EPR Properties (EPR) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the quarter one 2013 EPR Properties Shareholder Conference Call. My name is Patrick and I'll be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

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

Thank you, Patrick, and good afternoon to all, and thank you for joining us. I'll start with our usual preface.

As we begin this afternoon, let me inform you this conference call may include forward-looking statements defined in the Private Securities Litigation Reform Act of '95, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate, or other comparable terms. The Company's actual financial conditions and results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause actual results to differ materially from those forward-looking statements is contained in the Company's SEC filings, including the Company's report on Form 10-K for the year ending December 31, 2012.

Again I'll say good afternoon you all and thank you for joining us on the earnings call for the first quarter of 2013. This is David Brain, the Company's CEO. With me, to go through the news of the quarter, as usual, Greg Silvers, the Company's Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

I'll remind all the slides are available via our website at eprkc.com. It might be illustrative for you to go there now if at all possible to follow along with our commentary.

I'll start with, as I usually do, with the headlines for EPR Properties for the first quarter of 2013. Number one, solid quarter completed with transactions and earnings tracking with our expectations and guidance. Two, wine portfolio liquidation completed down to an immaterial level. Third, first monthly dividend declared at increased 2013 level. And that's it for our headlines.

It's good to join you this afternoon at the completion of our first quarter, a bit of a quieter quarter with a fewer headlines than normal, but solid progress nonetheless in terms of portfolio performance and progress.

Going back to our first headline, solid quarter completed with transactions and earnings in line with guidance. While new investments were not on a mathematical pro rata pace with what is expected for the entire year, importantly we made progress on portfolio development that is right in line with our guidance. Greg has a lot of details for you, but it is significant that we feel we have about $290 million or 90% of our portfolio expansion guidance underway or in hand at this time.

This [entire] course is a major element supporting our current earnings guidance of FFO as adjusted per share of $3.79 to $3.94. The progress we've made during the quarter was balanced between all three of our major investment categories, entertainment, recreation, and education.

Notably, in education we expanded the scope of our investments to include an exciting new concept and operator in the private pay early education category. We feel this transaction is illustrative of the significant opportunity for the Company to invest in alignment with our five star investment criteria of specialty real estate category with a new emerging generation of property, a long-lived durable category of use, a best-in-class operator, accretive economics with a growing yield, and the opportunity to use our developed expertise in single-tenant long-term net-leased assets, as well as in this case our experience in the education category to develop a sustainable competitive advantage. Greg has more information on this transaction and the new client, which we are very excited about.

Our second headline this afternoon is wine portfolio liquidation completed down to an immaterial level, which is consistent with news we've been reporting to you for several quarters now. With some minor gains and losses relative to our [carrying] values, we've been consistently selling our portfolio investments in vineyards and wineries. Transactions completed during or expected just subsequent to the quarter-end bring us to the point we have very little residual investment of this type, essentially completing our exit from this category. This I believe is another case of delivering on our guidance, in this case as to the composition of our portfolio.

Our third and final headline this afternoon, first monthly dividend declared at increased 2013 level, is just to remind all we began our conversion to a monthly dividend payment beginning in April this year. Our annual dividend level of $3.16, which is an increase of 5.3% over the prior year announced during our last shareholder conference call, was declared to be paid monthly as of April at a rate of $0.263 a month. We are pleased that this appears to have been met with a positive reception.

I'll turn the call now over to Greg and then you'll hear from Mark and I'll be back to you as we go to questions.

Thank you, David. In the first quarter of 2013 we've made substantial progress toward meeting our full-year capital spending guidance with $38.7 million spent in the first quarter and a total of approximately $250 million of additional spending expected over the remainder of the year of 2013 related to either committed or approved deals. The capital is targeted toward existing segments as we continue to grow both the depth and breadth of our portfolio.

On today's call I would like to spend a few minutes detailing our first quarter investments along with highlighting the continued development of our plan for 2013.

In the entertainment vertical, our primary asset group, theater exhibition, faced a difficult comparable as 2012's first quarter slate included one of the biggest grossing films for the year in The Hunger Games. However, this year's slate is geared more to summer and fall with the second installment of The Hunger Games trilogy slated for Thanksgiving release, and industry experts still remain confident in the overall year's potential.

For the quarter, investment spending in our entertainment segment was $14.7 million related to six build-to-suit theaters and one Latitude's family entertainment center. As we've discussed previously, given the timing of when our exhibition partners want to open theaters, the first quarter is generally somewhat slower than the balance of the year. However, we still expect theater transactions either build-to-suit or standing inventory involving 10 to 15 theaters for the year.

