EPR Properties (EPR) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2012 Entertainment Properties Trust earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions)

I'd like now to turn the call over to Mr. David Brain, President and Chief Executive Officer of Entertainment Properties Trust. You may proceed.

Thank you. Good afternoon, all. Thank you for joining us. This is David Brain. I'll read you our usual beginning preface. That is this afternoon let me inform you the conference call may include forward-looking statements defined by the Private Securities Litigation Reform Act of '95, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate, or other comparable terms. The Company's actual financial condition, results of operations may vary materially from those contemplated by any such forward-looking statements. And a discussion of factors could cause 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, 2011.

All right. With that -- after that preface, I'll say again good afternoon, you all. Thank you for joining us. This is the call for the second quarter of 2012. This is David Brain, the Company's CEO. And as usual, we're going to through the news of the quarter with Greg Silvers, our company's Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

We'll start right away, I'll remind you all as we do, slides are available via eprkc.com. There's a link there. The slides will help follow along the content of the call.

I'll start as I usually do with the headlines for Entertainment Properties Trust for the second quarter 2012, and they are, number one, the portfolio performance remains strong. Second is meaningful progress on charter-loss issues in public school portfolio. Third, solid momentum in investment spending, supporting 2012 investment guidance. Fourth, branding agencies give EPR favorable reviews. And fifth, Company performance on track to support increased earnings guidance for 2012.

So with those five, I'll go through them individually, and I'll turn to our first headline, and that is portfolio performance remains strong. As usual, we'll update you on the primary metric of health for our largest investment property type cinemas, and that is box office performance. And just as we reported to you last time, this measure of health for our largest category of investment remains very strong in its performance for 2012 with both the quarter and year to date, box office remains up nearly 10% over the same period last year.

Then in connection with this industry report, I want to also briefly address the recent tragedy at a theater in Colorado. I'm sure that you, just like us, were horrified and saddened by the senseless violence endured by innocent people at a movie theater. We feel deeply for the victims, but also want to remind you of the entertainment and enjoyment brought to millions by the cinema. Movie going remains, by far, the largest form of out-of-home entertainment in America, as it has been for the entire 15 years of the existence of the Company and well before.

Every year in America alone, hundreds of millions of people attend the cinema without any incident, other than the pleasure of the plotline. Drama or comedy, sobbing or laughing, we enjoy our time together with family, friends and community, immersed in the art and the magic of the movies.

Our second headline this afternoon is meaningful progress on charter loss issues in public school portfolio. I would like next to address our public charter school portfolio and the resolution of the charter losses we informed you of in our last call. The first thing is I want to reiterate this is not a monetary event for EPR. We tried to be clear about this in our last call. We do not expect any loss of rents due to the loss of charters at some of our client schools. Due to the master lease structure of our investments, the financial strength of our client, Imagine, and our additional credit support in the form of a letter of credit, we do not expect these charter losses to interrupt or disrupt our rental income.

Our charter public school portfolio continues to be 100% leased. In order to maintain the strongest portfolio, however, we are taking steps in cooperation with our client, Imagine, to sublease, exchange or sell some of these properties. With the progress made this quarter, that will be detailed later, we have reduced this issue by half already to about $35 million of investment value. I want to stress this is only a measure of its size, and no rent or NOI is viewed at risk as a result of this issue. The changes made support the long-term health of our portfolio.

Now, going to our third headline this afternoon, solid momentum in investment spending supporting 2012 investment guidance. This quarter, like last, we'll have some detail on investments currently being made. Greg will detail these investments shortly. And I just want to say that I'm pleased that we are, again, this quarter able to add to all three of our primary investment areas of entertainment, recreation and education with properties that meet our rigorous criteria. We continue to make progress with pipeline opportunities in all three of these categories, giving us confidence in achieving our projected $250 million to $300 million of investment spend for the year.

Our fourth headline is some good news that builds on a momentum of validating our credit quality that began with our debut bond issue and investment grade ratings in mid 2010. It is rating agencies give EPR favorable reviews. After completing our regular annual reviews with the credit rating agencies, I'm pleased to report some positive news. While Standard & Poors has yet to make any announcement, and we do not expect any rating change there, Fitch affirmed that prior BBB- investment grade rating, and Moody's went further, not only affirming our investment grade rating of Baa3, but additionally awarding the Company with a positive outlook towards further credit rating improvement.

We appreciate this recognition that is given to the progress of the Company's credit metrics and portfolio strength since the initial award of investment-grade ratings two years ago.

