EPR Properties (EPR) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Entertainment Properties Trust earnings call. My name is Melanie, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. (Operator Instructions)

I would now like to turn the call over to Mr. David Brain, President and CEO. Please proceed.

Thank you, Melanie. Good afternoon, all, and thank you for joining us. This is David Brain. I'm going to start with our usual preface as we begin this afternoon. I need to inform you this conference call may include forward-looking statements as defined by the Private Litigation Securities 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. A discussion of the factors that could cause such actual results to differ materially is contained in the Company's SEC filings, including the Company's report on form 10-K for the year ending December 31, 2010.

With that said, I will say again, this is David Brain, the Company's CEO and President. Thank you for taking your time with us as we get fully underway this afternoon. I just like to always remind you there is a simultaneous webcast for those that are just on the phone, and it has slides with it available via a link from our website at www.eprkc.com. If you can, you can go there now and you can get the visual dimension as well as this audio portion.

I'll start and go to my first slide really, with the headlines for the first quarter of 2011 for Entertainment Properties Trust, and they are as follows. One, progress made on key 2011 initiatives concerning portfolio growth and breadth. Two, progress made on several key 2011 initiatives concerning revitalization and recycling weaker portfolio elements. The third headline is key finance objectives realized. And fourth, important tenant industries demonstrating signs of strength. All right, this afternoon I will comment on these a bit, and then turn it over to Greg Silvers, our COO.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

These guys will detail these, as well as add some thoughts on other topics, and I will follow that with taking your questions.

Now going to my first headline, progress made on key 2011 initiatives concerning portfolio growth and breadth. I am pleased to report that during the quarter we expanded both the size, and importantly, the breadth of our theater and charter public school portfolios with transactions involving new clients. We are always pleased to develop new client relationships, and we welcome Cinemagic to our portfolio of theater operators with a multi-location deal that Greg will detail in a moment.

Expanding our client base in the charter public school category has been an objective, and I'm happy to announce progress on this, with the completion of transactions with 2 new charter public school developer operators. Charter School Development Corporation, often referred to as CSDC and HighMark. This is important progress in this important facet of our business. Greg will also have more on this.

Now turning to our second headline, progress made on several key 2011 initiatives concerning revitalization and recycling weaker portfolio elements. The first item of note here is to report the completion of the largest asset sale ever by EPR. The sale of Toronto Dundas Square, our multi-tenant, AMC Theater-anchored, entertainment center in downtown Toronto, Canada, for approximately $225 million, including a substantial gain.

This concludes the saga of this asset in whose development we participated, and which was once thought by many in the Great Recession to be trouble, due to the failure of its primary equity owner. And the placement of the asset for a period in the Canadian Court supervised receivership process. The positive outcome here, and the sale at a low-6% cap rate, I believe speaks volumes about the value of our portfolio.

Secondly, during the quarter we made progress on our announced objective of selling down our position in wine industry assets. Several smaller transactions were either completed or agreed that we'll reduce our investments in this area and provide capital for more accretive redeployment. These transactions are indicative of our efforts, and of more likely to come.

The third item of note in this area is our announcement of negotiations with Empire Gaming to explore opportunities related to our Catskills, New York, Concord property. I'm afraid due to the terms of our agreement, we are not at liberty to provide any details or even direction about this. But we are pleased with this point of progress, and the potential for this dialogue involving the incumbent gaming operator in the area.

Empire is one of the most logical operators for our tax-advantaged location. Their majority ownership, Genting, the Malaysian global gaming operator, has already demonstrated depth of interest and commitment to the New York gaming market by its purchase of the gaming opportunity at Aqueduct in New York for $380 million. We look forward to providing you details on this in the future.

Our third headline this afternoon is key finance objectives were realized during the quarter. During the first quarter of 2011 we announced the expansion of our revolving credit line by about 20%, to over $380 million. This is important as it gives us the capacity to accumulate a debt position to be efficiently and effectively refinanced with unsecured rated debt, which is our expressed preferred mode of future debt financings. Mark has details on this in a moment.

Also during the quarter we declared and paid our first increased common dividend in 2 years. We have not had the opportunity to increase our common dividend since 2008, and are very pleased that our performance, financial position, and the stability of the capital markets have afforded us the opportunity to do so this year. For the first quarter of 2011 we paid a common dividend of $0.70 per share, an increase of about 8%.

Our final headline this afternoon has to do with our tenant industries. It is important tenant industries are demonstrating signs of strength. First-quarter box office has been widely reported as weak, and then along with some announcements of new video on demand, or VOD, policies by some studios, has begun some to once again write the obituary of the first-run theatrical release business. I thought I would spend a minute on this point to call out some key concepts.

