EPR Properties (EPR) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Entertainment Properties Trust Earnings Conference Call. My name is Maria, and I will be your operator today. At this time, all participants are in listen-only mode. (Operator Instructions). I would now turn the conference over to Mr. David Brain, President and Chief Executive Officer. Please proceed.

Thank you. Hello, everyone and good afternoon. This is David Brain. We'll start with our normal preface and that is, I need to inform you this conference call may include forward-looking statements defined by the Securities Litigation Reform Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate, or other comparable terms. The Company's actual financial conditions, results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of these factors could cause these results to differ materially from those forward-looking statement contained in the Company's SEC filings, including the Company's report on Form 10-K for the year ending December 31, 2010.

All right. Now, if that understood, well, I'll say good afternoon again. Thank you for joining us. This is the earnings call for the second quarter 2011. This is David Brain, the Company's CEO and with me to go through the news of the quarter as usual are Greg Silvers, the Company's Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

We'll start with headlines for the Entertainment Properties Trust for the second quarter 2011 and then get into the full discussion and that is the first headline I have for you, and by the way this is available via our website. Those of you who aren't familiar, it's -- there are some slides to go with the call.

The first headline is that key investment categories were expanded with new investments and broadened with new client relationships during the quarter, including a few buid-to-suit [peer] deals we'll discuss as well as a number of new charter public school projects.

Secondly, strides were made towards reinvigorating our underperforming assets that includes a first stage agreement on the Catskills, Concord land development as well as some moves with regard to wine industry assets sold, released or listed for sale.

The third headline today is that major investment categories in our portfolio performing well despite the slow economy overall. That includes theater box office, ski industry assets that just completed their relative performance year and our water parks that are in the midst of their performance year as well.

Fourth headline is that, we are today beginning and announcing the process of redeeming our callable 7.75 Series B preferred shares. We'll talk about the reasonings with that.

And last headline this afternoon is that our guidance for investments albeit held at $200 million to $400 million or transactions in total. The timing of these leads us to lower and narrow our cash earning guidance for 2011.

All right, I'll return now to the first headline to go through a little bit detail, that is the key investment categories were expanded with new investments and broadened with new client relationships. Well, last quarter we discussed directly negotiated transaction for four property [$37] million sale lease back with a new client in New England. This quarter we've added to that theme with agreements for three new pre-leased theater development projects with both existing and importantly the new cinema operators. These projects will be funded through the current and probably next several quarters.

We've also added to our investments this quarter with transactions in an industry segment of focus that is charter public schools. We've committed to five new property investments including a couple of new clients in this category. These investments are also to be funded over the next several quarters.

Greg will add details about these transactions and the robust nature of our investment pipeline that leads us to maintain sizable investment guidance of $200 million to $400 million for 2011. And I will have more on this as we discuss the last headline and as Greg gives his comments.

Now turning to the second headline, strides made towards reinvigorating underperforming assets. With the sale of Toronto Dundas project achieved with a [handsome profit] announced last quarter, I want to turn your attention to a couple of a pockets of lower yield or non-performing assets that hold the prospect of significant increases in shareholder results.

Our Concord land investment in the Catskill Mountains, 90 minutes outside of New York City, that was interrupted on its course to be a major and important East Coast gaming destination in late 2008 due to the failure and failure to fund of a 350 year old European bank. And has language sense due to both the state of capital markets funding with new developments and litigation, this project took a significant positive step towards revitalization this quarter.

Entertainment Properties signed a term sheet with Empire Resorts, a publicly traded company and the incumbent gaming operator in the Catskills to relocate their racing and gaming operations to our property.

Over the past few weeks, we have had with Empire several quite productive meetings with senior New York officials connected with the Governor's office, economic development, the lottery, racing and wagering departments and local officials in Sullivan County. Importantly, we are not asking for any additional legislation or incentives and our discussions have been very positive.

We don't have a lot of details to provide you at this time as plans are still in formulation. We are anxious to provide you those details and we'll do so as soon as possible, but the important point is that progress is underway and holds the potential for significant contribution to shareholder results in future years.

