EPR Properties (EPR) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2010 Entertainment Properties Trust earnings conference call. My name is Francine and I am 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 presentation over to your host for today's call, Mr. David Brain, President and Chief Executive Officer. You may proceed.

Thank you, Francine. Good afternoon to all of you. Thank you for joining us. This is David Brain. I'll start with our usual preference, and that is to inform you that this conference call may include forward-looking statements defined in the Private Securities Litigation Reform Act of '95, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or comparable terms.

The Company's actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause results to differ materially from those forward-looking statements is contained in the Company's SEC filings, including the Company's Report on Form 10-K for the year ending 12/31/09.

Alright. We -- let me start by saying we appreciate your vote of confidence in taking time with us today. The headlines for the third quarter for 2010 for Entertainment Properties are as follows. And as usual, we have the webcast through eprkc.com, if you can go there now for the slides.

The headlines are, first, number one -- we had a quieter but very solid quarter for tenant fundamentals. Two, no major capital formation activity during the quarter, but good progress on our cost of capital. Three, good 2011 growth prospects that support guidance of $300 million in acquisitions. And fourth, 2011 FFO diluted share increase of 4% to 5% is expected.

Alright. This afternoon, as usual, I'll comment a bit on these items, and then Greg, who's with us this afternoon, and Mark will add some detail to these items as well as some other things, and we'll follow that all by taking your questions.

Now, going to our first headline, a quieter but very solid quarter for tenant fundamentals. We did have significant and positive news regarding tenant fundamentals for the quarter, during the quarter, and I'd like to share that with you. First, our primary index of our largest area of investment, representing about 70% of our investment portfolio, the first-run exhibition cinema industry, accelerated its retail market-leading performance during the quarter. And during the third quarter, box Office receipts were up over the same period in '09 by 5%. A great performance for the industry of the vast majority of our investments.

Second, both in terms of sequence this afternoon and EPR portfolio prominence, is news regarding our tuition-free, public charter school properties. Enrollment counts for the 2010/'11 school year were just taken and published, and the student counts in our schools were up by 8%.

And third, this, the third quarter, marks the end of the summer operating season for our water park investments, and we can report to you that revenues for our operator, Schlitterbahn, were right on top of last year, despite not only a tough economy but major storm-related weather problems and a depressed travel and hospitality profile for the Gulf Coast as a result of the BP oil spill. With that said, flat results were viewed as good news.

In sum, the seasonal aspects of our portfolio all reported good news this quarter and, when combined with the steady, positive performance of our theater investments and the great performance of our ski portfolio of increased revenues of 8% that were reported to you on our last call, we are encouraged by the broad base positive fundamentals throughout our client base.

Our second headline today also reflects the quieter nature of the quarter in that we undertook no new capital formation activity unlike last quarter, when the Company began what I described to you as a seismic change in our movement from being a secured to an unsecured debt issuer. There were no new financings or equity issuances in the quarter just ended, but we did see progress in our cost of capital as our common stock traded up and our bond yield tightened.

Our investment grade rated debut unsecured bond that was sold with a 7.75% coupon in the second quarter has traded into a yield of about 7%. This, coupled with a more robust stock price, translates to a lower average cost of capital and is very supportive for the continued growth of the Company. This is important, given the large and growing opportunities that we see.

Now speaking of opportunities sets in view, with this report to you, we are providing guidance for acquisitions in 2011 in our third headline. We are able at this time to provide guidance of $300 million in acquisitions throughout next year. We have formulated this estimate based on visibility of specific transactions. As we've discussed with many in the past, we do not like to provide a large transaction target or estimate without visibility to specific deals. We don't want to be motivated just to hit a volume number for its own sake.

This level of growth is consistent with the Company's level of historic transactional volume, very achievable, and very manageable, we believe.

Our fourth and last headline this afternoon deals with our earnings guidance for 2011. It is that an increase in FFO per diluted share of 4% to 5% is expected next calendar year. This estimate is, as usual, a result of a number of assumptions and estimates, portfolio performance, transaction parameters, timing of events, market conditions, and financing terms. We are confident and comfortable, however, with this growth estimate, despite the headwinds of a continued difficult and, at best, slow growth economy overall.

Although I must caution that no final determinant has been made by our Board, we can also provide guidance to you that a dividend increase of at least comparable magnitude can also be expected.

Now with that, I'll turn it over to Greg; Mark is going to follow him; and I'll join you all as we go into taking your questions. Greg?

Thank you, David. The third quarter saw less investment activity as compared to previous quarters, with just $10 million of spending during the quarter consisting mainly of our $7.6 million funding of expansions to existing public charter schools. However, we continue to make progress toward additional transactions, and we are on track to meet the capital budget that we laid out for you in last quarter's call.

With that said, I'll give you an update on the performance of our various asset classes.