First, although year-to-date box office is well behind last year, about 18%, it's only 11% behind the same point in 2009, which was about the same annual total as 2010. This just demonstrates the odd, early first-quarter results of 2010 due to Avatar, that we're currently comparing to. This past weekend, the beginning of the important summer box office season was up 17% over the prior weekend, and up a whopping 54% over the same weekend in 2010. It is broadly expected that 2011 summer and holiday will compare well with 2010, and the year's box office results will be up to about flat to up marginally.

Regarding recent announcements and discussions about VOD windows, as early as 60 days following theatrical release at price points of about $30, I believe it is very important to keep in mind that the impetus for studios experimenting with new VOD windows is not the weakness of first-run exhibition. The driver behind this experimentation is the drastic weakness of home entertainment. Once again, it is that which everyone thought would bring about the demise of movie theaters, cheap DVDs, that is collapsing, while theaters continue their steady performance.

One additional positive portfolio note. The arrival of spring marks the end of the ski season at our portfolio properties. The final results of the season are not complete yet, but the preliminary results reflect another positive growth performance with increases in revenues and profits in mid-single digits.

With that I will turn it over to Greg and then to Mark, and look forward to joining you and taking your questions in a few minutes.

Thank you, David. The first quarter of 2011 demonstrated our commitment to our objectives for the year, including the sale of the Toronto Dundas asset, the expansion of our public charter school business, the continued growth of our theater portfolio, and the exiting of our winery and vineyard business. We are pleased with the results of the quarter, and continue to execute on the overall plan for 2011. I would like to spend a minute discussing our portfolio performance, and then talk about our achievements for the first quarter.

With regard to our portfolio, theater performance for the first quarter has been down significantly on a year-over-year basis. However, it should be noted that the first quarter accounts for only 15% to 20% of the total year box office revenues, and that 2011 first-quarter comparisons are being distorted by the phenomenal success of Avatar in 2010. Industry pundits continue to point to the fact that first quarter delivered a substandard film slate, however the balance of the year looks remarkably strong, and the last 3 weekends have delivered on those predictions with the opening of the summer slate off to a very good start. Overall, as David said, we believe that box office revenues will be flat to slightly up for the year.

Another issue that has recently received significant press coverage is the discussion of VOD, or video delivery of new titles at the 60-day window. Our exhibitor clients continue to oppose such a shortened window, and they have recently gained support from prominent directors including James Cameron, George Lucas, and Jeffrey Katzenberg. We continue to support our clients in the belief that first-run exhibition is a window that should be protected, and is beneficial to all parties.

It is important to note that this strategy of shortening the windows has been tested and has failed. As the consumer has not demonstrated a willingness to pay approximately $30 for the ability to view a release 60 days following its theatrical release. We expect this debate to continue to play out over the balance of the year, however we will point out that if you examine the 2010 box office results, over 95% of box office revenues were earned in the first 8 weeks of theatrical release.

As David said, our ski season is mostly complete. And I'm happy to report to you that through March, our portfolio has achieved approximately 5% growth in both revenues and EBITDAR on a year-over-year basis. This performance is very encouraging, given the exceptionally strong 2009, 2010 results. Our overall occupancy remains strong at 97%, however, occupancy continues to be negatively affected by our vineyard and winery portfolio.

With regard to activity within the quarter, we successfully completed the purchase of 4 Cinemagic theaters at a purchase price of approximately $37 million. As part of this transaction, we assume debt of $4.1 million at an interest rate of 5.3%, both stated at fair market value. The theaters are located in Maine and New Hampshire, and contain 56 screens and over 7,000 seats. Cinemagic is a new member of our operator family, but their market-leading performance in the Northeast region is consistent with our portfolio of market-dominant properties. And we look forward to continuing to grow this relationship.

We are very pleased to announce that we've made additional investments in public charter schools, including the introduction of 2 new tenants that we anticipate will fuel future growth. Our total commitment for these investments was approximately $20 million, representing 1 school with Charter School Development Corporation in Baton Rouge, Louisiana, and 2 schools with HighMark School Development located in Arizona and Colorado. Both of these tenants have a commitment to continue to grow with the capital and assistance of EPR, and we are very excited about these initial investments and what they bode for the future.

On the disposition front, as we previously announced we have successfully closed the sale of the Toronto Dundas Square project. The closing occurred on March 29, 2011, with the gross proceeds of approximately CAD226 million, and net proceeds of approximately CAD223 million. This price represents an approximate 6.25% cap for the asset. The transaction resulted in a book gain of approximately $18.3 million, including currency translations.