Also material progress was made with recycling or reinvigorating our wine industry asset base. The Company completed the sale of our property investment supporting the Gary Farrell brand and further expects to enter into an agreement in the third quarter to sell all its vineyard investments in Paso Robles, California.

During the second quarter, we also entered into a short-term lease agreement and purchase option for some facilities related to the Buena Vista brand expected to result in the sales sometime in the next three quarters.

Beyond these specific transactions, the Company also entered into a master listing agreement for all of its remaining wine industrial holdings. In connection with this action and in accordance with accounting rules, we made and required appraisal of the current market values of the assets and revised their carrying values to such. This has resulted in a non-cash impairment charge this quarter. Our intention is to be determined the patient and prudent in monetizing investments in this category over a period that make sense for a year or two. We will do what we can of course to realize better than these carrying values. Both Mark and Greg have comments further on this thing.

Our third headline today is that major investment categories are performing well despite the slow economy. The economy is still uncertain and it's recovery showing mixed signs of progress in contraction, but our focused investment industries and our properties in particular are displaying strong performance.

Theater box office in the second quarter was up as predicted over the prior year by about 6.5% and has enabled the year-to-date tally compared to 2010 to move from down significantly at the time of our last call, and nearly 20% by -- now behind by only current -- currently only behind by mid single-digits.

The second calendar quarter also brings an end to our ski season for our properties. And just as last year, we have a report of great performance. This category represents a material part of our investment portfolio and is displaying a solid increase in revenues, cash flows and coverage and obligation to us.

Also of notice, the support we are getting for our water park investments from the current intense Midwest heat wave. Albeit, only by about 5% of our investments and the season is certainly not over, but I'm pleased to tell you thus far revenue performance is running well ahead of last [year to date]. Greg has details on all of this.

Now going to our fourth headline. We are today beginning the process of redeeming our callable 7.75 Series B preferred shares. After some considerable deliberation, we have determined it's in the best interest of the company to call 7.75 Series B issue. It's a relatively small issue, $80 million face value. But due to market conditions, the great condition of our balance sheet and financing alternatives, we have decided to exercise our redemption option to lower, both our cost to capital and improved coverage ratios. Mark has more information about this.

Our last headline this quarter is that guidance for investments is held at $200 million to $400 million. The transaction timing leads to lowered and narrowed cash earnings guidance. While transaction timing this year has not been what we would have liked or expected and as a result our plan and guidance of FFO per -- as adjusted per diluted share. Although, on target for this quarter is now expected be a bit below prior guidance for the year as a whole.

We are still positive about achieving significant accretive portfolio addition to $200 million to $400 million for the calendar year. But now expect larger volumes if achieved it to be more prominent near the end of the year, reducing their per share contribution for 2011. This is unfortunate but we feel it's only a bump in the road of progress. Please bear in mind that whatever our portfolio growth guidance, we never let any target drive our underwriting or our investment decisions.

Overall, the Company is on track with key initiatives as outlined and the growth in shareholder results outlook is robust for 2012 and beyond.

I'll turn it over now to Greg and Mark and join you as we go to questions in a few minutes.

Thank you, David. In the second quarter of 2011, we continue to execute on our stated objectives of expanding our existing lines of business while maintaining our disciplined approach to identifying and financing specialty real estate that deliver sustainable economic performance. I would like to spend a minute today discussing our portfolio performance and then talk about our achievements for the quarter and finally our investment spending for the balance of the year.

With regard to our portfolio, theater performance for the second quarter has delivered on the recovery that we forecasted at the end of the first quarter. As you will recall, box office performance was down approximately 20% at the end of the first quarter, however, we're [unhappy] to report to you that through last weekend box office is now down only 6%. As we discussed, the balance of the year, particularly the holiday season looks especially strong this year as compared to 2010 and we continue to believe that the year will finish flat to slightly up.