We continue to see a growing demand for the new enhanced amenity theaters. Whether this involves luxury seating, enhanced food and beverage including alcohol, or both, the consumer is responding favorably to this next-generation experience and our exhibition partners are moving forward with new projects to capture this demand.

In our recreation segment with our ski season mostly complete, we are pleased to report that our overall coverage is approximately 1.6, reflecting a return to normalcy in the performance of our daily ski portfolio.

During the quarter our investment spending in the recreation asset class was $7.4 million related to spending on improvements at our existing daily ski properties, our waterpark investments, and three build-to-suit Top Golf facilities. Our Top Golf investments continue to exceed our expectations with the investment contributing percentage rent in the first full year in the portfolio. We anticipate continuing to grow this relationship with 3 to 4 additional projects commencing during the 2013 year.

With regard to our education portfolio, given the record-breaking growth statistics that we discussed in our last call, we continued to see increasing opportunities in the education sector. For the quarter we deployed $15.1 million related to the build-to-suit construction of 5 public charter schools and the acquisition of one early childhood education center.

As we indicated in our last call given our current pipeline, we continue to expect to deploy in excess of $125 million during 2013 in our educational platform.

The introduction of an early childhood education center is a logical extension of our educational platform, one that takes advantage of our experience in underwriting demographically-driven educational real estate. Our first investment in this category was with the Children's Learning Adventure. The principles involved with this opportunity have developed over 40 early childhood centers and after selling their interest to a larger entity, have gotten back into the market with a product that combines a first-class real estate solution and superior educational offerings.

Given our commitment to educational real estate, several groups in this space have approached us, and we believe that it represents a strong opportunity to expand our educational platform with assets that increase our diversity and are also highly prized by many [triple-note] investors.

With regard to our Imagine assets that lost their charters, we continue to make significant progress toward finalizing solutions, either through subleases or asset swaps on the affected assets. We anticipate that approximately $60 million of the $72 million in asset value or 83% will be completed shortly, and we remain confident that we can [sell off] the remaining vacancies as well.

As we've previously stated, Imagine has remained current on all of their rent obligations and we do not anticipate any disruption of these payments.

With regard to our Sullivan County, New York investment, we have successfully negotiated certain development agreements with the township and other development authorities, and the only significant contingency that remains is Empire raising the necessary capital to fund the construction of the casino complex.

Additionally the Company continues to execute on its strategy of exiting the vineyard and winery business. During the quarter we completed the disposition of the Geyser Peak Winery and a portion of related vineyards for total proceeds of approximately $24.1 million.

Subsequent to the end of the quarter, we've entered into an agreement to sell another winery asset and an additional vineyard property. While there can be no assurance that the above transactions will close, we do believe they will and subsequently we will only have approximately $13 million of remaining investments in the vineyard and winery space.

As we discussed several quarters ago, we put forth a plan to exit the vineyard and winery space within an 18 to 24 month window, and with the impending transaction, we will have substantially accomplished this goal. Subsequent to reporting the completion of the pending transaction, we will no longer separately report on the wine sector as we have effectively sold our entire position.

Our overall occupancy rate remains strong at 98% and we remain confident about our 2013 spending guidance and the continued growth of our pipeline beyond our committed or approved transactions. We continue to see opportunities in each of our business verticals and are excited about the opportunity to execute quality transactions that will drive FFO growth for this year and beyond.

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

Thank you, Greg. I'd like to remind everyone on the call that our quarterly investor supplemental can be downloaded from our website.

Now turning to the first slide, FFO for the quarter increased to $48.3 million or $1.03 per share from $40.3 million or $0.86 per share in the prior year. FFO as adjusted per share was $0.94 versus $0.86 in the prior year, an increase of approximately 9%.

Before I walk through the key variances, I want to discuss two gains that are included in net income for the quarter but are excluded from FFO as adjusted. First, as Greg mentioned, we completed the sale of a winery property and a portion of the related vineyards during the quarter for total proceeds of approximately $24 million and recognized a gain of $565,000. This sale represents continued progress in our strategy of selling our remaining vineyard and winery assets and redeploying the capital to more productive investments.