Now, turning to our last headline, Company performance on track to support increased earnings guidance for 2012, I'm very pleased to tell you all the news and results of the Company point towards achievement of increased earnings beyond the guidance we previously outlined for 2012. Our previous guidance was for FFO as adjusted per diluted share of $3.50 to $3.70, which I'll remind you represented an increase of 5% over a 2011 performance level.

We are now in a position to increase our guidance by $0.02 on the midpoint. Our new 2012 FFO, as adjusted per diluted share guidance, is $3.57 to $3.67. The midpoint now represents an annual increase closer to 6%.

With that, I'll hand it off to Greg for the details of the portfolio that I spoke about, then the mark about financials, and I'll join you as we go to questions.

Thank you, David. The second quarter of 2012 demonstrated our continued execution of our capital plan, with approximately $80 million of capital spending in the quarter and additional commitments in our build-to-suit business. Along with the capital spending, we have several updates to discuss across the various segments of our business.

First, in terms of performance, the box office has remained strong, up approximately 10% at quarter end, and it continues to sustain that level of performance. During the quarter, we continue to execute our strategy of delivery eight to ten theater build to suits. We previously announced six transactions, and during the second quarter we entered into three additional theater transactions. Specifically, we entered into a build-to-suit transaction with Regal Entertainment Group for the construction of a 14-screen theater at the Promenade at Virginia Gateway. This is our second announced Regal build to suit, and we're excited about our growth with this tenant.

Second, we entered into a build-to-suit agreement with Southern Theaters for the construction of a new 14-screen theater at the Esplanade Mall, a Simon Mall located in Kenner, Louisiana, a suburb of New Orleans.

And third, we entered into a two-theater transaction with Frank Theaters, a new tenant, for properties located in North Carolina and West Virginia. The North Carolina property is an existing theater, while the West Virginia property is a build to suit.

Our total capital spent or committed for these projects is approximately $35 million, which combined with our $50 million of build-to-suit projects announced in the first quarter gives us nearly $85 million of theater projects announced year to date through the second quarter.

We are pleased that we have entered into transactions involving nine theaters so far this year and are encouraged that this number will continue to grow with the balance of the year. Additionally, we are very pleased with the announcement that AMC had agreed to terms with Dalian Wanda to be acquired in a transaction valued at approximately $2.6 billion. We were very excited about Wanda's announcement to inject $500 million in capital into AMC for refurbishment and enhancement of existing assets, as well as repayment of existing debt.

We believe that many of our properties will be the recipient of these enhancement dollars given the strong performance of our properties, and that the repayment of the debt improves the credit profile of AMC. Also, we believe that with a new strategic owner in place, the AMC management team will return to a strategy of investing for organic growth by expanding their operating platform. The proposed transaction is not closed; however, they have indicated that it should be finalized within the second half of the year.

Another development that has materialized as a result of AMC's proposed transaction is their decision to exit the Canadian market. As a result, AMC proposed, and we consented, to an assignment of our four leases in Canada to two new tenants. The new tenant for our Oakville and Mississauga properties will be Cineplex Entertainment, the largest cinema operator in Canada. Our Canada and (inaudible) properties will now be operated by Empire Theaters, the second largest operator in Canada. Both of these operators are significant credit upgrades, with Cineplex leverage being one times EBITDA and Empire Theaters having no debt. Furthermore, these transactions, along with our continued expansion with other operators, have significantly lowered our concentration with AMC.

As the slide indicates, our AMC concentration has declined from 70% of total revenues in 2003, to 29% on 2011 pro forma numbers, removing AMC from the Canadian theaters. And the run rate is approximately 27%. While managing this exposure has never been a top priority as we aim to own the best theaters, it has been a metric that rating agencies have discussed with us, and we're pleased to make such significant progress on this issue.

In addition to our theater performance, our entertainment segment added another proven and successful admissions and concessions business with our financing of the John Hancock Observatory, which is part of the landmark John Hancock Center on Michigan Avenue in Chicago. We entered into this transaction with Montparnasse 56, a proven operator of observation deck assets in Europe, who put in an additional $12 million of capital beyond our investment of $36 million. The John Hancock Observatory has been a consistent and reliable entertainment asset that has an annual attendance of over 500,000 visitors and generates a significant cash flow, which will only be enhanced by the experienced leadership of the Montparnasse team.

Within our education segment, we continue to make progress on resolving our issues with the nine Imagine schools that lost their charter. As we discussed on our previous call, due to the strong cash flow of our Imagine portfolio, no payment shortfall was expected, and we have moved expeditiously to deal with the unproductive schools. Specifically, as we announced on July 17, we have executed two collateral substitutions involving our former properties in Kansas City, Missouri. These properties were substituted for two performing properties, one in Land O' Lakes, Florida, and a property in Pittsburgh, Pennsylvania. Both of these substituted properties are performing well academically and have high enrollments.