Overall, we are very happy with the performance of our portfolio and while this last quarter does not reflect any additional theater activity, I'm pleased to report to you that we've approved three new theater build-to-suits to begin this fall and we anticipate several more that will get underway in the fourth quarter.

Last quarter, I informed you that preliminary results for our ski portfolio were very strong. And I'm happy to report that our assets continue to demonstrate the recession resisting characteristics that we previously discussed.

For the season, revenue was up approximately 5% and EBITDAR was up double-digits resulting in an increase in coverage from last year's 2.2 times to a strong 2.5 times. While it seems strange to reporting ski results while most of the country is suffering through a heat wave, there is one segment of our business our [shloterbone] assets that is most appreciative for this heat. As we discussed in the past, there is nothing better for water park performance than dry hot weather. And for most of the country, particularly Texas this result has helped our properties with overall revenues up 17% through last weekend.

Our entertainment retail centers continue to perform well with overall occupancy at 96%. We continue to make significant progress in expanding and diversifying our public charter school business.

During the quarter, we purchased five public charter school properties for development. Furthermore, we expanded our tenant base with the introduction of Phoenix Charter Properties and Portfolio Charter Investments. Phoenix Charter Properties is an experienced public charter school developer in the Southwest region and has developed over 14 charter schools and Portfolio Charter Investments has developed over seven charter schools. 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 the new relationships and what they bode for the future.

On the disposition front, the Company continues to execute on its strategy of exiting the vineyard and winery business. As we discussed in our last call, subsequent to the end of the quarter, the Company sold its interest in the Gary Farrell Vineyards and Winery for approximately $6.5 million, which was approximately equal to the net book value of the asset. Also, the Company anticipates entering into a purchase agreement for the sale of its EOS Winery and Vineyards for approximately $13 million. These transactions will allow us to redeploy capital from underperforming assets and will drive increased earnings as we put this capital to use. Additionally, we are actively marketing the balance of our vineyard and winery portfolio, as we hope to exit the balance of our investments within the next two years.

During our last call, we stated that we had entered into an agreement with Empire Gaming to explore the potential development of our Concord property. The agreement provided for a 60 day window to finalize the term sheet under which Empire would develop a gaming facility on our property. I'm pleased to report to you that the parties have in fact reached agreement on such a term sheet.

Due to the confidentiality I cannot go into specifics of the term sheet. However, I can share with you that the agreement is consistent with our goals of creating additional earnings and cash flow of an otherwise dormant asset while not providing additional capital to the development of the gaming facility. We anticipate that as we continue to make progress with Empire on the term sheet that additional information will be made available.

As David indicated in his opening comments, our capital spending is now targeted at $200 million to $400 million and several of our development projects that we anticipated to begin in the spring are now scheduled for the fall. We are however looking at several portfolio deals that could push this number to $300 million or higher, but as with any purchase of assets, we do not control the timing of seller and we will update you as we get greater visibility. However, our opportunity set remains robust and while these investments have not met our timing expectations and will impact 2011 results, we remain confident in our ability to identify and close deals in our primary asset classes.

Notwithstanding this impact, we continue to believe that our disciplined approach is a better way to deliver shareholder value over the long-term and we will maintain this rigor rather than focus on short-term results.

With that, I will 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. Turning to the first slide, FFO for the quarter was $4.4 million or $0.09 per share. Before we get into the details of the various line items versus the prior year, I would first like to discuss the non-cash impairment charge that impacted our results for the quarter totaling $0.74 of FFO per share.

As David mentioned, during the second quarter, we engaged outside brokers [towards] all of our remaining winery and vineyard properties for sale or lease with the primary focus on selling these assets within the next two years. As a result, we evaluated our vine portfolio for impairment considering the shortened expected holding period and the results of independent appraisals prepared as of June 30.

A non-cash impairment charge of $34.3 million was recorded in the second quarter, which represents the amount of the carrying value of the assets exceeds the estimated fair value. Subsequent to the charge, the net carrying value of our Vineyards and Winery portfolio at June 30 was approximately $147 million representing approximately 5% of our total assets.