Second, I am pleased to report that we were able to work out an agreement for a discounted payoff prior to maturity of the secured loan we had on our theater in Omaha, Nebraska. In conjunction with this agreement, we paid $9.7 million in full satisfaction of the loan and recorded a gain on early extinguishment of debt of $4.5 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 about 9% compared to the prior year to $83.4 million. Within the revenue category, rental revenue increased by $3.5 million versus the prior year to $60.8 million and resulted primarily from new investments as well as base rent increases on existing properties. Percentage rents for the quarter included in rental revenue were $0.4 million versus $0.5 million in the prior year.

Mortgage and other financing income was $17.8 million for the quarter, up approximately $3.1 million from last year. This increase is primarily due to additional real estate lending activities.

On the expense side, our property operating expense increased by $630,000 versus the prior year due to higher property operating and bad debt expenses at our multi-tenant properties.

G&A expense increased by $185,000 versus last year to $6.7 million for the quarter due primarily to higher payroll-related expenses as we continue to support our growth. Note also that as expected, G&A in the quarter included additional employee benefit-related expenses of approximately $500,000 that does not repeat itself over the balance of the year.

Our net interest expense for the quarter increased by $1.8 million to $20 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 from joint ventures increased by approximately $300,000 to $351,000 for the quarter. This increase was primarily due to an increase in income from our joint venture projects located in China as well as lower property operating expenses incurred at the property owned by Atlantic-EPR I.

Now turning to the next slide, I would like to review some of the Company's key credit ratios. As you can see, our coverage ratios remain strong with interest coverage at 3.5 times, fixed charged coverage 2.7 times, and debt service coverage at 2.9 times.

We increased our common dividend by 5.3% in the first quarter to an annualized dividend of $3.16, and our FFO as adjusted payout ratio for the quarter was 84%. Additionally, as previously announced, we will begin paying a monthly common share cash dividend on May 15, 2013, to shareholders of record as of April 30, 2013.

Our debt to adjusted EBITDA ratio was 5 times for the first quarter annualized, and our debt to gross asset ratio was 41% at March 31. As you can tell by these metrics, our balance sheet continues to be in great shape.

Let's turn to the next slide and I'll provide a capital markets and liquidity update. In addition to the discounted loan payoff I discussed earlier, during the quarter we increased the size of our unsecured term loan facility that matures in January 2017 from $240 million to $255 million. The additional $15 million bears interest at LIBOR plus 175 basis points.

At quarter-end we had total outstanding debt of $1.4 billion. All but about $84.6 million 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 $59 million outstanding at quarter-end under our $400 million line of credit, and we had $11.8 million of cash on hand.

We are in excellent shape with respect to debt maturities. As of March 31, we have no scheduled balloon maturities in 2013 and what should be a very manageable amount of such maturities in each year thereafter.

Turning to the next slide, we are confirming our guidance for FFO as adjusted per share of $3.79 to $3.94, and as Greg mentioned previously, we are maintaining our 2013 investment spending guidance of $300 million to $350 million.

One final item that I wanted to comment on relates to the timing of our earnings for 2013. First, note that the second quarter percentage rates are typically nominal given the lease years of most of our tenants that pay percentage rents.

Second, in our fastest growing segment, education, note that newly built public charter schools are generally planned for opening in August and September for the coming school year, and thus capital spending is generally accelerated in the summer and early fall. However, because the Company does not begin recognizing revenue on these projects until certificates of occupancy are issued, most of the earnings from these new investments do not begin until late in the third quarter.

Both of these items are expected to result in lower per share earnings growth in Q2 and Q3 versus our full-year expectation of just over 5% at the midpoint.

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

Thank you, Mark. Thank you, Greg. As we go to questions after all the news of the current quarter, I'd just like to offer a thought from a longer-term perspective, and I direct your attention to our recently released 2013 annual report and its accompanying President's Letter. In this most recent letter which coincides with our 15th anniversary, I describe our approach and ambitions with regard to our portfolio expansion and the rationale that goes with our new name and identity.

Lastly I review the returns we've delivered over the last decade and a half. Although our 12% total shareholder return in 2012 lagged some REIT market averages, it is representative of the very steady and I believe desirable rate of return we've been able to achieve and importantly sustain. In addition to the 12% return in 2012, we've delivered a compound annual return in excess of 16% over the last 3 years as well as nearly 14% since our founding 15 years ago.

Take a moment if you can to look over the letter. I believe you'll find it interesting. And with that, I'll ask Patrick to open the line to questions. Patrick, are you there?