The theater industry continues to outperform last year's record box office, with year-to-date growth at approximately 3%. The industry continues to outperform other retail categories and demonstrate its stability and resiliency during this economic downturn.

With regard to our public charter schools, we're pleased to report that the preliminary enrollment numbers are in for the 2010/2011 school year and our overall enrollment has increased 8% over last year. As we described earlier, we also expanded four schools, increasing capacity by 5% overall. As a result of the increase in enrollment, coupled with the increased capacity, overall utilization improved to 89% from 86% last year. These numbers reflect our continued belief in the success and sustainability of the public charter school model.

Schlitterbahn has completed its summer season, and although we experienced significant loss days due to weather in the Texas facilities, overall revenues for the summer were less than 1% off last year's numbers. As we previously discussed, we intend to make additional investment in the water parks of approximately $8 million to $10 million prior to the opening of next season to facilitate future growth. The projected return on this additional investment will be commensurate with our target yield rather than the current yield, and we anticipate that it should move us closer to the point that we can realize on our [percent addressed].

Our overall portfolio occupancy stands at a very strong 98%, with our retail occupancy, excluding theaters, remaining at 90%. As we've discussed previously, we continue to look at ways to recycle capital to drive FFO growth and shareholder returns. To that end, we've decided to explore selling our Toronto Dundas asset. As we've discussed, this is an asset that we believe should trade at a cap rate that is significantly below cap rates where we're currently acquiring assets.

Furthermore, we've indicated that it was our intention to explore a possibility -- a possible disposition of some or all of this asset at such time as we had stabilized the performance. As the asset approaches stabilization, we believe that it's worth exploring these options. If we do elect to sell the asset, this event may affect our FFO performance for 2011, depending upon if and when we sell it and the time period it takes to redeploy the proceeds. We will keep you updated on the progress of this endeavor along with the expected results if a transaction should occur.

Our wine portfolio continues to experience stress, and although it appears that things are improving, it is not improving at the pace we would like to see. To that end, we took additional reserves in the quarter to account for this stress, and anticipate that we could see future reductions in rent as we seek to stabilize our portfolio.

Furthermore, it's our expectation that during the fourth quarter, we will repossess our EOS asset that was being operated under receivership. However, as all receivables were previously written off, we expect minimal impact on our results going forward. As we indicated in our last call, we continue to look for ways to trim our volatility in this asset class by stabilizing the performance of the asset and exiting when the market permits.

Notwithstanding our wine performance, our overall portfolio continues to perform at or exceed our expectations, and we remain very positive about our opportunities to accretively grow our asset classes. We have a very robust pipeline of potential investments and have set a target of $300 million for investment spending for 2011.

We are in active discussions on several theater opportunities as well as opportunities in public charter schools, an area in which we continue to make progress toward diversifying our operator base, while solidifying our position as a preferred real estate capital source for the industry.

With that, I'll turn it over to Mark.

Thank you, Greg. I'd like to remind everyone on the call that our Quarterly Investor Supplemental can be downloaded from our website.

While the second quarter was a busy one in terms of accessing both the public debt and equity markets to support significant transaction volume and further enhance our balance sheet, the third quarter was more about harvesting some of the other earlier fruits of those efforts. As you can see on the bottom of the first slide, our FFO per share for the third quarter increased by $0.01 to $0.87, excluding charges. This operating performance was achieved with much lower leverage versus a year ago. I will touch on that more later in my comments.

Now let me walk through the quarter's results and explain the key variances from the prior year.

For the quarter, our net income available to common shareholders increased compared to last year from a loss of $66.8 million to income of $27.5 million. Our FFO also increased to $40.7 million compared to a loss last year of $71.2 million. FFO per share was $0.87 compared to a loss of $2.01 last year.

Now looking at the details of our second-quarter performance. Our total revenue increased 24% compared to the prior year to $81 million. Within the revenue category, rental revenue increased 24% to $61 million, an increase of $11.8 million versus last year, and resulted primarily from acquisitions completed in 2009 and 2010, and base rent increases on existing properties, partially offset by a decline in rental revenue from our vineyard and winery tenants.

Percentage of rents included in rental revenue were $788,000 versus $591,000 in the prior year. For the nine months ended September 30, percentage of rents were $1.8 million, up 42% versus the prior year. Of the $525,000 increase year-to-date, $300,000 was from tenants at Toronto Dundas Square, which was acquired in the first quarter of this year, and the remaining increase relates primarily to theater tenants, due to the strong box office performance.

Tenant reimbursements increased by $2.4 million versus the prior year, due primarily to our acquisition of Toronto Dundas Square, and increases at our other Canadian entertainment retail centers.

Mortgage and other financing income was $13.3 million for the quarter, up $1.7 million from last year. This increase is due to our January 2010 acquisition of five public charter schools for approximately $44 million, as well as other smaller real estate lending activities. The public charter school expansions completed in the third quarter did not close until September 30, and thus, had no impact on operating results for the quarter.