As part of the transaction we deposited approximately [CAD15.3 million] into escrow to pay for previously accrued items including past years' taxes. The remaining balance of the proceeds were repatriated to pay down our revolver. We are very pleased with these results, and are excited about the redeployment opportunities that these funds will provide.

Additionally, the Company continues to execute on its strategy of exiting the vineyard and winery business. Subsequent to the end of the quarter, the Company sold its interest in the Gary Farrell Vineyards and Winery for $6.5 million, which was equal to their net book value of the asset. As part of the transaction, the Company also received from Ascentia a payment of $2 million to pay off outstanding receivables, and a lease termination fee of approximately $1 million.

The Company also anticipates entering into a purchase agreement for the sale of its Pope Valley Vineyards for a purchase price of approximately $5 million, mostly through seller financing. Additionally, on April 29, the Company entered into a lease with an option to purchase on its Buena Vista Tasting Room asset. These transactions will allow us to redeploy capital that was underperforming, and we are pleased again to put it to productive use.

As many of you have noted, we recently entered into an agreement with Empire Gaming to explore the potential of our Sullivan County property. At this point there is nothing to announce. However, we are excited about Empire's interest in the potential for making our Sullivan County property productive.

For 2011 our capital plans remain the same at approximately $300 million. With the sale of the Toronto Dundas Square, we believe that we have a significant base of capital to fund these acquisitions, however, our results will be negatively impacted until we can redeploy the funds.

We continue to see opportunities in all of our asset classes, however, the first-quarter box office has dampened some of the enthusiasm for theater build-to-suits that we saw last year. However, we continue to believe that with the summer box office, we will once again see operators wanting to start these projects. As a result, our spending may occur later in the year as opposed to being balanced throughout the year.

With that I will turn it over to Mark.

Thank you, Greg. I would like to remind everyone on the call that our quarterly investor supplemental can be downloaded from our website. Turning to the first slide, our FFO for the quarter was $29.6 million or $0.63 per share. Before we get into the details of the various line items versus the prior year, I think it is first important to point out 3 items that impacted our results for the quarter totaling $0.21 of FFO per share.

First, as previously announced in February, we paid off 8 term loans outstanding under our vineyard and winery facility, totaling $86.2 million, and incurred $6.4 million in costs associated with this pay off. $4.6 million of these costs were due to the early termination of interest rate swaps, and the rest was due to the write-off of their remaining unamortized debt fees. Second, we recognized $1.3 million in expense related to terminated transactions. Third, as Greg mentioned, we expect to enter into an agreement to sell our Pope Valley Vineyard property for $5 million. We recorded an impairment charge of $1.8 million in the first quarter, which represents the amount that the carrying value of the assets exceeds the expected net proceeds from the sale.

Our FFO per share before these 3 charges was $0.84. This performance represents an increase of $0.06 per share or 8% increase versus the prior-year quarter before charges. Importantly, and as I have been saying for the last several quarters, these results were achieved with significantly lower leverage versus a year ago. I will touch on that more later in my comments.

One more item to note up front is the sale of Toronto Dundas Square, which as Greg mentioned, sold for CAD226 million during the first quarter. We recognized a gain on the sale of this asset of $18.3 million, including the impact of foreign currency. And this gain, of course, has been excluded from the calculation of FFO. Note also that the gain on sale, as well as the operating results of this property, had been reclassified to discontinued operations for both the current and prior periods.

Turning to the next slide, let me walk through the rest of the quarter's results, and explain the key variances from the prior year. Our total revenue increased 4% compared to the prior year to $73.6 million. Within the revenue category, rental revenue increased 3% to $55.4 million, an increase of $1.5 million versus last year, and resulted primarily from new investments as well as base rent increases on existing properties, partially offset by a decline in rental revenue from our vineyard and winery tenants.

Percentage rents for the quarter included in rental revenue were $439,000 versus $700,000 in the prior year. This decrease is due to the weaker box office. As Greg discussed, we expect box office to strengthen throughout the remainder of 2011. Mortgage and other financing income was $13.6 million for the quarter, up $1 million from last year. This increase is due to our additional investments in public charter school properties, as well as other, smaller real estate lending activities.

On the expense side, G&A expense increased $0.4 million versus last year to approximately $5.5 million for the quarter due primarily to higher payroll and benefit-related expenses including stock grant amortization, as well as increases in professional fees. Our net interest expense for the quarter increased by $1.9 million to $18.8 million. This increase is due primarily to an increase in our weighted average interest rate. Note that our total debt at March 31 is actually lower than a year ago due to the pay down of the line from the net proceeds from the sale of Toronto Dundas Square.

Equity and income from joint ventures increased by $0.6 million, to $0.8 million for the quarter. This increase was primarily due to our investment of an additional $14.9 million in one of our unconsolidated partnerships during 2010. Finally, as David mentioned, our Board of Trustees authorized a first-quarter common dividend per share of $0.70, representing an 8% increase over the prior year.