(Operator instructions.) Gentlemen, your first question comes from the line of Craig Mailman of KeyBanc Capital Markets. Please proceed.

Hi guys. Jordan Sadler is on the line with me also. Mark, maybe real quick, could you just go into the circumstances behind the discounted payoff? Was it a CMBS lender, portfolio lender? Kind of a little bit of detail there?

It was a CMBS lender, and what we had was we had a lease maturing with AMC, and the AMC -- there was a theater in the area that had come into existence that our theater had been built against, and at the termination of the lease they wanted reduced rent. Well, this asset was levered -- we had like $15 million in book value and like over $14 million in debt balance, so effectively 100% levered and we weren't going to continue in the asset unless we had a return on our investment.

So ultimately we were able to negotiate with the CMBS servicer a reduction of about $4.5 million from $14.2 million down to a $9.7 million payoff and keep the property. And if you do the math on that, rather than giving back the property, we paid $9.7 million and we retained about $1.1 million in incremental rent, which is about 11 cap in terms of the return, so really a good result for the Company I think, and we removed some secured debt earlier than we otherwise would have as far as moving to an unsecured model.

Okay. But AMC's renewed the lease, just at the lower rent?

Exactly.

Okay.

And extended the term.

That makes sense. Okay. And then just moving to the private pay early education, could you give us a sense of how big that sort of segment of the education side could get and maybe what type of credit you guys have against that property? And is it a freestanding school or is it in a retail kind of complex, just a little bit of details there?

Sure, Craig. It's Greg. I'll start with your last. What you saw with Children's Learning Adventure, these are in retail settings, so they're really, like I said, what we think is real quality credit.

I think as we expand, could this become 10% to 20% of our educational platform? Yes, it could because we think there's a lot of demand for it. As we talked about, it's demographically driven in areas where you have young children. It's also in -- this first one is in Arizona where we have a big public charter school presence, so we think we have a really good handle on kind of the school demographics and what's driving that. But we think we've got an experienced operator.

I don't think there's investment grade credit here, but there is experience, there is demonstrated performance, and I think we think the drivers that will make this successful.

Okay. That's fair. And then just kind of bigger picture. It sounds like the sourcing of investments is going pretty well. I mean given the visibility you guys have here, is there any chance that we can exceed the high end of the 350 or is it just too early in the year?

I think we don't want to commit to that, but I will tell you I think the velocity of which we're seeing deals is good or better than we've ever seen, so we're really excited about the potential that we have to actually move that needle up. And I just think being in the first quarter, why don't we get through the second quarter and see if we're substantially through that, and we'll be taking a look at that and discussing that with you next quarter.

Right. Craig, when we're at the end of our first quarter call and we've got in hand near the lower end of our guidance range, we're in good shape. And so hopefully we'll continue to see more throughput of deals we like and there'll be an opportunity to increase that. But we'll have to wait and see.

And just one last one. Given the fact that you're cost to capital has come down, how are spreads looking on the kind of pool of opportunities you guys are looking at?

Well we successfully kind of maintain the spreads, or maintain not the spreads but maintain the rates that we've previously discussed with you, so I think we're seeing those kind of 9% to 10% kind of cap rate range that we're seeing across the board. We haven't seen -- remember, a lot of what we're doing now is build-to-suit, so we think we get a premium on the build-to-suit.

The standing inventory across all of our categories is clearly a much lower cap rate, but our ability to underwrite that and we (technical difficulties) deserves a premium, and we've been successful in getting that.

Great, thank you.

Your next question comes from the line of Dan Altscher with FBR. Please proceed.

Hi. Thanks. Good afternoon, everyone. So a question on the investment spend. So you've done $38 million to $39 million this quarter. Do you think that was in line with your expectations or was it maybe a little slower than the rest of the year given that there's still obviously a lot that has to come through in 2Q and 3Q?

I think the appearance, and that's why we addressed it in the comments, I think a couple of us a couple of times, that the appearance is that it's slower, but we wanted to make the point that it's really on track with the expectations we have. Greg, you have any more to add?

Yes. I think there were a couple of deals timing wise that could have gotten -- we could have gotten in or started. There's still all of the deals that we planned on having are still part of our pipeline. So if anything it was some slight timing adjustments that we think will mature and come to fruition in the second quarter.

So overall we wanted to reinforce it's still very much in line with the guidance that we've given. We're not -- there's not a [slack] to that based on what appears to be a little bit smaller number in Q1.