On the expense side, our property operating expense increased approximately $4.2 million for the quarter versus last year, due to our acquisition of Toronto Dundas Square; increased expenses at our four other Canadian entertainment retail centers; as well as an increase in bad debt expense associated with our vineyard and winery tenants.

G&A expense increased $0.6 million versus last year to approximately $4.1 million for the quarter. This increase is due primarily to an increase in payroll and benefit-related expenses, as well as increases in insurance expense and franchise taxes.

Loss from discontinued operations relates to the operations prior to disposition of a small parcel of land and building in California that was sold during the third quarter. In addition to this parcel, the year-to-date amount relates to the operation at the White Plains Entertainment Retail Center and a vineyard property prior to their dispositions in the second quarter. The gain on sale of real estate for the third quarter of approximately $200,000 related to the parcel sale during the quarter.

Turning to the next slide, I would now like to turn our discussion to some of the Company's key ratios. Please note that our Supplemental summarizes these key ratios on page 16.

We continue to report strong and improving levels of interest coverage at 3.5 times; fixed charge coverage at 2.5 times; and debt service coverage at 2.7 times. Our AFFO, or Adjusted Funds From Operations per share for the quarter, was $0.83. With our cash common dividend of $0.65 per share, we had an AFFO payout ratio of 78%, which continues to be a conservative metric compared to other REITs.

Our debt to EBITDA ratio was a healthy 4.5 times for the quarter. EBITDA in this calculation is defined as quarterly EBITDA annualized and debt is the balance at September 30. Our debt to gross assets was 37% at September 30, a 500 basis point reduction versus a year ago. This ratio is toward the lower end of our previously stated target range of 35% to 45% for this important metric, and provides us great flexibility as we wrap up the year and move into 2011.

Let's turn to the next slide and I will provide you a capital markets and liquidity update.

At quarter-end, we had total outstanding debt of $1.2 billion, of which approximately $1 billion was fixed rate, long-term debt with a blended coupon of approximately 6.4%. We had $150 million outstanding under our revolving credit facility at quarter-end, leaving approximately $170 million of availability and our unrestricted cash on hand was $15 million. Our debt to gross assets was 37%, as I previously mentioned.

As we turn to the next slide, we have no debt maturities in 2010 or 2011, and only $65 million in 2012. Excluding our line of credit, when we get to 2013, we level off at around $100 million per year through 2018.

Turning to the next slide, we are confirming our 2010 investment spending guidance of $350 million. We are also confirming our 2010 guidance for FFO as adjusted per share of $3.30 to $3.40, or $2.96 to $3.06 when you include the charge of $0.34 per share for costs associated with loan refinancing in the second quarter.

Turning to the next slide, we are also providing guidance for 2011 investment spending of approximately $300 million and FFO per share of $3.40 to $3.60. This guidance reflects acquisitions being financed consistent with our targeted capital structure of approximately 40% debt and on an unsecured basis. While we generally do not provide guidance on specific line items, we think that it's helpful to share our forecast for G&A expense. We expect this line item to be slightly under $20 million for 2011. Also, our G&A is typically about $600,000 higher in the first quarter than the full-year number divided by four, primarily due to certain employee benefit expenses that are recognized in Q1.

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

Alright, thank you, Mark, Greg. As we go to questions, I just want to reinforce what I hope is the clear message of the great position of the Company.

We are very well set with an overall strong tenant base with ascending fundamentals; a very strong balance sheet with low leverage, no near-term maturities, and great credit metrics. We're excited about our position and the prospect it holds for growth and increased shareholder returns.

With that summary, I guess, we'll -- Francine, if you're there, we'll go over -- turn it over to questions, open it up.

(Operator Instructions). Anthony Pallone, JPMorgan.

In terms of the deal pipeline, can you give us a sense as to just the size, some cap rates, and maybe what you see as competition for these deals?

Yes, Tony, it's Greg. I think we have some that are larger deals that are more portfolio deals, call them in the $100 million range, that we're looking at, a couple -- at least a couple of those. And we're also, as we talked about earlier, we're working again with existing operators on markets to develop some build-to-suit and some standing portfolio.

As far as cap rates, I think there is a little downward pressure. We're still seeing things comfortably of standing inventory in the [9 to 10] cap range and [10] to [10.5] range in the kind of build-to-suit category.

What would be your appetite for build-to-suits? Like, how would you go about underwriting those?

Well, it's similar to how we've underwritten them always, Tony. We work with the operator and develop what we think is the appropriate size of the theater based upon what we believe will be the attendance to derive to a coverage number, that we think is supported by the rent. You derive rent based upon the productivity of the theater. So we start building our models based upon what we think the total revenues will be, and see if the numbers work to derive at a rent coverage that we think is acceptable.