Our FFO per share before charges was $0.83 and as expected was essentially flat with last quarter and the prior year. However, as I have been saying for the last several quarters, this result was achieved with significantly lower leverage versus a year ago. I will touch on that more later in my comments. Also, as we had anticipated, our second quarter results reflect the short-term dilution of selling Toronto Dundas Square at the end of the first quarter and initially is in the proceeds to pay down our revolver. We have not yet fully recycled the proceeds from that sale in the new investments, but expect to do so in the coming quarters.

Now 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 5% compared to the prior year to $74.4 million. But in the revenue category, rental revenue increased 4% to $56 million, an increase of $2.2 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.

The second quarter is historically our lowest quarter for percentage rents based on the lease years of our tenants. Percentage rents for the quarter, included in rental revenue were $84,000 versus $62,000 in the prior year. Tenant reimbursements increased by approximately $500,000 versus the prior year, primarily due to increases at our Canadian and New York entertainment retail centers as well as a stronger Canadian dollar exchange rate.

Mortgage and other financing income was $13.8 million for the quarter, up $755,000 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, our property operating expense increased by approximately $700,000 versus the prior year, primarily due to increases of our Canadian, New York entertainment retail centers, as well as expenses incurred at the theater and retail development in Dallas, Texas prior to commencement of the new triple net leases of this location. A stronger Canadian dollar exchange rate also contributed to the increase. These increases were offset by lower bad debt expense primarily associated with our Vineyards and Winery tenants.

It should also be noted that the increase in property operating expenses versus the first quarter of this year of approximately $300,000 is primarily driven by non-recoverable expenses that are not expected to recur.

Other expense were $700,000 for the quarter, an increase of $600,000 over last year. This increase is due to losses recognized upon settlement of foreign currency hedges, as well as expenses incurred related to the Concord Resort project.

G&A expense increased $0.5 million versus last year to approximately $5.1 million for the quarter, due primarily to higher payroll and benefit related expenses including stock rent amortization, as well as increases in professional fees.

Income from discontinued operations for the quarter of approximately $1 million relates primarily to the operations of Gary Farrell Winery prior to sale including a $1 million lease termination fees for the modifications of Ascentia Wine Estates previously disclosed, as well as the operations of the Pope Valley Vineyard and Winery, which was held for sale at June 30.

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

As you can see our coverage ratios have strengthened considerably versus a year ago, with interest coverage at 3.7 times, fixed charge coverage at 2.6 times and debt service coverage at 2.8 times. Our AFFO per share for the second quarter was $0.84, $0.01 above FFO's adjusted per share and continues to well support our common dividend, which was increased 8% over the prior year.

As I mentioned earlier, our operating results were achieved at lower levers than a year ago. Our debt to adjusted EBITDA was 4.2 times for the quarter versus 4.7 times in the prior year. In addition, our debt to gross assets ratio was 34% at June 30, a 400 basis point reduction versus a year ago. This ratio remains below our previously stated target range of 35% to 45% for this important metric and continues to provide us great flexibility as we move into the remainder of 2011 and beyond.

Let's turn to the next slide, I'll provide a capital markets and liquidity update. At quarter-end, we had total outstanding debt of $1 billion of which approximately $950 million was fixed rate long-term debt with a blended coupon of approximately 6.5%. We had $90 million outstanding under our revolving credit facility at quarter end. This leaves us over $290 million of availability at June 30 and our unrestricted cash on hand was $16 million.

During the quarter, we also completed the registration of our senior unsecured bonds totaling $250 million. Additionally, as David indicated, we have begun the process to redeem our 7.75% Series B preferred shares on August 31 for a total of $80 million plus pro rata dividends for the quarter. In conjunction with this redemption, we expect to recognize a charge in the third quarter of approximately $2.9 million or $0.06 per share, consisting primarily of original issuance cost from 2005.

We believe this redemption makes sense and that the dividend rate is currently out of market and we have the opportunity to both lower our cost of capital as well as further improve our fixed charge coverage ratio, which is an important metric in maintaining and advancing our investment grade ratings.