Great. And so for the megaplex theaters, the ones that are build-to-suit, about how long do you think timeline is needed to get those up and going before we start seeing them contribute to the earnings?

Well again, like Mark said, generally in those build-to-suits, the build-to-suit cycle is going to be somewhere around 9 to 11 months. And as we've talked about with our investors previously, theater operators generally only want to open theaters during two periods of the year, one is coming into the summer season, the other is coming into the holiday season. So you'll see that cycle of when things become productive is generally following those two periods.

Okay. Great. And just a quick followup. I noticed you having a comment about moderately higher bad debt expense. I mean it looks like it was probably pretty small, but can you just maybe make a comment as to why you called that out?

Well, we're just explaining the increase in property operating expense, which was about $600,000. About $250 of it or so was bad debt related, so it was a chunk of it, but not a big number in the grand scheme of things.

Right. So it's probably one borrower or one credit in particular?

It's sort of a few tenants at multi-tenant properties, that's where we're seeing it. It's not like a theater tenant or anything.

And at that level it could be not a huge tenant, it could be a less than 10,000 square foot tenant.

Yes. Okay. That's perfect. Thanks a lot.

Your next question comes from the line of Emmanuel Korchman with Citi. Please proceed.

Hey, guys. Good afternoon. Just looking at the I guess out of the 250 or the 300 to 350, whichever one you want to kind of break down, what verticals does that fall into, and maybe if you can break it down further as to how much of that would be sort of that build-to-suit activity versus stabilized product?

Sure. I would tell you that it's still going to be that what we talked about earlier with about 40% entertainment, 40% education, and 20% recreation. I think of that I think our target is probably half to two-thirds of that is still in our build-to-suit across -- the build-to-suit, we're not doing build-to-suit things necessarily in the ski or that probably, but in the theater and in the school we're doing that. So that 40/40/20 is still going to hold up.

Great. And then if we turn to the theater sort of industry for a second, I think over the last few quarters we've seen some M&A activity between AMC, and then we saw some stuff with Rave, and now Clearview with Bow Tie. Could you guys give us an update on what's happening in the industry and whether any of that's good or bad or how it might impact your business?

Well we are seeing several transactions of -- I think it's a reflection of the industry's better performance and people that were either private equity held if you look at what's going on and they're seeing the ability to exit to the larger national players. We've seen Regal buy Hollywood, Regal buy portions of other Great Escapes. And then you have Carmike buying a portion of Rave. So there's a lot of activity.

It's generally the national players who have good access to capital who are coming in and buying retail players. What that generally means for us is that we get to -- we're quickly becoming whether it be AMC, Regal, or Cinemark, their largest landlord because in a lot of situations, which generally is an improvement of credit quality and credit visibility.

And so from our standpoint we continue to work with regional operators who know their markets, who are very skilled at understanding the dynamics of that local regional market, and then this is a story that's played out many times before, the larger national guys come in and buy these regional players. So we see it as pointing to the strength of the industry and the ability for these guys to monetize, and also we see it as an improvement in credit quality and ability to kind of leverage the platform that we already have with those existing operators.

Great. And then my final one. On Empire, it sounds like things are moving far quicker than I would have expected. Do they have an approximate timing in place? How long could the project kind of take and sort of where do you stand on timing (multiple speakers)?

Manny, I don't think we want to speak for Empire since it's their deal to raise their money. What we talked about is the fact that we have continued to make progress getting the development agreements and getting everything we need to do to get in place.

I think they are making progress on what they're doing. They've let us know. They continue to update us and give us updates on the progress they're making with regard to setting a plan in place, and we think everyone feels good about that. But I don't really want to comment on their side of the equation. I would leave it to them to comment on that.

Perfect. Thanks for the update.

Your next question comes from the line of Anthony Paolone with JPMorgan. Please proceed.

Thank you. Good afternoon. If you guys did decide to do what I think some of the other net lease companies are doing, which is just trying to go up the credit curve because capital costs have come down so much, if you opted to go that route, what would be sort of the change in the going in yields and what kind of impact would that have on potentially just doing more volume and how do you think about that?

Tony, it's very hard to say. We've made a conscious dedication to those things we said we were kind of more knowledgeable about and not trying to expand the portfolio with some of the speed that you might have seen from other people and going up the credit curve.

But I guess in those areas that we're in, Greg, I'll just reference his comments, in some ways we are going up the credit curve with some of the consolidation that is going on in the exhibition space and so forth, and we think eventually the same thing might begin to occur downstream, even in the school space as that industry matures a little bit.