Yes, just to add to that, Tony, as you know, maybe not everybody does, we're not the prime -- we don't go out and do site selections. We usually follow our tenant base, our customer base, and we work with them to make sure, based on demographics, we expect a certain level of tenants. That then flows into a financial, which, to a coverage ratio, gives us a budget what can be spent on the theater. And all that is really how it's determined. That's how we underwrite.

Okay. What's the competition right now? Because we hear a lot about -- or quality deals, just quite a bit of bidding and a great deal of cap rate compression. So I'm just wondering who you guys (multiple speakers) compete against?

Yes, and it really depends upon the product. A lot of it is -- we will get calls that I don't think are being broadly shopped, Tony, but if something is more broadly shopped, it may be something that we're not successful in, just because it appears that if it's a one-off transaction as opposed to a -- we're financing the platform and they're not only wanting to do this deal but grow their chain, we're much more effective in those. And we access those, not through the broker market, which is kind of the traditional where you see a lot of competition; we access those through our relationships in the exhibition market.

Yes. And competition is generally somewhat reversely correlated to the size of deals. As the portfolios grow larger, we have fewer and it goes more into a negotiated transaction than a single property.

Okay. And then just my other question with you with respect to the vineyards. Can you maybe put some numbers around coverage there at this point? And is it [Essentia] that's in a tough spot? Or just give us a little more color on exactly what the problems are there.

Well, I think without -- Tony, without identifying a specific tenant and letting them know, calling them out here, I think what we can tell you is that the stress is broad-based. I think we're seeing it with all of our tenants.

As far as specific numbers, as I said, we're talking about potential rent concessions but we haven't identified; those deals aren't finalized. We did take a $1 million reserve in the quarter -- and Mark, you may put some color on that.

Yes, we had a receivable outstanding from one of our tenants that we did take a reserve on this quarter for $1 million. Other than that, we're paid up with respect to that -- with respect to the quarter.

Tony, what I want to add to that is, it's still a matter of channel competition and probably again the stress is higher to the smaller guys. So [Essentia] in that regard is maybe in a little better shape than average. Coverage, though, in those cases that we're taking these rent concessions would be something of a [1.0] or less. Honestly, that's where we are.

Okay. And then just, Mark, the guidance range for the -- implicitly for the fourth quarter is $0.10. Did you just leave it out there? Is there a reason why it's so wide? Just thoughts there.

Frankly, that was just a matter of just confirming where we -- the same guidance we had given at the end of the third quarter. There's no specific reason for keeping it at $0.10 other than it was unchanged, so we didn't update it.

Okay. Thank you.

Jordan Sadler, KeyBanc Capital Markets.

I just wanted to clarify some of the guidance. On this charge that you took, did that impact FFO, the $1 million, by $0.02?

It did, yes.

Okay. And what line item did that show up in, Mark?

It's bad debt expense, so it's in our property operating expenses.

That goes away. So you would call this a clean $0.89, is that fair, for the quarter?

Yes, I guess you'd have to conclude if the $1 million is going to be repeated or not to conclude that, but yes, I mean, the $1 million was a receivable reserve we took for [110] for the quarter. And absent that, would have been about $0.89, correct.

What were your total reserves year-to-date including the $1 million?

Total reserves --

Oh, reserve.

Bad debt -- expense --

Let me look that up. Hold on a second. We have booked bad debt expense to date of $4.7 million across all lines of business. A lot of that's related to our wine business, frankly.

And is it fair to say you're assuming there's going to be some additional reserves or losses related to that wine portfolio? Are you leaving in some cushion for that?

We're leaving in some cushion for that, yes, sir.

Okay. Because at the $0.89, I'm annualizing just on the 3Q number, which looked like a pretty clean quarter, meaning there weren't a lot of moving parts from a financing or investing perspective. You're annualizing to $3.56 before you invest anything incrementally.

You know, I would just warn you there are a couple of things. One is this is a stronger quarter for percentage rent realization, which we only book as we actually incur. Secondly, we do have, as Mark indicated, there's some insurance and some benefit and the charge -- first quarter, then a little larger than -- first quarter is always lower, so it's on a straight annualization.

And then lastly, both of the issues that Greg spoke of, timing of events where we may have a sale and maybe a redeployment -- I mean, we've tried to mix all those things in, Jordan, to come up with kind of more of a range for you. I agree with you, it's, if you annualize, this is different. But I don't know that annualization is a really good answer to come with it afterwards.

No, that makes a lot of sense, that helps. I guess the guidance -- does the guidance include transaction costs, just to be clear? The $300 million -- I assume there will be some costs associated with that that will need to be expensed?

Actually, for triple net acquisitions, we won't have transaction cost expense. It's only when you acquire an asset like an entertainment retail center or something, that's when you have transaction cost expense. So uniquely in the triple net space, you don't have to expense for those.

So our expectation is likely we're not going to have a lot of that because that's more of an operating kind of business definition and, hopefully, we'll have it more in the triple net category.