Additionally, Imagine has entered into a sublease transaction with the St. Louis Public School District to lease our largest St. Louis, Missouri asset at the Spring Street location. These three assets, the two collateral substitutions and the sublease property represent $36 million of the $72 million total asset value for the nine affected schools. Furthermore, as the announcement indicated, we have entered into an agreement to substitute three additional schools subject to our underwriting prior to the beginning of the school year. All told, we should have resolved approximately 70% to 75% of the total asset value of the affected properties prior to the beginning of the school year.

Additionally, we have Imagine's entire 75-school operating platform, and it does not appear that they have any systemic risk of additional charter revocation. As we said last quarter, we are not pleased with Imagine losing these charters; however, their financial strength, combined with the structural protections afforded by our master lease structure has allowed us to weather this issue without a lease payment impact.

During the quarter, we also made additional charter school commitments as we further diversify our operator base. We have entered into four additional charter school transactions. These schools represent a total capital commitment of approximately $40 million and are located in Arizona and North Carolina. As we have previously stated, we continue to be excited about the opportunities set presented by public charter schools and remain bullish about the sector, as the National Alliance for Public Charter Schools forecast is for an additional 400 to 500 schools being started for the 2012/2013 academic year. These opportunities were (inaudible) written with an eye toward academic as well as financial performance.

Within our recreation segment, our properties continue to perform at outstanding levels. Our topped-off investments are performing are above projection and continue to exceed our expectations. Additionally, our Schlitterbahn Waterpark investment continues to be the beneficiary of the record heat experienced in the Midwest, and the properties are performing at or near last year's record performance.

In our other category, we continue to make progress in the play and disposition of our vineyard and winery assets. During the quarter, we sold a portion of our Buena Vista assets to Jackson Family Estates for a sale price of $13 million, resulting in a gain of approximately $400,000 over our current basis. This asset was previously unleased, and we are pleased to invest the sale proceeds into the higher return segments of our business.

Additionally, Ascentia, formerly the tenant on our largest investment, sold its California brands and inventory to Accolade, the fifth largest wine company in the US, and its Washington brands and inventory to Gallo, the largest wine company in the US. As a result of these transactions, we restructured our leases, resulting in about a $1 million annual reduction in lease payments. We elected to pursue this action due to the strength of each of these tenants compared to Ascentia. Furthermore, each of these restructured leases includes purchase options that could and should expedite our disposition of these assets. As these transactions indicate, we continue to be dedicated to exiting the vineyard and winery space and redeploying the capital into one of our other existing segments.

As I said earlier, our total capital spend within the quarter was approximately $80 million, bringing our total year-to-date capital spend number to approximately $150 million. And with our announced commitments, our committed capital is significantly larger. The cap rate on our announced transactions continues to be in the 9% to 10% range.

Our overall occupancy remains strong at 98%, and we continue to maintain our capital plan at a range of $250 million to $300 million. With the progress of the first two quarters, we have a high degree of confidence that we will meet or exceed this goal. We're seeing opportunities in all of our asset segments, and we remain confident about our prospects for the balance of the year.

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.

Now, turning to the first slide, I'm very pleased to report solid second quarter results. FFO for the quarter increased from $38.7 million to $43.1 million. FFO per share and FFO as adjusted per share were both $0.92 for the quarter versus $0.83 in the prior year, an increase of approximately 11%. For the first six months of the year, FFO as adjusted per share was $1.78 versus $1.66 in the prior year, an increase of approximately 7%.

Before I walk through the key variances, I want to discuss one gain that was excluded from FFO calculations this quarter. As Greg discussed, we continue to make progress towards selling our remaining vineyard and winery investments, particularly with respect to unleased properties. During the quarter, we completed the sale of approximately 50% of the vineyards that are Buena Vista property for $13 million and recognized a gain of $438,000. As a result of this sale, the related operations of this property were re-classed into discontinued operators. As of June 30, the carrying value of our remaining vineyard and winery assets was down to approximately $100 million.

Now let me walk through the rest of the quarter's results and explain the key variances from the prior year. Our total revenue increased 6% compared to the prior year to $78.9 million. In the revenue category, rental revenue increased by $3.2 million versus the prior year to $59.2 million and resulted primarily from new investments as well as base rent increases on existing properties.