But we still have quite healthy spreads given as pointed out before the cost of capital continues to come down and we continue to be able to maintain pretty strong higher single-digit GAAP rates on our deals. So if we decided to come -- be a little more aggressive, it might come down some. But I think really the spreads we still would enjoy would be very consistent with the long-term history of the Company. So we wouldn't erode them greatly relative to the type of spreads we traditionally enjoy.

Tony, echoing what David said, I don't really know given the spaces that we're in how we would move up the credit curve in the sense that -- if you think about the theater space, there are no investment grade tenants. There are some that are rated better credits than others, but we've always been about the quality of the property and the cash flow coverage of the property and the cash flow operations that can generate at that property.

So I don't really see us doing that. And besides, I think that space is really crowded with people who are out there who are making that their kind of shtick of what they do, [meaning] credit quality. I think, as David said, we want to invest in things we know a lot about, and then we're willing to go long and deep. We've spent a lot of time developing the relationships in these industries. We continue to harvest those relationships, and I don't see us turning our ship to just do something that other people may actually execute better than we do.

Got it. And maybe a slightly different question, if you think about whether it's Top Golf or Latitude's or something like that where you guys have funded these build-to-suits and you've taken the risk, now that some of these are up and running and becoming seasoned, do you think there's an implicit profit if you were to think about a market value, not that you necessarily want to sell it but just in terms of like what the cap rate versus what you all are getting as a yield might be?

Absolutely.

Well I do, but I think they need to be proven a little more. I mean I don't want -- I think we've got -- we feel very good about what we've done, but let's remember that some of these have been in place a year, two years. As they begin to have more of a track record, I think you'll get more cap rate compression on a buy as opposed to just immediately responding to the initial transaction.

You know, Tony, just to tell you, by embracing the build-to-suit development of our portfolio as opposed to buying a lot of standing properties because we have this kind of deeper relationship in the categories we invest, we don't take speculative development risk and we don't try and get the yields at the very high end, but I think we do probably get 100 basis points above a lot of other transactions in some of the categories we're in because we do fund build-to-suites and we feel like we have the knowledge to be able to do that successfully.

So those ought to create value for us as those open, mature, prove themselves. That premium ought to translate into a higher value than our original investment amount.

Okay. Got you. And then just a question for Mark. In terms of debt maturities over the next few years, what's pre-payable, if anything, without kind of onerous penalties I suppose?

Yes. Most of it is CMBS debt that we'll be taking out, so it does come with penalties. But we've looked at that and done some work on that, and this year for example we have a couple of early 2014 maturities that we may pull forward into 2013, perhaps even midyear-ish, and that will create enough capacity to do a pretty sizable bond and a favorable refi on that.

But no, most of it is CMBS debt, at least in the next few years, that you can't go out too early and take out without a big penalty.

Okay. And is that bond deal and savings in your guidance or is that incremental?

Is the -- savings on the debt refinancing is in our guidance because we do plan on, as we think about financing, I think I mentioned last quarter, taking advantage of the bond market and what our rates -- how much our rates have come down on spreads and doing a fairly sizable bond deal is very appealing to us over kind of a longer term bond. So yes, that is in our guidance, and it has an incremental impact of I think it's like 6.4% debt is what that average debt that would be taken out. And we could probably do debt today around 4.5 or so, so pretty nice pick up in terms of FFO.

Okay. Thank you.

Your next question comes from the line of Joshua Barber with Stifel. Please proceed.

Hi. Good afternoon. Most of my questions I guess have been asked and answered. Just a couple of quick ones. Can you just talk a little bit more about the learning center and the background there, especially the operating history of the tenant? I guess some of your net lease competitors have had some experiences with tenants there before, although it's mostly been from the parent company level where there were any issues. Could you just talk about I guess the particular niche that they're in and the operating history that your particular tenants have had?

Sure. The group was the original founders of the Tutor Time. That was what they did, who subsequently sold up through entities to Morgan Stanley. So their concentration really is coming back and introducing a lot of enhanced amenities.

If you look at the property it's no longer about simply housing kids, it's about offering a lot of things. It's targeted at offerings in high-median incomes, so you have high amenities but, again, kind of, Josh, not targeted at just housing kids but offering an education opportunity set to these young children, so starting to develop good quality educational habits and high amenities as opposed to what was some of the traditional models of childcare of just housing kids.