Now 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 levels for the quarter of interest coverage at 3.5 times, fixed-charge coverage at 2.5 times, and debt-service coverage at 2.6 times. Our AFFO, or adjusted funds from operations per share for the quarter was $0.82 versus $0.78 a year ago, and well supports our current common dividend payout level.

As I mentioned earlier, operating results were achieved with lower leverage. Our debt to adjusted EBITDA ratio from continuing operations was 4.3 times for the quarter versus 5.5 times in the prior year. As you can see, this ratio has come down dramatically over the past year as we have significantly deleveraged the Company.

Our debt to gross assets ratio was 34% at March 31, an 800-basis point reduction versus a year ago. This ratio is below our previously stated range of 35% to 45% for this important metric, and provides us great flexibility as we move into the remainder of 2011 and beyond.

Now turn to the next slide, and I'll provide a capital markets and liquidity update. At quarter end, we had total outstanding debt of $1.1 billion, of which approximately $1 billion was fixed-rate, long-term debt with a blended coupon of approximately 6.5%. We had $87 million outstanding on our revolving credit facility at quarter end.

During the quarter, we exercised a portion of the accordion feature on this facility, expanding the capacity under this facility by $62.5 million to $382.5 million. This leaves us approximately $295 million of availability at March 31, and our unrestricted cash on hand was $15 million. In addition, as I mentioned previously, we paid off in full our vineyard and winery loan facility totaling $86.2 million, allowing us more flexibility as we pursue the best strategic options for the related assets.

As we turn to the next slide, we continue to be in great shape with respect to debt maturities, with no debt coming due in 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 2017, with our largest maturity being the $250 million in unsecured notes due in 2020.

Turning to the next slide, we are maintaining guidance for 2011 investment spending of approximately $300 million. And for FFO as adjusted per share of $3.40 to $3.50. Including charges of $0.21 per diluted share for costs associated with the payoff of the vineyard and winery loan facility, transaction costs, and the impairment charge, the guidance for FFO per share is $3.19 to $3.29.

And one more note about guidance for the year. Due to the timing of the redeployment of the proceeds from selling Toronto Dundas Square, we expect FFO as adjusted per share for the second quarter to be fairly flat versus the first quarter and the prior year, with a growth in per-share results being weighted to the back half of the year.

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

Thank you, Mark and Greg. Before we go to questions, I want to reiterate the quarter's headlines as I went through them before for the Company. The progress was made on key portfolio growth and breadth initiatives. Progress was made on revitalizing and recycling weaker portfolio elements. Key financial objectives were realized, including comfortably paying an 8% increased common dividend. And important tenant industries were showing signs of strength. Overall, the Company is operating at a very good level, particularly in light of the significantly decreased leverage highlighted in Mark's comments.

Now one last thing before we go to questions. I want to make mention of a new video annual report available at our website, www.eprkc.com. We are very pleased with this new communications piece, and invite you to spend 5 minutes giving it a look. It is a part of a new and invigorating communications effort we are beginning, and will attempt to clarify our story of success and our plan of progress of investing in specialized property niches where we hold a particular depth of knowledge.

All right, with that said, Melanie, I guess we will open it up to questions. Are you there?

Yes sir. And our first question comes from the line of Anthony Paolone with JPMorgan. Go ahead.

Thanks. Good afternoon. My first question is with respect to the deal pipeline. It sounds like you're seeing fewer build-to-suit opportunities as you mentioned because of the box office. Can you talk about just the non build-to-suit theatre pipeline and also your charter school pipeline and just the magnitude of those potential deals?

Sure, Tony. It's Greg. The reason I say the build-to-suit -- the reality of the box office is that it's not necessarily just a first quarter phenomenon that we are seeing, it was a fourth quarter and first quarter, fourth quarter of last year. So, some of the build-to-suits that we thought we get started for what would be a holiday opening in 2011, we have seen some of those pushed back. We think those are still in discussions with our various operator tenants and think those will still move forward and we are very excited about the opportunities that we have.

With regard to standing portfolios. We continue to see groups of theaters that we are looking at and hopefully will be successful in some of those. I mean there are several hundred million of those that we are looking at. It's just you never know on those when they present themselves and if you successful in meeting our underwriting or the price expectations of the seller. But we still have several opportunities that we are looking at in the theater space and we are very hopeful that we can accelerate some of those.