The second quarter is historically our lowest quarter for percentage of rents based on the lease years of our tenants. Percentage rents for the quarter included in rental revenue was $100,000 versus $84,000 in the prior year. Mortgage and under-financing incoming was $15.3 million for the quarter, up $1.5 million from last year. This increase is primarily due to additional real estate lending activities.

Now, on the expense side, our property operating expense decreased by $1.3 million versus the prior year primarily due to a decrease in our bad debt expense. This lower bad debt expense, in part, relates to $0.4 million we collected from Ascentia this quarter upon the closing of its wine brand sales. This receivable had been previously reserved.

Other expense was $431,000 for the quarter, a decrease of about $300,000 from last year. This decrease is due to lower losses recognized upon settlement of foreign currency hedges.

G&A expense increased $700,000 versus last year, to approximately $5.8 million for the quarter, due primarily to higher payroll-related expenses, as we continue to support our growth, as well as higher professional fees. Our net interest expense for the quarter increased by approximately $1.2 million to $18.5 million. This increase resulted primarily from an increase in our outstanding borrowings during the quarter, partially offset by the impact of a lower weighted average interest rate on our outstanding debt.

Equity and income for joint ventures decreased by approximately $500,000 to $278,000 for the quarter. This decrease was primarily due to the conversion of our equity investment in Atlantic-EPR 1 to a mortgage note receivable earlier this year. Finally, preferred dividends decreased by $1.5 million to $6 million for the quarter due to the redemption of our Series B preferred shares late last year.

Turning to the next slide, I'd like to review some of the Company's key credit ratios. Please note that our supplemental summarizes these key ratios on page 16.

As you can see from this multiyear summary, our coverage ratios have continued to improve over time and remain strong for the first half of this year with interest coverage at 3.7 times, fixed charge coverage at 2.8 times and debt service coverage at 2.7 times. Our AFFO per share for the second quarter was equal to our FFO per share at $0.92, and our AFFO payout ratio for the first half of this year was 83%.

Our debt to adjusted EBITDA ratio was 4.8 times for the first half of this year, and our debt to gross assets ratio was 40% at June 30. This ratio remains at the midpoint of our previously stated range of 35% to 45%, and our balance sheet continues to be in great shape.

Let's turn to the next slide, and I will provide a capital markets and liquidity update. At quarter end we had a total outstanding debt of $1.3 billion. About $1.2 billion of this debt is either fixed-rate debt or debt that has been fixed through interest rate swaps, with a blended coupon of approximately 5.7%.

We had $112 million outstanding at quarter end under our $400 million revolving credit facility, and about $13 million of cash on hand. We are in excellent shape with respect to debt maturities. As shown on the slide, as of June 30, we have only $65 million due later this year and $98 million due in 2013. These 2012 and 2013 debt maturities are callable without penalty with 30-day and six-month notice periods respectively, and thus provide us great flexibility as we look to refinance these amounts in the future.

As David mentioned, I'm also pleased to report that both Moody's and Fitch have recently confirmed their investment grade ratings for outstanding senior unsecured notes of Baa3 and BBB- respectively, and further, Moody's has given us a positive outlook. S&P has yet to release the results of their annual review, but we do not expect any change in their rating.

Turning to the last slide, based on the results to date and the expectations for the remainder of the year, we are increase our guidance for FFO as adjusted per share to $3.57 to $3.67 from the previous range of $3.50 to $3.70. And as Greg mentioned previously, we are maintaining our 2012 investment spending guidance at $250 million to $300 million.

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

Thank you, Mark. Thank you, Greg. As we go to questions, I want to share with you an additional though that crystallized the preparations for and the discussions with the rating agencies. After nearly 15 years of 100% occupancy and never missing a scheduled rent payment on a theater investment, most, though skeptical at first, have been willing to describe this multibillion investment focus as a full success. Interestingly, despite a comparable performance track record, the same is not true for some of our other major areas of investment. Maybe this is due to our lack of clear and consistent communication.

I want to take this occasion to draw attention to the fact that since our first ski property investment seven years ago in 2005, now with hundreds of millions of dollars invested, we have also experienced 100% occupancy and never missed a monthly payment on our ski and water park recreation property investments. Likewise, in the category of education investments, since our first charter public school investment in 2007 five years ago, again, now several hundred million of investment value, 100% of all the properties have been leased, and we've never missed a scheduled rent payment.

I hope this and further presentation of our track record will build enthusiasm for these categories of investment, just like there has been for our theater properties.