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'll 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, as Greg indicated, our guidance for 2011 investment spending is a range of $200 million to $400 million. Although, we now expect that this spending will be more heavily weighted towards the second half of 2011 than originally planned, with much of the expected spending occurring in the fourth quarter.

As a result of the shift in expected timing of investments, we are revising our 2011 guidance for FFO as adjusted per share to a range of $3.35 to $3.42 from the previous range of $3.40 to $3.50. Including charges incurred to date as well as the expected charge related to the Series B preferred redemption together totaling $0.99 per diluted share, our guidance for FFO per share is $2.36 to $2.43.

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

All right. Thank you, Mark, Greg. Now, we'll go to questions. Before we do, I just want to draw at a couple of points I hope are clear. The first is that EPR is really in great shape. The portfolio in very broad measure is performing very well. Also, our Focus Investment Industries in the checkered economy are performing quite well and the balance sheet is in superb shape. All those put the Company in really great position.

The second point is that Entertainment Properties is taking some important actions and making some moves that although they are trimming immediate shareholder results, they are setting the stage for better and greater performance and returns in the near and long-term. These include our recent Toronto Dundas sale, which trims FFO performance while we hold that capital before it's redeployed, our Concord attention and effort we are applying there, the wine industry assets been positioned for sale and redeployment, the charge we're taking this quarter, the redemption of our Series B preferred and overall the Company operating in significantly lower leverage.

We believe these are the right moves. We hope these moves are clear in their intent. We hope you agree with us that we are doing the right thing for the long-term performance.

With that, I'll turn it over to questions and operator, are you there?

(Operator Instructions). Michael Bilerman, Citi.

Good afternoon. It's Greg Schweitzer with Michael as well. I just wanted to start off talking about the visibility of the investment pipeline. Is there still a big charter school opportunity up there? You've talked before about the 50-50 possible split between schools and theaters?

Yes, I mean, we -- I think, we still see those, but much like, Greg, we've talked about in the development of our theatres and in the development of schools. There is a cyclical nature to when things start. And if you looked at our plan if we -- and we talked about in our last call when theatres get delayed, they get delayed for the next season that they want to operate under. And theatres only operate in open during -- going into the summer or going into the holiday season. So this spring, when we said we had projects delayed that immediately kicks them to the holiday season. And similarly with schools, schools have to open within a set time frame. And if you don't make that the initial season, then you are into the fall planning for next year school opening. So there is a lot of timing issues with regard to that, but as far as the opportunity, as I said, we think that, we've got -- we announced. We've approved three development deals. We think there's several more that we're going to announce here going into the fourth quarter. I think, likewise with our schools, I think we're going to have many more announcements with regard to school starting. I think we're still very positive and feel that the pipeline is very robust.

(Technical difficulty) schools, we found these guys with more place to little later and faster build time than we expected. So, these things will deploy capital a little later starting like in Q4, then build into Q1 and Q2 into next year. So that our capital deployment will be a little delayed over what we planned.

Okay. And then on the school acquisitions, are there any forward-looking metrics that you sort of focus on (inaudible) like testing trends or state or local budget health. Perhaps you could talk a little bit about some of the key underwriting items as you look at that?

Yes. I mean, I think you hit some of the one, I mean, we're always looking at our schools as far as enrollment, which being the primary thing, but there's different constituent groups as you kind of identified there's the state, who is the funder. So we're monitoring kind of the various states and how they're reacting to budgetary pressures. And as we've spoken we underwrite actually some pressure into the deals that were doing and anticipate some downward pressure in our underwriting. So we are -- so we look to whether its waiting list, it's enrollment, it's funding and we monitor kind of all of those things that we can talk about giving the -- as we do at the end of the quarter, we talked about the enrollment figures. They generally don't change from the fall when we have certified enrollments. How, as we go into new deals, we're definitely looking at enrollment and waiting list and see where the demand factor is.