With regard to charter public schools. I think we are beginning to see the tip of the iceberg on what we believe will be a very fruitful charter school pipeline. We are starting to kind of harvest some of the fruit of the work that we have done over the years building relationships with the various parties. We are very excited about our opportunities both for this year and beyond to ramp that up to the kind of $100 million to $150 million point that we believe is sustainable over a long period of time.

Okay. So, if the build-to-suit activity does not transpire, if things just remain weak in the box office for 12,18 months, do you think there is enough between the charter schools that you are seeing now and the non build-to-suit theaters to maintain the deal flow that you guys have done historically?

Yes. I think we feel comfortable that kind of 275 to 350 is an achievable deal pipeline collectively for our various segments. And even if we don't have that build-to-suit element, which I don't want to lead you to believe that we don't think it's going to be there, because we are in constant discussion with our various operators and they are starting to very much gear back up for that. But we still believe, Tony, that we can maintain that deal pipeline and successfully bring those into fruition.

Okay. My other question is on the vineyards. I think you recognized about $1.5 million of revenue in the quarter and I think in the fourth quarter was $2.7 million, $2.8 million. What exactly is kind of the run rate that you see coming out of those properties now?

On an EBITDA basis going forward, I think is going to be about $1.5 million in terms of run rate and that is really driven by the Ascentia modification agreement as the bulk of that income along with, and that's a quarterly run rate, RB Wine and Carneros, we have some other leases in place. But I would say around $1.4 million to $1.5 million.

And does it seem like fundamentally those businesses are able to cover that at this point? That's the lowest you think it can go? Or what is really happening at the ground level there?

We have reset those leases a point that we think are sustainable, Tony. And evidence is that the industry is improving. So, I think we feel comfortable at that level and are comfortable that we have reset those to point that will be sustainable as we make our decisions on when and is the appropriate time to exit those positions.

Okay. One last one. On Concord, I know you cannot say much. Is EPR open to writing an incremental check to do something there or this contemplating contribution in a land if your potential partner gets something underway?

Tony, I think as we said we cannot really comment on the structure of that. We are exploring opportunities with them and we don't really have any structure to relate to you.

Okay thanks.

Our next question comes from the line of Michael Bilerman, with Citi. Go ahead.

Hello this is Mike Bilerman, with Greg, just on Tony's question -- from the stand point of, I think you've been very clear about not wanting to throw good money after bad. Which is -- you sort of danced into a lot of these other things and sort of got off track a little bit. So I think Tony's question is a very, very good one. Do you really, really want to put more money to work?

Well overall in the Company, yes, we do Mike.

No, I'm saying specifically in Concord, do you really want to throw more money at this thing?

I think to follow your lead . No we do not want to throw good money after bad. Yes we do want to see the asset productive and we are in an open negotiation on

I think Greg had a question as well.

Can you hear me?

Yes. Hello Greg.

I just had a couple of questions on the new charter school investments. The HighMark and CSDC they've traditionally been more in the development of the finances. Could you perhaps talk a little bit about the operational history? And talk about the enrollments and how many schools that have operated? Could you elaborate a little bit there?

Let me if I can, introduce -- Jerry Earnest is with us, that can add a little color to that. He is really the point guy on those relationships and development of the charter school portfolio, so with regard to CSDC and HighMark, they're kind of profiles of these guys and these investments.

Yes, CSDC is a not-for-profit financier and developer of charter schools. They run a variety of programs. They've been about around about 14 years. And they've been involved with over 200 charter schools from credit enhancement to a variety of different financial assistance. They also run a turnkey development program where they've built or constructed or renovated about 23 schools over the past few years.

And so within that turnkey development they call it a turnkey facilities program, we have provided financing for one of their transactions here in Baton Rouge. Where they are the tenant and they turn around and lease to back to the school. We are very excited about the relationship with Charter School Development Corporation and the team there and are reviewing other things with them right now.

As to HighMark development -- different background, they are based in Utah. They are a developer that's used to working with a whole variety of schools for expansion needs, new school ground-ups construction sometimes where there is very strong proven demand and they have done about a dozen schools over there. Their history, a well capitalized group owned by Stevens Capital, out of Arkansas . And so we have been courting and had relationships percolating with those two groups for now over a

So these guys are accomplished and a have the depth of experience in the industry. And so we are just now adding to their capabilities as a partner and helping finance their great track record.

And do you have a sense of their external growth plans? And versus say an Imagine?

I think external growth plans probably are not as robust as Imagine due to their capital depth quality not quite at the same level, but at the same time I think they still are very significant and they have double-digit per year school development plans.

Okay thank you.

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

Great thank you. I guess following up on some of the previous dialogue here. I was interested in the commentary surrounding the build-to-suit opportunities as well, but on the other side of it, with the weakness in the box office cause sellers to be more anxious to sell?