And one final note, and unfortunately a final note it is, I regret to inform you of the untimely passing of a member of the EPR family. John Weis, who was one of the founding employees of EPR in 1997 and served in a role that included responsibilities for investor communications for almost ten years, and as a result many of you came to know, died of a sudden cardiac issue earlier this month. John was only 46. He was a friend of mine and of many of you, as he was one of the genuinely nicest people you would ever meet. I felt I needed to let you know of his passing and his absence in our future communications.

With that, I'll turn it over to the operator, so we can open the line to questions.

(Operator Instructions) Our first question is from the line of Anthony Paolone from JPMorgan. You may proceed.

Thank you, all. And I'm really sorry to hear about John. I had not heard about that.

Thank you, Tony.

Thank you, Tony.

My first question is on guidance and bumping it up a little bit and pointing to the -- to really going to where the higher end of your previous band, more or less. What really drove it? Because it seems like kind of the back half of the year is about kind of where most of the street and we were? Is it just timing of deal flow? Because it seems like your absolute deal flow is about the same. What do you think really drove it?

Well, we beat this quarter by $0.01, largely driven by, in part, lower bad debt expense, so that's part of it. And then going forward, I think it's just been although we've been maintained our investment spending guidance, I think the mix and timing is a little bit more favorable than we had originally planned.

Yes, it tends to be more many smaller things than one major thing, to give you, Tony.

Timing's probably the biggest. Our expectations for the remainder of the year are things are going to happen a little bit faster than originally anticipated.

What -- your operating expense is sequentially and year over year, you know, rolled down a bunch. What's in there? What is the (inaudible)?

Yes, let me explain that. So they were down $1.3 million versus -- let's just do it versus the prior year. About $300,000 of that is just property operating expenses are lower than a year ago, and you'll notice our tenant reimbursements are lower by the same amount, so those things kind of fluctuate together with respect to property operating expenses.

The big reason for the change, the other part of the change, the other $1 million, the $1.3 million change is really driven by bad-debt expense. And let me break that down a little bit for you. I mentioned we collected $400,000 from Ascentia at the closing of the sale of those brands, and that was something that we had previously reserved, so that was an up of $400,000 as it related to that. I think the prior year quarter had a $150,000 kind of one-time adjustment negatively, so that's another $150,000. And I think the remaining roughly $400,000, if I'm doing my math right, or $450,000 roughly is just due to better bad debt experience across the portfolio, and that's a combination of wine, entertainment retail centers, et cetera. So it really breaks down in three components for that $1 million bad debt change.

Okay. And any talk to this though in terms of yields for your investment activity over the balance of the year? Is that -- where do you peg that at?

Yes, what we said about 9% to 10% is what we're -- we're experiencing what we would anticipate, continuing to experience, Tony, for the balance of the year.

Okay. And then on this -- the observatory deal in Chicago, can you just walk us through, like, how many -- how much square footage is that in coverage? And it's just -- it's something new to us. Can you just maybe give us some details?

Sure. It's the observatory floor, which breaks down to about a 30,000 square foot plate. The coverage is anticipated to begin at about a $1.6 million, $1.7 million and go over a $2 million. This property has -- the underwriting of this, candidly, is about a 40-year history, so there's a lot of history to underwrite, a lot of different economic cycles. And at the attendance metric that it's showing, which is consistently generating over $500,000, it's comfortably in those coverage levels. We think that Montparnasse, given their history, they operate observatories in both -- in several locations in Europe and France and Germany, they're actively looking at being part of some other assets in the United States, that they will actually enhance that, and they've proven that ability to do that.

So, Tony, I mean, we look at this as what it is is fundamentally what we do admissions and concessions businesses, like F&B and admissions, and they -- it looks like it's a very cash flow generating. We were very excited about the amount of cash that they put forward into the deal, and we're highly anticipating them ending up above a $2 million coverage.

Tony, it's the full floor of the building.

Okay. And do they own it? Is it condo'd out from the rest of the tower?

Yes, it is. It's condo'd out.

I understand.

It's condo'd out. So we're clear, it's condo'd out, and it has its own separate elevator system, so putting that elevator system as well.

Got it. Okay. And then in terms of the charter school stuff, with just a few more to go, do you anticipate those getting done by the beginning of the school year? And if they don't, do they kind of put you off a year before it gets addressed? Like, do you have to wait till next year before someone else considers going into the space or something like that?

No, I mean, on the swaps, our is just really getting done with our underwriting. I think we have the properties of the proposed collateral swap candidates that we're considering and we're going through the -- as you can imagine, what would be third-party environmentals and property condition reports and the like to get those processed. On the assets that remain after that, Tony, there are still subleased candidates that could begin even later this year or also potentially buildings that could just be sold, and we could be paid off as a result.