I think, Greg, if you're looking for a template, it will vary little bit but the ingredients are a little [or more so] varied than they are in a theater world because of the regulatory, some of regulatory nature of the industry. But they do include our examination of the health and the reimbursement levels to help the state government reimbursement than competitors, the operators, the test scores performance, there are a variety of things in this. But, I can't tell you, there are certain indices in all those areas we look at. No one completely outweighs everything else.

Dave, it's Michael Bilerman speaking. Just on the wine business, the $170 million that's what you've marked down the entire business to at this point?

No, we've marked it down to $147 million.

So, just looking in the supplemental page 25, that $167 million, is that pre-sale or something then?

$167 Million of our investment, that might be our investment number, that's pre-depreciation. Our carrying value is $147 million.

[Right. Just] and so you're saying that your expected sale price is $147 million?

That's -- yes, exactly. That's the fair value and that's why we've written it down, that's our new carrying value.

Yes, this is pre-depreciation. So you've -- you're saying [you've adjusted] book value. Okay. And then Dave wasn't your brother involved somehow in this business?

He was a partner in one of the advisory firms we had involved, yes.

And is he still there or that's been separated?

He is.

Okay. Thank you.

Anthony Pallone, JPMorgan.

Thanks, good afternoon. On the $200 million to $400 million of deals, I guess, for the year, how much of the rest of what you are looking at in the pipeline is build to suits [via the] schools or theaters versus existing assets?

I think that the majority of the baseline of the $200 million is what we feel is our build to suit pipeline on schools and the opportunity set is the portfolio of deals that will take us above that, Tony.

Okay. The 200 schools and theaters or just schools?

Schools and theaters for the balance of this year.

Okay. And then what about returns on those -- on those build to suits versus acquisition cap rates?

I mean, we've said that, acquisition cap rates have hovered around in the [9 to 10]. I would say the development side of that is 50 to 75 basis points better than that.

Yes, that's pretty traditional for what we said over the years.

And Tony, so that we're clear. That number -- the number that we start on projects in the fall isn't the total number, because those as development projects will carry over into 2012. So it will just be projects that will have fund, that's funding in 2011.

Sure, (inaudible) make sure I understand. So for instance all of these $200 million of build to suits happen this year, the capital out the door will be $200 million or that's the total commitment over time?

The capital out the door will be $200 million. The commitment will be larger than that.

Okay. And if these are under construction, would you be getting those returns you decided initially through the process or would you start in some sort of a construction loan type return, like I think you did with [shorter bond] originally and then move to an ownership position later?

Most of ours are on the variable rent, which is generally at or slightly below what our terminal number is when it kicks into the lease. So it could be at the stated number or 75 basis points below that.

Okay. But not something like [L plus] a few hundred?

No.

No. Very close to our target yield. Sometimes (inaudible) slightly less during the construction period.

Okay. And then just moving to the charter schools a bit more and understanding the credit and how things could play out there and how do you think about it? You talked a lot about just the school level metrics. But what about just understanding sort of the tenant or operator credit if you will and a situation like thinking about Imagine being your key operator there? Your schools are all cross collateralized. But if they start to have financial pressure, what kind of protection do you feel you have from them trying to just come in and renegotiate or just how do you stress test the operator there and how things could play out there if other parts of their portfolio weren't working out?

Well, this business, Tony, we -- actually we put in some credit support into all of our structures. So that much like we've seen in the Imagine. We have 8% to 10% of credit support allowed in the structure already. Then as I said, when we underwrite these, we stress these down from a funding level to see if they're sustainable. So we have -- we create structurally quite a barrier in there with both credit support and underwriting. We think there is viability of the operation of the school.

I'm sorry that 8% that you said you build on, what is that exactly?

8% To 10% either additional credit support from the tenant whether that be like in our -- whether that be in the form of an LC or additional credit support of a well funded guarantor and things of that nature in the structure.

Okay. And then finally, on Concord, I know you can't talk a lot about what's going on there at this point, but just curious it's a fairly large potential project. I'm not that familiar with gaming and financing that sort of thing. Can you point any other areas in the country right now or any similar projects you might be getting, big levels of financing. And just how you think about the viability of getting something of that size financed right now and lining that up?