Well, we have not seen that yet Jordan, in the sense that most people who are in this industry understand that it is a marathon, it is not a sprint. And first quarter really does not represent a very major portion of the year and I think there is a consistent belief that this summer is going to rebound and regain what it has been given back in the first quarter. So, we haven't seen that yet.

What do you think -- there seems to be a little bit of a disconnect in those two thought processes right? The sellers believe it's a marathon, not a sprint. But the operators are a bit more cautious, in sort of the interim watching the 1Q numbers. Can you connect that?

Yes, I will try the best I can. As you can imagine, most of the operators now are run or have run a major component of private equity in them. And that has not been around for the ebbs and flows of the theater industry. And therefore they are a little more cautious.

Likewise, you know as David said, was some discussion of VOD I think there is some degree and of caution about starting a big project right in the midst of a box office quarter that's down. People were, I would tell you were likewise, exuberant last year as we were coming out of what was a great year with Avatar coming on. So it really kind of ebbs and flows.

Okay that's helpful. You maintain the absolute level of investment activity expectation for the year. What about cap rates? What about mix?

We're still seeing cap rates in the nine to 10 cap range. I mean were very pleased with where our Cinemagic transaction came out at. I think as far as a mix, I think we still believe that that will be more theaters than schools as we are gearing up now. The fall we may see more schools start rolling in as people start gearing up for the following year, but we think from a mix standpoint that will still being predominantly theaters.

Okay. And then I may have missed this Mark, just on the Ascentia piece, was the pay on the $2 million repaid on receivables, was that included in income booked as sort of a recovery or is that just a payment of a receivable?

We had anticipated that at the end of 2010. That was actually a receivable that dated back to the fourth quarter of 2010. We had it is a receivable and in fact then got it paid as part of this transaction.

So, no income line item or P&L statement?

No income effect, because that income had already been recognized.

Okay. So, there is $1 million of lease term income. Is that in top line?

Yes. That is new and that will be booked in the second quarter.

Oh, in the second quarter? Okay got it.

Yes, because it closed subsequent to the end of the quarter.

Okay sorry. And then in terms of Empire, I know there is not much to say. Just curious in terms of your expectations for a timeline on that dialogue. If you've put up any sort of brackets in terms of when this is to take place.

Yes, there two, I guess, dates in the announcement. It is a six-month a negotiation agreement, but there is a kick out clause of 60 days if we don't think we're getting to adequate progress and a definition of a term sheet. So, we do think it is going to take some time, it's not -- it's a large and complicated topic, so those are the two time frames I'd give you to look for.

The press release dates, fair enough for a start date on that?

Yes.

Lastly, you guys had talked about [white] paper on charter schools. Anything coming up on that?

Yes shortly. We have that imminent. Thank you.

Our next question comes from the line of Rich Moore with RBC Capital Markets. Go ahead.

Hello, good afternoon guys. Could you explain -- I'm not quite sure I understood -- on a three new charter schools, who is the operator in each case?

I'll let Jerry go over this.

Yes. These are, -- in the three we have, two of the three are existing, independent schools with several years of operation in one case, almost two years in the other case. The other one in Colorado is a new build with a very strong waiting list covering the enrollment. In fact, they're going to probably have to have a lottery to determine who does not get into the school when it opens. But all of these three are independent schools.

Okay so not the usual professional operators that you guys -- it's not an Imagine kind of thing.

No, it's not. These are high-quality schools.

Understand though, CSDC and HighMark is our tenant.

Okay. So, you feel comfortable that they selected someone.

That they have credit support and that they have made a good job with the selections and that we have verified and agreed and concurred with their selections of these tenants, having underwritten them directly ourselves.

Okay good. I got you. Thanks. And on the -- when I look at your data in the supplemental there is one charter school that is separated from the mortgage income that is usually associated with the charter schools. It's a small thing, but I'm just curious what that 12 is, I guess, there?

We have a note receivable that goes back to awhile from Mosaica. That must be the interest income from Mosaica.

Right, Rich, in fact, our investments in charter schools, just as a remind everybody, are fee property investments. However we do show them on the financials as financing because, at least the ones with Imagine are long enough we have to carry them as a financing. There is one loan that actually predates our relationship with Imagine and that with a school operator called Mosaica. And that is one of our first relationships that lead us into this area that we had not done any subsequent business with. And that is kind of a complicated dialogue, but that is the one, we had a note there and I think that is related to that no. It is a very small investment.

It is, yes, I can see that. Thank you David. And then looking at maintenance CapEx. Does that basically go back to normal, if you will, now that Dundas is gone?

Basic maintenance CapEx.