Yes, for example, in the second quarter, we had it under the acquisition of Toronto Dundas Square because it wasn't an operating asset, an entertainment retail center. But if we do a theater portfolio or something, it's not the case.

Okay. And I guess lastly, cap rate on the Toronto Dundas Square acquisition -- well, two questions there. One you said you're approaching stabilization. I'm curious where you are in a current yield basis, and then cap rate expectation on a sale -- where's the market at?

I think -- let's go to the latter first, because the expectation on a sale I think is -- I think we're looking somewhere in and around [6 to 6.5] cap is our stated number that's out there for that asset. I think, Mark, do you have the numbers on what it's --?

It's trading somewhere a little higher than the low sixes in terms of where our (multiple speakers) --

Where our run rate is for a poor performance. Jordan, the opportunity for us really is that asset is yielding us something in the seven zip code. We cannot only maybe make a bit of a profit but to redeploy those funds at a higher return rate is an attractive thing for us.

Sure. No, makes sense. Thank you.

[Gregory Schweitzer], Citi.

It's Michael Bilerman. I'm here with Greg. Maybe just sticking with the guidance for a second, and it sounded like clearly, there were some maybe some other things that was boosting up FFO, offsetting the impairment or the reserve that you took on the wine. But that still sort of gets you, at least on an annualized basis, probably north of [350] with acquisitions. And I'm sure in your model, let's say, if you just had mid-quarter for -- or mid-year for the [300], that's got to be $0.04, $0.05, maybe even $0.06 accretive depending on where things shake out and where costs are.

So I'm just curious how -- I mean what sort of things would even remotely take you to [$340 million] to [$350 million]?

Well, the G&A -- for example, if you annualized G&A here in the third quarter, you'd get -- the quarterly number was like $4.1 million. What we set our guidance that I gave in my remarks was just under $5 million. That's roughly a $900,000 difference per quarter; you annualized that, that's a $3.6 million difference. That's about an $0.08 per share impact if you annualized this quarter's G&A as opposed to the guidance I gave for G&A. So that's one big offset right there.

David mentioned the percentage of rents. If you annualized -- this is our biggest quarter for percentage rents; it was around $800,000, as I mentioned; times four would be $3.2 million. We expect percentage of rents closer to $2 million for the year.

Yes, overall, the expectation is for next year, 2011, to be a very solid year for box offices. As a percentage of rents may be equally good, but we're just try and plan on something a little less.

The timing issues we've looked at for both the acquisitions you speak of, Michael, you're right, depend on when they come. But we try and take a reasonably conservative view on that as well as possibly the timing -- although strategically and long-term, we'll be in a good position with the redeployment of the Toronto Dundas investment, it may work out timing such as it weighs down the 2011 results -- it will show up in the 2012.

So, we try and consider all those things and be reasonably conservative, because it's just -- it just so often turns out that that's the case. So, you're right, annualized, and if you just layer on the acquisitions, it's a good step up and it's in the upper level of the range we're targeting, but we're trying to give a range that could include all of these other issues.

But for Toronto Dundas specifically, I guess you're just -- you would sell it and then pay down the lines -- so how much solution do you have at least in the interim?

You know, as Mark talked about, we're earning north of a [six] now and on our line is slightly north of a [three]. So you'd have 300 points of dilution there and guys, candidly, there's issues with taking money out from revenue Canada, where they're going to hold half the proceeds of any sale for a minimum of two months.

Revenue Canada is a little different item. As we repatriate that money, we know we're going to have some delays and we're trying to plan on that. It's not as clean and as easy a redeployment. We hopefully will do this as we're redeploying those funds, but we're just planning on some delays that we've seen and know of that are going to occur.

And certainly the timing of redeployment is difficult to predict. The longer you're sitting on that, as Greg mentioned, saving money off your line interest on your line certainly doesn't offset the income you would have gotten for the short run on Dundas Square. So it's all about that redeployment timing and that's why maybe it's a little bit difficult to pinpoint.

Right but I'm just trying to figure out, I know it's difficult, but what have you embedded into your guidance for that? Just so I'm getting a clear sense of as things unfold.

Well, I think it's just fair to say, I don't think we're going to componentize it, Michael, at this time. I think we could talk to you about it at some length further at some point, but we're not prepared really to give a componentization. I think it's just what we try to address is all those factors.

Alright, that's fine.

As I said in my comments, I mean, we've got -- it's portfolio performance, transaction parameters, timing, market condition, financing terms, and we try and go through all that.

Yes. What is -- what's the current balance that you have invested in Dundas?

I think our book basis is something like $225 million, roughly $225 million.

And you're current -- you're saying you're earning today on a run rate basis low sevens or high sixes?

Get the number?

Yes.

Do you have the abacus out here?

Yes, we do. We're all hitting the abacus.

It's in that range. Yes.

Yes, I think it's [6.5 staff] roughly. And that's what we're -- we have a nice increase embedded in our guidance, frankly, for Dundas Square. We're happy with the performance; it's improving and we think we're -- yes. It's going well there.