Well, I think, first of all I think one of the points that we need to bring out is you're talking about us getting financing for it. As we said, we wouldn't be involved in the construction of the gaming facilities. So it wouldn't be us finding financing for that. Empire has stated that they have financial capability to execute on their plan they had presented to the State a plan for the redevelopment of their existing facility already. So, that is -- it's anticipated that that will not be our burden to bare.

Tony, the other thing I'd tell you is there's a comparable gaming facility in [Okuta] underway. And financing doesn't appear to be a particular problem for that project in the New York area. And the ownership is reasonably comparable. Although, it is not exactly the same. The majority [on in] both cases is the same.

Okay. Thank you.

All right.

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

Hi, I'm sorry if I missed this. I jumped on a little late, but regarding the preferred redemption, it sounds like it's about an $80 million issue at 7.75 quarters, which doesn't seem like a terribly expensive piece of paper in today's environment for permanent piece of capital. Although, correct me if I'm wrong. I'm just curious what the thought process is here on that redemption particularly ahead of what seems to be $300 million of investment activity? And I'm curious how do you fund this and that, what are sort of your expectations there?

Well, I think broadly I'll just tell you, I introduced that whole topic, [we're saying] after considerable deliberation. There is merit to what you say about it being permanent capital, yet at the same time, it's probably at a rate higher. We think it's achievable at a better rate and we think has actually the -- we have tremendous debt capacity in the Company and we're operating the level even below our target range, which is then reduced from what it has been traditionally our target range of leverage.

So, and it's with some significant consideration of that capital, that it's decent. But we think that the improvement both in terms of pricing and in terms of what it does for coverage ratio and does for our coverage ratios that are very important to the rating agencies as we now become investment grade credit in the eyes of at least two out of three rating agencies, that that's -- this is a good move for the Company.

Right. So just the other part of that question. What's the strategy to fund, so after you use $80 million I presume predominantly of the line to fund this redemption, how do you then in turn turnaround and fund $300 million of this year's investment activity. And then presumably some incremental investment activities as we head into 2012?

Well, I think the same way we always have -- we will have still considerable line capacity and traditionally what we've done is as we've drawn that down, we've gone back and as I said, we have pretty good debt capacity, we'd go to the bond market for an offer or and/or if necessary and depending on market conditions and pricing and so forth, we'd go to the equity market.

We have the benefit of being at 34% leverage at the end of June 30. We have some debt capacity that David mentioned. And then over the longer haul, we kind of think of it's 60-40 in terms of common equity and debt and the debt being primarily unsecured bonds.

Okay. That's helpful color. As it relates to the Concord site, what is the allure of the site to Empire, is it the tax rate?

That is a large part of the allure and also the golf courses that are there and the collateral development that can be made, because of the availability of land that they don't have at their current site.

What's the tax rate on their current site?

It's around 62%.

Okay. And I think Craig Mailman has one as well.

Yes, Greg, can you just give us a sense of how much of that $200 million would -- is identified given kind of what you guys have in the bag and then the other theater build to suits that you had mentioned could go in the fourth quarter?

I think of the $200 million, I think we've got a significant amount of that identified either by actual deals that we know or conversations that we're having with people who are wanting to start theaters or school developments. I think as I said earlier, I think, to get to $300 million, we're talking to some people about some portfolio deals. We've several that we're talking to and that will be the determinant of if we are successful in getting to $300 million or above.

Great. Thanks.

Rich Moore, RBC Capital Markets.

Hello, guys, good afternoon. The three theaters that you're starting, who's the operators for those three?

We've got two new operators. One is a former operator, we're doing a Southern theater, an [IPIC] theater and a Studio Movie Grill theater.

Okay. And those start shortly, is that right (multiple speakers)?

We're going to start -- yes, they're going to start here shortly in the fall.

Okay. And then you begin getting the return you were talking about at that point, is that right?

Yes, sir.