Yes some of that CapEx we were doing a the renovation at [Delatha] 30 which is kind of anomaly, a parking lot renovation and then we moved into our offices here and had some FFE and TI's related to that. And then, you're right, there is some associated with Toronto Dundas Square. So, I think it does come down from what you might have seen the last couple of quarters in the next two quarters.

Okay. Does it go all the way back to the low level of, say, three quarters ago?

Yes. We usually -- normalized, annual kind of maintenance CapEx was probably in the neighborhood of $2 million to $2.5 million dollars, something like that would be a normalized, and I think we have been running a bit above that the last two quarters but I think it's been a bit of an anomaly.

Okay good. Thank you. And then Wes has question for you as well.

Hi guys, I have a quick modeling question for the Schlitterbahn mortgage. It looks like you guys received income between 7% and 10% on the mortgage. What was the blended rate for the quarter?

It was all at 7%.

It should be seven for the quarter.

The percentage rate I thought might have been at Q4, it was in Q1. We had a percentage year and they are operating at a level that we can receive a percentage rent.

Okay thanks guys.

The loan is all at 7%.

Our next question comes from the line of Andrew DiZio, with Janney Capital Markets. Go ahead.

Thanks good afternoon guys.

Hello.

Just a question, an update on I guess the work you are doing at the Grand 24 in Texas. If you have anything you can tell us as far as what you think you'll be spending to reposition the wing that's being vacated ? What kind of returns your getting on that? That kind of

Yes, I think Andrew, that we are going to be scheduled to open that in mid-summer. With the theater and with the entertainment tenant. I think our expectation is on that project that we will have a double-digit return which will be at or better than where we were before.

And, as you kind of move forward and you look at expirations in coming years and you've talked about having to do some downsizing, I guess it's a case-by-case basis, is that something that you think you can replicate?

Well I think that what we are doing I think we can replicate, I think the tenants will be what can be different in each location. Because when you look at moving in the right theater tenant, you need to look at who was the dominant player in that area who is the right theater tenant, and likewise what is -- what can work in that area for the excess space.

So, it really becomes location by location, but we do believe and we will be able to demonstrate that the flexibilities of these properties and our ability to reconfigure them and to make them highly productive going forward.

Okay ,thanks Greg. And then just one other question. Speaking of trying to reclaim some assets. Looking at the vacant land that you still own on the Schlitterbahn asset, is there any update as far as potential to monetize that?

I think the main update there is we don't have anything specific on the land but there is, again adjacent to us there is the opening of the new state of the art soccer stadium. What was the once Kansas City Wizards now the Kansas City Sporting -- Sporting Kansas City is their new home. And the commitment also within the zip code right there, also about a quarter mile from our site of Cerner, to add its third campus in Kansas City with 3000 jobs, minimum. So, we do have again a lot of activity that is bringing a lot of interest but we don't have any announcement with regard to tour land specifically.

And I want to clarify one thing on Schlitterbahn, we are going over that, we did have an incremental investment, Wes, you were correct of $1.5 million in the quarter and that new investment does bear interest at 10%, so there is no percentage rates, the base loan is at 7% incremental money that we're -- incremental money is at 10%. So you're right that additional $1.5 million for CapEx for the quarter was at 10%.

Okay that's all for me. Thanks guys.

Our next question comes from the line of Michael Bilerman with Citi. Go ahead.

Just in terms of doing unsecured note issuance, what is the timing that you have in mind and size and sort of targeted rate?

Well Michael, as Mark went over, our cash position is pretty strong, our leverage is very long with regard to our revolver . But, I think we think of it the transaction that we did at $250 million as kind of the target size, that or bigger, because the advice we're getting is that's a figure we want to set as a minimum on follow-on transactions. So, we don't have that need immediately though, inasmuch as the line is very lightly drawn due to the pay down with the Toronto Dundas sale. So, the timing is probably going to be off in the future a bit, but the target size would be $250 million regularly, something like

Would you try to be prepay any of these maturities early to go after it or no?

It would be expensive with the yield maintenance on some of these secure debts, so not likely. As we kind of finish off the year. We have sort of a modest debt issuance toward the end of the year and our plans for the year and finishing out with our line of credit. If you kind of think of where we are today with about $50 million spent so we have $250 million to go. The line kind of gets to about a half drawn in the line and you think there is a bond transaction or some type of debt transaction of a smaller number, that could be grossed up though, and a bigger transaction could be done as we go into 2012. Or if investment spending accelerates, we could hit a bigger bond transaction.

Then why did you pay off the winery loan? Why would you have just left that financing in place and sort of see how the assets go over time?

It really gave us a lot of flexibility to deal with those assets, rather than deal with notifications and releases and consent and so forth from the mortgage holder there. It really allowed us, as you saw, there was a breakup of some of the assets, selling the Gary Farrell piece out of Ascentia so that flexibility we have now would not have been afforded to us if we had kept that loan in place.