Any update on Concord?

No, I mean we're active with regard to talking about that asset but we really have nothing new to report. And right now it's still carrying a zero impact for us on the P&L -- well, I shouldn't say zero. We're carrying some maintenance costs (multiple speakers) -- $1 million maintenance costs, but no, we have some active discussions going.

But that's -- I guess from a guidance perspective, that's free money that can come back and be reinvested?

No doubt.

That is exactly right. We view that as probably something we don't have visibility of it yet, but at the same time at some point we're going to reactivate those monies and it will be in contributions and results.

Yes, and we've baked in basically the carrying costs in the meantime. So there's actually a double impact of getting rid of the carrying costs and having the money deployed and earning a return.

Right. So you have $1 million a quarter or $1 million for the year in carrying costs on that?

Actually, I think it's $1.2 million for the year (multiple speakers) --

In taxes --?

(multiple speakers) Property taxes.

And then you have zero positives -- while you have the dilution from Dundas Square, you have zero accretion from the potential monetization of that piece?

That is correct.

And Greg had a question as well.

Just two quick ones. In terms of investment spending next year, do you plan on maintaining that focus on only theaters and schools? Or could you see yourself being opportunistic with any other industry or existing industry that you haven't [exploited to] already?

Well, I think primarily, still we see the main event still being in the theater and school area. I think we're not closed to the idea of -- and we said from time to time, we've seen different things with regard to the ski industry, which is another industry that's performed very well for us.

Greg mentioned we're doing a little bit of improvement in the water parks area. We don't view any major investments in that area beyond that, though, at this time. And we don't have anything to guide you to with regard to any new areas of investment. We'll try to keep you visibility of that. So yes, to answer your question, in essence it is in those two main areas.

And what will be the splits on the [300]?

Well, I could tell you, Greg, the issue is our pipeline is much deeper than the number that we're driving towards. So it really will be kind of availability and can we reach the terms to that. So it's hard to say right now. I would say that as we sit here, if you said it's $600 million, I'd say there's 50% of each in that opportunity set. And then we'll just see how we take those to fruition.

Okay. Is there a level that you would feel comfortable maintaining the school exposure to eventually?

Well, I think we said repeatedly we don't really run the Company on an asset allocation model and I'd still stay with that. We don't target that level. We're really more focused on the real estate values and the property level performance. And given good transaction opportunities, we're willing to let that in those -- let those into the portfolio and deal with then the resulting amounts from there.

Okay, great. Thanks very much.

Gabe Poggi, FBR.

A couple of quick maintenance questions -- really progress questions on a few assets. Can you give -- if you've said it already, I apologize -- but a little update on lease-up progress at New Rock? Any signage progress at Toronto? And then regarding Schlitterbahn, as Scheels broken ground, how do you view progress there? Thanks.

I guess to go in the order -- at New Rock, we continue to actively be talking to people about that, but nothing to announce. The negotiations were bound by confidentiality; did not announce, but we are talking to several people there.

As far as the signage, I think the number is stronger than last year. I think -- I'm doing this off of memory but I think it's at least $0.5 million better on our signage. So we continue to make very good progress on that.

As far as Schlitterbahn, again, what we've said was with the Scheels project, that we weren't going to put additional money in on that project, so it's really dependent upon our tenant to find a third-party to finance that. And right now they've not successfully found that.

Yes, Scheels has not broken ground yet and my guess is they're not going to make a 2012 opening as a result of that. They, Scheels, has got some issues there with regard to their Utah developments. So that is still in the queue but we don't have ground broken.

Okay. That's helpful. Thank you, guys. Good quarter.

Andrew DiZio, Janney Montgomery Scott.

Most of my questions have been answered; I really just have one -- and again, on just Schlitterbahn. You talked about revenue being flat overall and I understand you have both of their properties as collateral, but can you talk about KC versus Texas, if that was flat in both areas or if one was the strength?

No, KC was -- we have three properties -- two in Texas and one at -- the Kansas City property was up substantially over last year. Texas, the major project -- major [New Brunfelds] operation was down about 10%, mainly as a result of weather that was caused by some flooding. We had about 14 to 18 missed weather days.

Yes, the park was there was -- it closed in entirety for a continuous two-week period because of a storm-related flood. I mean, it was a major, major incident in the Texas Mothership, which is the largest of the three parks in [New Brummels]. So that was where it was down. Kansas City was up big; South Padre was --

[Up] flat -- up [to].

Just about (multiple speakers) -- yes. Up [2].

Alright, thanks a lot, guys.

Rich Moore, RBC Capital Markets.

On the G&A for 2011, what was the reason for the increase again to $20 million? I got the $600,000 for the first quarter extra, but what was the general reason for the higher quarters running next year?