So we think we've got a great experience with people who built and proven a model successfully and now we're going at this kind of with, like I said, enhanced amenities and enhanced educational offerings.

Are they going to be a little bit bigger than your average --?

They are. They are.

So on a square -- but it would be located in the same place, sort of a strip mall area?

Yes. We're high-end retail offerings. So yes, I wouldn't go necessarily strip mall, but --

There was no pejorative implied.

Yes, I know. But yes, in the retail settings. And going back, I [just wanted to note] that Tutor Time, this was Tutor Time's largest franchisee in the country at one time.

So you've got experienced guys, and these have high cash flow, and that's very attractive to us, and really a nice offering in the market I think.

Thanks. And one last, more of a maintenance question. Can you just remind us I guess under the Imagine master lease, there are some that are being sublet, can you tell us how much the sublessor is currently paying of the existing rent? Have they taken that over at 100 cents on the dollar?

Well we've got several of those, so the answer is let me get back to you on that, Josh, so that I can get you accurate because we have more than one.

Great. Thanks very much.

Your next question comes from the line of Dan Donlan with Ladenburg Thalmann. Please proceed. n

Good afternoon. Real quick question on the coverage of the ski parks. I think you guys said it was 1.6, and if I look back to last year I think the coverage was around 1.4 maybe. So given how much better the ski season was this year versus last year, why is that not improved a little bit more than --

Actually, Dan, just -- the coverage was really 1.2 last year. We went -- two years ago we were at 2.2, this last year we went down to 1.2, we're at 1.6 now. Part of that is April's not -- we don't have all of the numbers for April, so we don't know -- I'm giving you a current view of that.

Also we had a rent increase during that period of time, during this year, so some of that's affecting that. But we think as we've said that we think this is a 1.6 to 1.8 type of business on a normalcy. So I just wanted to make sure, it wasn't 1.4. When we finally did everything and it was a 1.2. So we've had the best of years that we had two years ago, or three years ago, was 2.2, last year 1.2, this year kind of 1.6.

Okay. Okay. That makes more sense. And then as far as your China JVs, is there any more opportunities there to do maybe stuff that's wholly owned or what's the opportunities that's there or else where?

Well I think we are looking at further investment there. Again, kind of not -- I think part of the issue is we think that the JV is the right approach in China, and we think that gives us the access. I think we do -- I don't think that that's changing from our perspective.

I do think we will make some incremental investments with our JV partner. We've had very good success with our operation that we've had so far. I think we're still incrementally kind of figuring everything out, but I think we will make -- you will see some additional investment there this year.

Okay. And then lastly, there's been a lot of chatter amongst some of the gaming operators about potentially monetizing their assets through sale leasebacks on a one-off basis. Is this something that you guys have looked at, or is it something that you guys are exploring? Any thought process there would be helpful.

Dan, it's certainly something that we're getting inbound inquiries and we're thinking about ourselves. So it's a topic that we're focused on because by virtue of what it is, it's in that entertainment/recreation genre that is very central to us, and by virtue of the transactions, they're substantially sized and take somebody with a larger balance sheet. And we're potentially equipped to look at those where maybe some other people aren't.

But it's active. What [Penn] announced has caused a lot of people to look at it. There's some dialogue going on, but we certainly don't have anything announcing at this time, and if this comes into greater focus, we'll be sure to communicate that to you. But it's just an active topic around the industry. That's all I know to tell you right now.

But I will tell you, Dan, the numbers that we talked about capital spending reflect nothing -- only existing --

Yes. Nothing in the pipeline at this time. It has nothing to do with that. But for the fact that there effectively -- we don't really have in the pipeline about the Concord property, but we do expect a gaming facility there, as we've talked about before. So we do already have kind of a view into the industry, but nothing more than that is in the -- there's nothing in the 290 that we talked about that's additional gaming spend.

Understood. All right. Thanks so much.

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

Hey. Good afternoon, guys. The reimbursement rate, the tenant reimbursement rate, dropped for the second quarter in a row, or it was down again for the second quarter. Is that the loss tenants you're talking about at the multi-tenant centers that's causing that?

A little bit. We also booked -- remember when you're comparing those two property operating expenses includes that bad debt expense I referenced, so when you look at tenant reimbursements and property operating expense and you're looking kind of at the relationship, is that what you're talking about?

