -- you know, it's March, we're talking less than 45 days, really so we were just trying to get a platform and a stabilization that we could grow from and at least have discussions with.

Okay. I got you. So no real update on a partner at this point?

No real update or no real change on the strategy.

We've stabilized with some of the new parties involved in the operations of the building. Some of that ought to take place a little bit before we make a move.

I got you. Good. Thank you. And then on the theater side of things, as you're looking for theaters, originally or a short while back I think the strategy was to find landlords that had theaters that maybe needed capital, that kind of thing. Now it seems like theaters are a gold mine and I'm wondering where you're seeing potential theater acquisitions, what form might they take?

I think they're portfolio deals of opportunities and we feel very good about those, that we're still having access to those. I think what it means, Rich, is candidly is it's important to be the leader of a certain class so that if somebody -- I mean, it's easy to find us when you're looking for theaters, so generally for whatever reason somebody may be looking to dispose it, either maybe they're looking for what they think are greater opportunities somewhere else, those opportunities find their way to us. So I think we still feel very good about it.

Okay. And are you seeing -- you're seeing a pickup I take it in theater possibilities; is that true?

That's true.

Okay. And then same thing on the charter school side of things, I remember you had said I think, Dave, that you thought there would be 400 to 500 schools built a year. This gives you pretty good pickings for finding new opportunities. Is that accelerating as well, do you think?

I don't really have a statistic beyond the 400 to 500. We know that's been the run rate. My guess is given the political climate it probably is going to pick up. Yes, we're usually looking at things that have been open two to three years. So it's still picking out of that pool that have established enrollments, so it's a large opportunity set and the momentum is positive in the industry, I would tell you.

Okay. Good. And then the last thing on charter schools again, that 86%, that 86% occupancy, is that for what is actually there or would that -- or does that include what you could build the school out to?

No, that's the quote. When we say -- we realize we were talking about occupancy and the reality, it's a utilization factor. All of our schools are occupied.

They're 100% occupied in terms of being in use.

It is how much is the current enrollment with regard as compared to its what its regulated capacity is. If we have a school that has 400 kids in it currently but it has 500 available slots then we're at 80% utilization and we're at 86% utilization.

The wineries you had, you made -- I didn't quite catch what you were getting at. What happened exactly at the wineries in the quarter?

In EOS, we had a winery and a vineyard property that we placed along ourselves with farm credit who was the inventory lender and put it into receivership and we thought we did that, we worked together with them because the thought process was, Rich, that being able to sell or re-lease this property with not only the physical assets that we have, but also the inventory and brand that they may control, will get us both a greater maximization of value.

This is a property with a dispute among the operator. We executed the sale leaseback with and another party executed an acquisition to buy the operating interest. But it's unclear about what happened so there's a dispute going on between the two and the receiver is in place to make sure that the brand isn't diminished as a result of the dispute.

Okay. Good. I got you. Thanks.

And your next question is a follow-up from the line of Jordan Sadler from KeyBank Capital Markets. Please proceed.

Thanks. Just maybe some clarification on the -- looked like a $0.7 million charge during the quarter related to Cappelli, a a Cappelli loan. Was that also related to that million dollar bad debt expense at White Plains or was that separate?

No, it's really separate. The million dollars is more related to tenants, which he has -- that he has a hand in in White Plains. The $700,000 happened really at neuroshell, another project with Cappelli and there was basically made an unauthorized loan to our partner in that venture and we then went and seized the bank accounts and changed the manager but we thought we needed to fully reserved that $700,000.

So it's a reserve we put in place for an unauthorized loan. We're not sure we'll ever get paid back.

He's a principal and the partner?

He controls that partner that made the unauthorized loan.

And that received the proceeds?

Yes.

Okay. And then just on -- as far as percentage rents go, I know they were up. Could you just explain -- and you may have done this before, so I apologize, but in terms of incremental investment, is there some sort of allowance, return on capital, granted to the investor or the tenant that maybe adjusts sort of the percentage rent level higher?

No.

Or do you just receive the benefit of higher rents on the back of their investment?

We receive the benefits on the back of their investment. But remember, when we're talking about the digital, that is generally being financed with the savings the distributing companies are saving by moving from celluloid print and delivery to digital print and delivery.

You know, Jordan, you make the point overtly they are making an additional investment in the property even though it may be economically subsidized by the studios but no we're not adjusting our percentage rent rate by the improvement in the property.

It's just inherently increasing the value of your properties?

Correct.

And so what do we think is the potential here for percentage rent this year versus last year? I know there's a substantial increase in the 1Q number over the 1Q 2009. Mark, do you have any sense.

Last year was about a $1.5 million. We don't try -- we try not to overproject percentage rents because it is not assured. I think we're projecting upwards of 3 to $300,000 to $400,000 improvement this year over last, so something like $1.7 million , $1.8

And you're at $700,000 so far?

Yeah, it doesn't all come in pro rata. It's based on lease maturities.

Okay. That's fair. And lastly, who holds the gaming license at the Concord?

The development entity.

The development entity, yes.

And but gaming is illegal in the state of New York, no? So is it the property is owned by the developer and who -- how do they have the license?

Well, the point is that the property -- if we want to kind of -- if I can go a little bit with where I think you're going, Jordan, the entitlement for the 25% gaming tax is -- runs to the land. The actual --

the site.

The actual site. The physical gaming license is in Cappelli's name but someone else with a gaming license could benefit that 25% gaming tax by doing it on that property.

Goes to the land. Is there a tribe associated with the land or -- ?

No, this is a New York legislature granted.

It's not associated with Indian gaming. And that's the way most people know that lower tax rate in New York, but this is the only -- this is not associated with Indian gaming.

Okay. And is it a unique property, the state of New York.

Yes, it is.

It has site specific legislation.

It is specific legislation, it's the only license granted and does have to do with just this site for purposes of it being an Empire district and a variety of other things and so it was unique legislation and a unique license.

Okay. Thank you.

And in your next question will come from the line of Jon Braatz from Kansas City Capital.

Returning back to percentage rents, how many of your theaters have moved to 3D, digital and how many are really engaged in offering alternative content this time?

Well, let's put it -- 99% of our theaters have 3D capable. So we're already there. Our chain is pretty much there, completely. The issue is mainly is the platform big enough with other theaters, not necessarily just ours. We know across the board that there are events at our properties, whether they be like I said, music or these sporting events that we talked about or live events, I would say right now there's -- of our 90 theaters, 25 to 30 are involved in those currently.

And ultimately they could all be involved in that?

That's our hope, yes.

Okay. Okay. All right. And then secondly, any advanced ticket preseason activity regarding the waterparks that you can tell us?

I don't have that information with me, Jon. I can see if I can run that down and get back to you.

I assume they do sell preseason tickets.

They do, they do. The only reports I can give you are the advanced season, the weekend seasons that are already opened in Galveston and south padre for the parks and those are running ahead of last year pretty substantially but I don't have the figure in hand to give you but it's a small, small number relative to the season coming up.

Thank you, David.

That concludes the Q&A portion. I will now turn the call back to David Brain for closing remarks.

Okay. Well, again, I'll thank everybody for joining us and we always look forward to talking to you. If you need anything supplementary be in touch with us and we'll talk to you next quarter. Thank you.

Thank you.

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