Yes, basically -- a part of it is payroll expense and part of it, frankly, is stock amortization of shares. We take a lot of our -- the Company takes a lot of its shares -- a lot of its compensation and shares. And if you think about it, those shares amortize over a period time. Well, the piece you're removing is kind of the older piece and the piece you're putting on is the newer piece. And so the stock amortization is a piece of it.

We also expect a larger payroll next year as we add some people. And then basically with the growth of the Company, franchise Texas insurance and some of the smaller items add up to somewhere in the neighborhood -- if you added it all together, somewhere in the neighborhood of $1.7 million.

Okay. Okay, good. Thank you. Thank you, Mark. And then -- so for the fourth quarter, what do you think G&A does in the fourth quarter? Does any of this hit in the fourth quarter? Or do we see the number we had in the third quarter kind of move into the fourth quarter, or does that get higher too?

Yes. No, I think the fourth quarter will be pretty much in line, maybe slightly higher than the third quarter. We didn't have much professional fee expense in the third quarter because it was kind of a light quarter. We may have some more of that. So I'd say it'd be slightly higher but not dramatically in the fourth quarter.

Okay. And then (multiple speakers) --

(multiple speakers) That's why I -- excuse me -- that's why I peg for the year, this year, around $18 million in G&A expense and then next year, moving to just under $20 million.

Okay. I got you. And then same thing on the equity and earnings of unconsolidated JV line -- that was higher in the quarter; anything special in there?

Well, remember last quarter, we invested in the Atlantic property in that JV. We loaned -- put additional investment in there, I think it was [$14.25 million].

Yes. We basically -- we had the ability to pay off the first mortgage and get a preferred return for that, and we did that. We did that partial quarter (multiple speakers) --

Yes, we had a partial quarter last quarter.

That just shows the full quarter impact of it.

And then it annualized this quarter.

Okay. Okay, I got you. Good. Thank you. And then maintenance CapEx also was higher in the quarter?

(multiple speakers) We moved our -- yes, we moved our corporate headquarters this quarter. And so we had some of our own tenant improvements as part of that move. We moved just really down the street in downtown Kansas City, but new office space and there were additional TI's and so forth that were sort of a one-time because we don't move very often here.

First time in 10 years.

Okay. Sounds good. Good, I got you. And then you guys I know had been looking at a ski resort or two as possibly closing this year. Are you still thinking in terms of adding some ski resorts this year or early next year?

Well, Rich, we have some things under negotiation. We don't really have anything to announce. I don't think --

I don't think given where we're at right now, that will be where the investment will be. We're going to come into a point where we don't want to close anything because we're going to go into the season. So we're going to have to wait until the end of the season to close anything there, very shortly.

Yes, I got you. Okay. And then on a charter school, when you do an expansion, what exactly is happening there? Are you adding grades? Is that what happens?

Well, either that or you have enrollment that is demand -- you know, you're either at capacity physically and we're adding new buildings or we're expanding buildings, but we are -- you know, we're physically growing the number of students to where you can't support them under the existing facility. So, it's a real positive sign.

Sometimes we have a situation where we have a cafeteria and a gymnasium and an assembly area all in a shared space. The enrollment gets up to the point that they can afford to and we add that gymnasium to a portion of the building, so that they have separate and specialized spaces for the different uses.

Okay. Alright, I see what you're saying. And then when you think about the level of utilization -- can that go to 100%? Or is that -- some of that reserved for future grades kind of (multiple speakers) --?

I mean, as the school matures, it clearly can go to 100%. I mean that's not necessarily -- we don't require it to be that. I mean, we're -- as we've talked about, at the level that we're at, we're very comfortable with the coverage [this wants] but we do expect it to move up into the [90s] over time as it matures.

Okay, because I always thought, Greg, that there was room to add, you know, like if you have first through fourth and you can add sixth, seventh and --

(multiple speakers) No, but I'm saying -- and you are correct. I'm sorry, you are correct except that at a certain time after three, four, five, six years, you're at those all the -- you have all the grades in and you're at maturity.

So then you can get to 100%. So I guess what I was trying to figure out, is the 89% fairly full for what you have at the moment? I mean, could you actually go to 100% at the moment or --?

No, I mean, I think we are -- we continue to make progress. We have some that have not reached their maturity so that's the opportunity for the growth that's in there. So, no, we have schools that are not fully mature with all of their enrollment. So we think those will naturally move up as we continue. But as you've seen over the last couple of years, what we continue to see is, as these schools and the enrollment increases, the demand is there so that we do these expansions. So over the last two years, Rich, we've done expansions.

I think in about eight schools overall -- four last year, four this year; so we continue to both grow our enrollment and grow our capacity.

Okay. Good, got you. And then on the theater side of things, do you -- does it make sense to track the degree of digitalization on a quarterly basis? I mean, is it growing that fast? I mean, as I do the math (multiple speakers) --?