Just remember, Tony, we're going to be paid every month regardless. And if there's somebody interested in not the '12/'13 school year but the '13/'14 year, I mean, we're going to get paid every month, depending on -- regardless of whether they take it September '12 or September '13.

Okay, got it. Yes, thank you.

Thank you, Tony.

Your next question is from the line of Craig Mailman from KeyBanc Capital Markets. You may proceed.

Hey, guys. [Jordan] is on the line with me as well. Just one quick follow up on the observatory. Do they have an early prepayment option in that, or are you guys good on the almost 11% for 20 years?

They have a prepayment on that in I think year '12, but I think that's the earliest.

And then it's with a premium.

Okay. So that rate's locked in for a while. As you look out at the sort of $100 million of spending left to go, how much of that is going to be new investment you guys are going to identify versus just continued spending on projects you've already identified?

Well, I think the majority of it is probably going to be projects that are identified. We're going to have -- we have some new projects, but as you can imagine, we've started nine theater build-to-suit projects, so we have school projects that have been started. We had several earlier announced in the first quarter. So there's a substantial amount of that (inaudible) that are already targeted.

Just to get a sense of what's the pipeline of maybe theater builds (inaudible) you guys could start this year and early next year versus charter schools. Just want to get a sense of what's kind of behind the spending that's done this year.

Yes, I think that you'll see us -- I think as we said -- at the beginning of the year we said we'd done eight to ten. We've announced nine already. I think we would be at least hoping to start three to five additional projects that we have great visibility on. And I think that -- and another additional number that large that we're considering and looking at in the theater space. I think in the charter school space, I think starting for the balance of the year, we could still have, you know, somewhere between six and eight schools that we're going to start.

Okay. So somewhere slightly near about $100 million of potential additional projects.

That's correct, this year, yes.

Okay. And just for Mark, I just want to circle back to your comments on the $65 million of debt maturities for this year and kind of combine that -- what you guys have on the line. Are you guys going to refinance the $65 million or are you going to take that on the line and then [perm] out the line later this year with maybe another unsecured deal or preferred. Kind of what's the thinking on the capital so you guys have at least another $100 million to sort of spend throughout the year? It brings you up to almost $300 million on the line.

Yes, right. We started the end of the quarter with $112 million on the line, as you mentioned, and if you combine the sort of $150 million of acquisition spending and the $65 million of debt payoff, that's $215 million additional use. So that'd get your line up to $327 million roughly, I mean, just doing the math. That fits in well with the bond -- you know, a potential bond offering or some type of unsecured debt offering of at least $250 million would be the expectation. And then the nice thing is that brings us to about 42% leverage, if that's all you did. We have the ability -- kind of the flexibility and actually plan for some equity issuance, but not required to bring that back down to like 40%.

And then additionally, if you did some equity, that brings down the balance to roughly zero, if we did some equity, call it $80 million, $90 million of equity. Then we have the option, if we so desire, to take out that 2013 debt additionally for $100 million, and in that case I'd finish with the line something like $100 million. So I've got quite a bit of flexibility both with respect to do I want to pay off $100 million that's due in February 2013 in this year, A? B, do I want to issue equity? I've got flexibility there depending on the market conditions.

Oh, sorry. Go ahead.

No, I was just going to say we anticipate -- I think the short answer is we anticipate there to be probably a debt issue that replaces those other debt amounts without really increasing significantly the leverage of the Company.

What do you guys see as a good price today?

I don't know. We continue to be disappointed with the trading level of our previous bond, but we know it trades very, very thinly. And -- but I think that's just something that we evaluate from time to time. I don't have any speculation on that to give you.

Okay. And then just one quick last one. What level of capital raise and guidance, sort of in the midpoint of guidance, that this $250 million and $89 million of equity or --

We always plan for 40% leverage, so if you think about I've got $215 million of uses, you can think of that as sort of partially funded with equity and partially funded with debt, depending on where I want my (inaudible) balance to be. So we've got -- call it $80 million to $100 million of equity in our plan, but again, not -- we don't have to hit that if we want to bring up our leverage a little bit higher by the end of the year.

(inaudible) market conditions, Craig, if we don't like our price, we're comfortable with that 42% of leverage.

But either way both of them kind of come towards the end of the year, unless investing in spending really accelerates.

Right. We have a little more flexibility on the debt.

Yes, we have $112 million on the line, and we're going to continue to do acquisitions and development. So even if we hit one sooner than later, you could suffer a little bit of cash in the bank, and that wouldn't be that big a deal because we use it up pretty quickly.