And then same idea for the next group in the fourth quarter, same operators -- same or --?

Yes, sir. We have different operators, we have a -- like I said, we're probably talking right now with four to eight operators who are looking at projects to begin. And so we think we'll see a nice variety of -- and diversity of operator and of locations and size.

Okay. And then when do those -- how long does it take to put a theater complex together?

Generally, it's -- call it 9 to 12 months depending upon where you're building it at, in the warmer climates where you can build through the winter, 9, closer to 9 to 10. In the other areas where you have more weather dependent, it's closer to 12. So, you start in the fall, and you can open in the fall the following year.

Okay. I got you. And then on the charter schools, the once the five new ones in Colorado and Arizona. They're new or they're already operating?

There are some of those that are new, some that are operating. It's a group of different ones. Some that we're doing expansions buying and expanding. Some we're taking a school that was already enrolled at a inferior site or location and we're taking them and doing a new construction on. We have some that are in actually operating out of [Mobiles], waiting for us to get the school completed so they can move into it.

Okay. And then the stuff you're looking at is with that same group -- those two same groups I assume (multiple speakers)?

We actually have -- no, in the fourth quarter we're going to expand the number of groups as well. We have several different operators that we're talking to and again to further expand our diversity both in terms of geography and operator, we will be expanding that site as well.

Okay. Good, I got you. And then have you guys had to close any of your charter schools. Is there any that hasn't I guess that you just had to close?

We haven't had to close. We have one issue that we're dealing with now in Georgia. That the Georgia Supreme Court came down with a recent ruling that said, that the only properly authorizing agent was the local school board. And therefore, we have a school there, and with Imagine -- and we're in the process of doing a substitution for that school to a difference school out of that jurisdiction. But we haven't -- but that's underway and we don't anticipate any issues with it.

Okay. Is this -- but none from performance related type issues there's -- ?

No.

-- [Not being anything] like that? Okay, good and then the discontinued ops, is that (inaudible), Mark?

Yes, that's a combination -- no, that's not (inaudible) that's going to be for the current period Pope Valley, the Vineyard that we announced last quarter, that we're planning on selling. And then as you go back in the prior periods, obviously you get Toronto Dundas and some of the other things that we've sold over the past year or so -- couple -- a year and a half I guess so --.

Okay. All right, good, thank you, guys.

Thank you, Rich.

(Operator Instructions). Andrew DiZio, Janney Capital Markets.

Thanks. Good evening, guys.

Hi, Andrew.

Hi, Andrew.

I apologize if you mentioned this in your answer in Rich's question on how long it took to build a theater, but what's the development timeline on the charter school?

Well, there is a -- it's variety of -- I would say that the preferred timeline is probably 6 to 7 months. We've seen them like what we are operating, Andrew right now where we have kids who [wait in their] schools that we have a four month timeframe.

Okay, thanks. And then turning back to Concord just for a second. In the discussions with Empire Resorts, is (inaudible) involved at all in those discussions as well or are they more of a silent third-party behind Empire?

Sitting more of a silent third-party behind, they have been involved somewhat in the discussions. But they are -- it's really the management and leadership of Empire that's leading all those discussions.

Okay. And then when you're looking at the different options as far as driving some cash flow of that property. Is it fair to say that a ground lease seems the most likely outcome or [sellthrough]?

I'd say that's true. Yes. We're going to be involved and it's likely a ground lease.

Okay. Thanks. And then just one other question on the Vineyards. In the valuation process or in the marketing for sale. Is Global Wine Partners involved in that as for either doing the valuation or doing some of the marketing for sale?

No. Neither, we use independent appraisers for the valuation, we have another outside broker. Nothing to do with Global Wine Partners, that's got the master listing agreement.

All right. Great. Thanks, guys.

I will now turn the call back over to Mr. David Brain for closing remarks.

All right. Very well, thank you. I thank everyone for joining us again this afternoon and for the quarter results. And we'll look forward to talking to you next quarter, if not before please feel free to contact the Company if you need to. Thank you.

Thank you.

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