It is growing that fast. And I mean, we kind of track it both kind of from an industry and from our own facilities. So it's -- but it is clearly the capital has flowed into that. And with the really the realization of what 3D brings to the table, everyone is rapidly converting.

Okay. So you guys were around 40%, I think, Greg; are you higher than that now?

Yes, we would be approaching probably mid-60s to 70%.

Oh, really? Okay, wow.

Yes.

Fantastic, okay. Good, thank you. And then do you have an update on China and what you're thinking there?

Well, we've got -- we have our first [year] only two months of operation, Rich. So we don't really have much to report. Actually the two months are a little bit frustrated because the whole of the shopping center is not open yet; it's behind schedule. So we're dealing a little bit with one arm tied behind our back. But it's a low enough investment that I don't have any more to report about that theater or area of investment right now. Hopefully, by the time we get to next quarter, we'll give you more update there.

Okay. Very good. Thanks, David. And then I think that's it. Thank you, guys, very much.

(Operator Instructions). Jordan Sadler, KeyBanc Capital Markets.

It's Craig Melman here with Jordan. Just a couple of quick follow-ups. Mark, is there anything in the guidance, sort of a placeholder on the timing expectation for Dundas? Because it sounds like from the time that you sell it to the time that you actually collect the cash, there's going to be a three-month or so window on a portion of it?

You know, because David mentioned, this is one of many factors we've considered in the budget. There's a scenario where it has basically zero impact because of the timing. There's a scenario where it has a negative impact; there's a scenario where it has a very positive impact within the year. Certainly over the long haul, it's a positive impact.

So there are a lot of considerations there. Frankly, you could remove Toronto Dundas, look at our guidance with $300 million of acquisitions pro rata with the other things we've given you in terms of G&A, and get there that way. So it's just a matter of do we use that capital or another source of capital, depending if it sells or not, and then what scenario do you pick for the -- in terms of the redeployment and the timing of it? I think -- so at a midpoint, there's not much impact, frankly, in terms of Toronto Dundas for the current year. If you get it deployed quicker, though, that could be a tremendously good impact, so.

Where do you guys say you are in the process, though? Do you actually have -- are you at the LOI stage yet or it's still real early?

No, it's -- the project went to the market within the last two weeks. So we're still in the very early stages.

Okay. And then are there any capital assumptions in the guidance? Is there a plan if Dundas doesn't get done or gets done late, to term out the balance of the line potentially?

Yes, we have assumed sort of a 60/40 capital structure -- 60% equity, 40% debt on an unsecured basis, in terms of what we've modeled for the $300 million.

Okay. So a little more aggressive than in the past you guys have done all equity to finance deals?

Yes, we feel like, as Mark indicated, that the leverage level is down now below the midpoint of our targeted range. So certainly, I think we've got the green light on to use some debt again. And we're using the assumptions, though, generally, as Mark indicated, our guidance is 60/40 with a 40% debt mixed in there with the cost of capital that I referenced that we're -- well, you know, we're getting down to what we think is [7] on the debt and the equities trading well and you can kind of calculate the cost of equity based on our model.

Okay, but -- sorry, but there's no specific plans to clean down the outstanding balance on the line, maybe do another unsecured deal? You guys are just going to let that float until you get proceeds?

We don't have specific plans for that. We would just look at the convenience and this strategic positioning based on our pipeline and the opportunity to do that with a specific transaction. But right now, no. That's not included in the (technical difficulty).

Okay. And then, David, did I miss this? Did you say what percentage rents might be in 4Q?

Well, we expect it to be about $2 million for the year. The fourth quarter is a very low percentage rents quarter. I think last year was around $200,000. So I think we're somewhere in the neighborhood of [$1.7 million] or [$1.8 million] to date. So $200,000 to $300,000 is what we'd expect in the fourth quarter.

Yes, Greg, I mean the way you open theaters, generally, we have historically opened a lot of theaters with our customers in Q3, so you have them available for the holiday season. We don't usually open a lot of theaters in Q4, so we don't have a lot of -- we don't end our lease years in Q4 and therefore realize our calculation of percentage rents. Because that's when we do that, at the end of the lease years.

Okay. And then just one last quick one. Do you guys have any insight into the AMC IPO? Do you still think that's on track?

You know, I mean, they -- that level of information they don't share with us. And we're kind of at the same mercy -- I mean, it would just be pure speculation for us. (multiple speakers)

Yes, I don't think we have any insight to share with you there. It really would be just speculative. I think I know that has a priority for them, yet at the same time, it seems to be sitting on the shelf right now.

Alright, great. Thanks, guys.

And we have no further questions. That concludes the Q&A portion of the presentation. I'd like to turn the call back over to Mr. David Brain.

Well, thank you, all that tuned in today and for your time and attention. As I say, I'll take the election day vote of confidence you had to spend time with us. And we'll look forward to talking to you soon. And, of course, feel free to call the Company if you'd like to discuss anything in detail; we're always happy to do that. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.