Okay. Great . Thank you.

Thank you, Craig.

And your next question comes from the line of Michael Bilerman from Citi. You may proceed.

Yes, just in terms of raising capital, do you have an ATM in place, or do you do that as a marketed offering?

Well, we could go either direction. We do have a direct stock purchase plan in place that we've hit in the past, so we could do it that way, or we could do an offering.

And then I guess what is -- what sort of range of rate is baked in for a bond deal? I know -- I mean, you said you were disappointed where the bonds were traded, and the bonds are yielding [5.8%] right now. (inaudible) like a [5%] in terms of numbers?

Well, Michael, we hope for significant improvement, but that would probably be pretty aggressive, so I don't think as low as [5%], so inside of where we are now, but not as low as [5%].

Okay. And then just in terms of the Hancock, what -- so the collateral itself is the condo'd floor, which they've purchased for $58 million. Is there -- do you have any other corporate guarantee or any other --

We have their guarantee as well.

And is that -- that's a corporate guarantee?

Yes.

And what can you tell us about sort of the corporate and their financial health?

Very strong. They operate both the Montparnasse Observatory and other amusements, and then the Berlin Observatory. They -- it's a very -- like I said, their ability to put $12 million of cash in this has demonstrated their capability, and I think they're -- if you go out and consider they're one of the lead candidates for the new World Trade Center as well for their observatory. So they're very well heeled.

Do you know what their sort of assets on balance sheet relative to debt is?

We do. I just don't know that we -- I don't that I can just disclose that, Michael. Let me check with them and make sure and then get back with you.

Okay. In terms of the peak resorts loans coming due in '13, have you -- which had gotten extended per contract, what is the current status of whether that gets repaid or redone next year?

We've had some discussions with them. My expectation would be at this point that that would be extended.

Under the same terms, or would that get renegotiated?

My guess is -- the most conservative thing I would say is extend it on the same terms because it's a pretty healthy rate, but we would have to -- I mean, we'd put some amortization on that or something, but right now I'd just put it at the same terms for your modeling purposes.

And that coverage right now on that note is what?

We include that in our overall kind of coverage and put it in the overall payment plan. So when you see the $125 million at the property level coverage, that's [them].

So that loan has got $125 million coverage?

We do that on an entity level.

An entity level for --

Meaning there is no productivity on that land, so the coverage level that we (inaudible) is a property coverage level.

Okay. In terms of Imagine, had they asked for -- I know they can't -- it's been a while, but have they asked for a rent reduction?

No.

So that never came up in any discussions?

It has not.

Can you give an update on Concord and where things stand?

Sure. David?

Well, there's not really an update. And again, we'll still -- I think we'll announce it when we have. We have the options signed and the progress underway with the revised -- for the planning entitles consistent with that program, and that's it for now. Cappelli let his option expire for repurchase. And --

Oh, I guess that is an update. We had to -- his option did expire, and, Mark, we had to reclassify that on our --

Yes, it was roughly $28 million that was a non-controlling interest, and that flipped to additional paid in capital this quarter as a result of that option expiring on exercise.

Cappelli did lease some acreage that he had the option to that otherwise also was going to expire and is paying $200,000 a year for lease of same acreage with nothing happening on that acreage.

None of which is acreage that's part of our planned development with Empire.

And do you have any -- I mean, do you want to accelerate the exit? I mean, how long do you want to wait?

Well, we're always willing to sell it. I think we've made that clear from the beginning, but I don't know that we have the timing for that sale. We otherwise have said we had a timing overall for the progress of the Empire project, which we don't have any significant update to give you at this time, but that's what we're expecting next.

In terms of the balance sheet metrics in your discussions with the agencies, what sort of goalpost did they put you in -- sort of debt to assets, debt to EBITDA and secured debt levels?

Frankly, I think our metrics are very solid, which is what they've told us in terms of our fixed charge and interest and debt service coverage.

Debt to EBITDA, all of those, no issues on those --

(inaudible) the metrics you really don't. Those people -- what concern we have still has a little bit to do with tenant concentration. As we've said a long time, we like buying a lot of things we know a lot about and people we know a lot about. And since we have cross defaults and master leases, we're not uncomfortable with those concentrations, but they are atypical. And if anything, not our financeable ratios, Michael, but those issues qualitatively give more pause to people otherwise moving up our ratings from where they even are today.

Okay. Just can you go over where you stand with the role, the two theaters this year and four next year? What's the current status of everything?