And really a second benefit is the rating agencies obviously like when we're moving to an unsecured model to payoff that secured debt. And so there is really kind of another benefit of doing so in addition to the flexibility.

Okay thank you.

Our next question comes from the line of Anthony Paolone with JPMorgan. Go ahead.

Thanks. On the Schlitterbahn item, I know it's small potatoes, but how much is the incremental commitment there that you are getting this 10% on?

It is a how much has been spent or is it how much is our total commitment, Tony?

I guess both.

It's about $9 million total commitment and I think through the quarter about $1.5 million is what's been spent.

Okay. And what is that for, I guess? Because I was under the impression that the next step in that was to start getting repaid on the 7% money, but it seems that you are putting more into it.

While this was expansion of both the New Braunfels facility in some expansion in Kansas City because of the fact that they felt that could be income producing, and therefore that's where you see that it went in at a 10, it went in at a normalized number and the income that it produces can support that.

Okay. And then another one is pretty small, but it looked like you added a another China asset to the mix. I know there are really small dollars, but I'm just curious as to what the early read is on your investment there? How it is going? What exactly is physically up and running at this point, if anything?

Yes Tony. Two theaters are up and running about both are cash flow positive. And they are performing largely as planned . And we are looking to open a third, we have a third underway, and we are in still in that evaluative phase and we're still early on. We've hardly hit the nine month mark with one of them. And we have not hit the six-month mark with the other one, so it's still very early data, but that is the status. Two theaters are up and going, they are flagged as Premier International Cinemas,

And what sort of plan on those? Like how many screens and what would be the return on invested capital? If they play out according to plan? Just some general underwriting, if you will.

Well, I said before, we expect a premium to the returns achieved here, something on the order of 300 basis points is the plan. And we think the maturity, a little longer on these assets to more like two years rather than the very short maturity we have in opening the theaters in the United States, just because we're sometimes accessing new areas of the theater there. Or theater of that nature.

There are usually six to eight, they're small investments. And they are built as kind of leasehold improvements or condos in vertical shopping theaters -- shopping center executions plans in China. So, that is the plan to roll these out for now. We continue to look at the market at the opportunity for things more comparable of standalone theaters that we do or entertainment centers in North America. But we don't think that the market is there yet.

Okay. And just, Mark, last thing you mentioned, the $1 million that you'll book in 2Q, for I think, termination income. Is that part of the $3.40, would that be included in the $3.40 to $3.50 guidance or not?

Yes. It's a couple pennies, so it's within the range, so we did not change our range. But yes, it is the $3.40 to $3.50.

Okay, got it. Thanks.

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

Hello. I just had a quick one on AMC. I noticed that it looks like their process is up and running again in terms of their IPO. And I am just curious if you guys have had any conversations or thoughts on sort of the ramifications of that transaction?

Well I think that we wish them well in that process, I think it's a start, stop. I don't know exactly where it is, honestly Jordan, right now. Because there some reason for them to proceed, there also some reasons as we went over the issues in the box office currently. It may get a lot better a lot sooner, and the VOD discussions for them to delay. So, for us I think the ramifications are not great inasmuch as we still expect our properties under lease to stay that way certainly. And further we expect to do business with them. I think the position we play in their overall capital structure and the cost of capital we have available to them is still going to be attractive for the sale-lease back of their properties in the same way the features it has been in the past.

So, in their perspective, and they filed another amendment on Friday which was pretty close to the prior amendment a couple weeks before, so it looks like it's moved further ahead quickly. It says if they're paying down about $500 million of debt, which obviously has implications on their cost of capital. Would you expect that cap rates on incremental deals with them or maybe put another way, cap rates on market transactions with AMC as the operator would be headed lower?

I will take that, Jordan. It's Greg. I don't think that we see that moving measurably. I mean if you look at their leverage position relative to other theater operators and where we are doing transactions with other theater operators. I don't think it changes that.

Nor have they stated an intent to begin to own their own their own properties. It's always been their stated intent that they are lessor of properties not an owner of properties. I don't see, even if they were successful in paying off some of the debt that it materially changes their credit metrics to a difference.

Okay. That's helpful. Thanks guys.

And ladies and gentlemen we show no further questions at this time. I would like to turn the call back over to management for any closing remarks. Please proceed.

All right. Thank you very much. I want to say thank you to everybody again for joining us. We always up for to this update with you and of course we are always open to your direct contact and questions you might have for us. Check in with us if you'd like to, otherwise we will see the next quarter. Thank you very much.

Thank you.

Ladies and gentlemen thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.