Yes. Exactly. So that's part of it. I'm with you. Okay. And then as you think about those spots, I mean can you release those spots, either where you're having trouble or --?

No, no, no. I mean part of it, like one of the ones that we're referencing here is a restaurant that went out, and so we're actively marketed, but the restaurant that went into a bankruptcy proceeding, so we're working through that and actively marketing. We don't anticipate that we're going to have difficulty re-leasing it, Rich. It's just when it happens you've got to load it in there. We may turn that negative run rate to a more favorable run rate as we get through the year.

Right. Because you know the small shop space for the community center guys has been what's tough, but it sounds like a restaurant, that would be a little bit easier perhaps. Okay. Good. Thank you.

And then the early childhood, what's the age of the kids there? Tell me about these facilities.

Generally these are going to go from infants up to before call it 5-year-old or 6-year-olds, and then they have an extensive after-school program where they will have older kids in school, that period of time from when school's out and when the parents can pick them up. They have a big enrichment program for after-school learning.

So this is sort of daycare on steroids?

Well, yes. Daycare, they would be offended by that. They are very painful to point out that they're in the education business, they're not in the daycare business.

This is important to note because it's kind of inherent to the generational change we see in the industry, things that are oriented from daycare to more education. And that evidences itself a lot in the physical real estate that you have more of a classroom environment than you do have kind of just an open play floor environment.

And also, David, the quality enrich -- the quality of the staff. They have people who have educational backgrounds and people who are trained to deal and enrich the educational opportunities for these kids as opposed to people who are just housing and keeping them occupied and things of traditional daycare.

Okay. Good. I got you. That's a good improvement. I like that. So would you find more with this operator? Is there more to do with them?

I think definitely there's more to do with this operator, much like we see us in everything. We think there are other operators which we can also expand this win and so that we'll have both a diversity of geography but a diversity of operator.

Okay. You know speaking of that, Greg, I'm always struck when I look at page 25 of your supplemental and I look at the tenants. There's still only one education tenant on that page, on the top ten. Do we see more of a broadening maybe of those tenants? I mean you can still see AMC of course at the top.

Yes, but you would see -- we now have 16, we'll probably be approaching 21 different educational operators by the time we start our next school year. I mean part of that is we've been very focused on, as we've talked about, increasing the operator diversity. So to come up on that chart takes about $8 million of annual type rent.

Yes. Fair enough. You're right. Okay. I got you.

They added a lot of new operators in education. No doubt about it. We're just not in concentration they way we have with --

Yes, and that's by design.

Yes. That's by design.

Okay. Yes. I got you. Then when you look at the -- you were talking a little bit about when the build-to-suits for the charter schools come online, and I assume you start getting paid when the certificate of occupancy is approved. When do you actually -- you build the theaters, when do you actually begin getting paid for --

Generally those are similar. When the building is put into service. So we're generally capitalizing interest on it for a 9- to 11-month period.

The difference is with schools you have kind of one opening date and theaters you're kind of targeting two different opening dates.

Exactly.

So summer and holiday for theaters and really kind of the fall for schools. And particularly when you're growing in that area you've got a bit of delayed earnings impact where you have capitalized interest and then it clicks into full rents upon certificate of occupancy, so it's a little back weighed, particularly when you're growing the business.

Okay. Right. I got you. And then on the dividend, now that you guys are a monthly dividend, would you raise the dividend more frequently, or is that still sort of an annual thing?

At this time it's still an annual thing. There's not been any change of policy by the Board on that. I mean we can always look at it, but the plan is at this time to stay with an annual adjustment of the dividend level.

Okay. All right. Thanks. And then the last thing is Moody's have a positive outlook on you guys, and it's been there -- I didn't go back further, but it's been there for at least two or three quarters, and I'm wondering how long can they leave a positive outlook before you begin to think about -- I mean the outlook's positive, you think it'd begin to move up? Any thoughts on what they're thinking?

I think the performance of the Company is very consistent with the things they have outlined in the positive performance. So we hope it's sooner rather than later that they act on that, but really that's just hard for us to answer, Rich, but we thoroughly agree with you.

Okay. Good. Thank you, guys.

At this time there are no additional audio questions in queue. I would like to turn the call back over to Mr. David Brain for any closing remarks.

All right. Well great. Again, I'll thank everybody for joining us. We're always pleased to be able to quarterly report to you and have this interaction. We'll look forward -- if you'd like to, please call the Company. We invite you regular contact. And we'll see you next quarter. Thank you very much.

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