The two that we have -- actually it is -- oh, one theater I know -- I'm trying to think. I thought it was actually more than two that we had rolling out this year. Oh, yes, okay, I'm sorry. One of them is already extended, and then we -- so we have --

And that was extended at the current rate?

Yes, well, it's extended. They just hit their option agreement.

Which is still the annual escalators.

But we have one that we think we're going to repurpose, so one that we have (inaudible) and one that we repurposed.

And the discussion on the four for next year?

Well, with AMC, they don't come up really till six months out, but I mean it's -- so we haven't had any discussions on those yet.

The four for next year.

Yes.

But what's your thought in terms of those assets?

My guess is, again, I think we'll have -- there will be about three of those that will extend, and we will have one that we need to rework, maybe two.

So three extend.

Yes, kind of consistent with what we've seen before.

And then just lastly, just in terms of the rental revenues that you show on page 27, is it just percent as rents that would cause a decline for AMC in (inaudible)?

I'm sorry?

It's just you show the revenues for the quarter on page 27, your top tenants. AMC and (inaudible) both went down sequentially. Is that just percentage rents?

Yes, that's primarily what's driving those changes, percentage rent. This is our lowest percentage rent quarter in the second quarter, so that's generally what's driving it.

Okay. Thank you.

Sure.

And your next question is from the line of Rich Moore from RBC Capital Markets. You may proceed.

Hi, good afternoon, guys. The school situation seems to be moving along much quicker than I thought it would happen. And I'm wondering if -- is there any chance any of the buildings you own would be charter-less without students in them when the school year starts in September?

There's a potential. I mean, as I said, we think we'll have dealt with 70% to 75% of these before the beginning of the school year, so that probably corresponds to potentially two, maybe three schools that could be vacant. That's not our goal, and we're working to make that not possible. But what we're saying is we have real good visibility to clearing up 70% to 75% of it. Beyond that, we're kind of working with people and seeing where they're going.

But stress again, Rich, these may be vacant in terms of not in use, but they're still under lease and being paid.

Right, right, David. Yes, no, I'm with you. But filling those actual buildings during the year would probably be difficult, I'm guessing, right?

Well, it depends upon what kind of situation another charter school -- if another charter school is in lease space or they're in some sort of compromised space, potentially they may want to gain control of a sublease space and move. You know, we've opened schools midyear from other spaces when we build them purpose-built buildings.

Yes, we've moved charters midyear into better spaces, and these are some of the better schools on the market. So if somebody has inferior space and wants to move in, it's not beyond reason that they would move even midyear.

I think, Rich, the point for us was, yes, we have. We wanted to move expeditiously on this. We think it's -- as David said, we never at any time thought there was a monetary issue, but it does and did create noise, and we wanted to tamper that noise as quickly as possible.

Okay, good. Yes, thank you, guys. I get it. And then staying with that for a second, you mentioned, Greg, that there's no systemic risk in your view to Imagine. How did you come to that conclusion? What was the analysis?

Yes, what we did was we went back and looked. Because of the fact that at like St. Louis, it appeared to be academic issues that were driving, so not only did we look at our portfolio, but we did an academic review of every school and their portfolio and met with them. We then did a cash flow analysis of the entire company and worked with the company and got input on kind of climbing inside their books. And that was a result of our analysis.

Okay. So for the vast majority of them, you think, are basically just safe.

Yes, they're fine. Yes. And so that's what we did. We did an analysis. Like I said, not just our schools but all of their schools, and not just all of our cash flow but all of their cash flow.

And that was with their help, I assume.

Yes.

Yes.

Okay, got you. And then can you give us some thoughts on how the Toby Keith and I Love This Bar and Grill is doing down in Dallas?

It seems to be -- we've got some early indications that they're doing really well on the weekends, that they wish they were doing better through the week. That's a function of like, I think, all entertainment venues. But they appear to be happy directionally in the way things are going. So this is just anecdotally us checking on them, but by gearing up and showing us some of their weekend numbers, their weekend numbers are pretty dynamic.

My understanding is we might have one out here in Cleveland soon.

Well, get your cowboy hat and go, Rich, and you can report back.

Yes, I think I got to buy a cowboy hat. All right, guys. Thank you very much.

Thank you.

And at this time there are no other questions. I'd like to turn the call back over to Mr. David Brain for your closing remarks.

All right. Well, I appreciate everybody joining us as usual. Thank you very much, and we look forward to joining you each quarter. And between time, of course, if you have any further questions please be in touch. We'll be glad to address them. Thank you very much.

And ladies and gentlemen, this concludes your presentation. You may now disconnect and have a good day.