EPR Properties (EPR) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2013 Entertainment Properties Trust Earnings Conference Call. My name is Ian. I'll be your operator for today. (Operator Instructions)

Now, I'd like to turn the call over to Mr. David Brain, President and CEO. Please go ahead, sir.

Thank you, Ian. Good afternoon. And thanks, everybody, for joining us. This is David Brain.

I'll start with the usual preface. As we begin this afternoon, I need to 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," "hope," "expect," "anticipate," or other comparable terms. The Company's actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause 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. Thanks for joining us. This is the Earnings Call for the Second Quarter of 2013. As the operator said, this is David Brain, the Company's CEO. With me, to go through the news of the quarter, as usual, Greg Silvers, our company's Chief Operating Officer --

Good afternoon.

-- and Mark Peterson, our Chief Financial Officer.

Good afternoon.

I'll remind everybody there are slides available, if you're not there, via our website at eprkc.com.

I'll start, as usual, with the headlines. The headlines for the second quarter of 2013 are -- first, quarter ahead of plan with favorable portfolio and tenant performance. Second, key tenant industries remain solid. Third, favorable debt re-financings are completed and add to positive outlook. Fourth, investment spending remains on track largely composed of build-to-suit projects. And fifth, guidance has increased based on multiple positive elements.

It's good to join you this afternoon in completion of our second quarter. It was really a good business-as-usual quarter that displayed the strengths of EPR Properties' portfolio and our market position.

Our first headline this afternoon -- the quarter ahead of plan with favorable portfolio and tenant performance -- is probably a pretty good summary snapshot of the state of affairs at EPR Properties right now. Things are going very well in all respects, and you'll hear this throughout the call, I believe. Mark will have all the financial report details, but broadly the quarter was very much on-plan, with several elements falling our way that allow us to report results just ahead of consensus.

The performance of the quarter, along with the positive outlook for the balance of the year in several respects, permits us to raise earnings guidance for the full year. More on this in a moment.

Now, we've been presenting the case of portfolio quality for some time. And our second headline this afternoon -- key tenant industries remain solid -- relates to and reinforces exactly this point. Despite some concerns about a letdown after a record box office year last year, 2013 is measuring up to be every bit its equal. Although lagging coming into the early part of the summer season, box office has caught up, and it's just about even with last year's record performance.

To go along with this, our ski properties finished their season with a very solid year, back to a comfortable level of rent coverage. And our water parks appear to be on track for a solid performance following a record year there as well.

Greg has more details on the portfolio performance in just a moment. But the broad message is clear -- our portfolio is high quality and consistently demonstrates great results.

Third headline this afternoon -- favorable debt re-financings are completed and add to positive outlook -- takes us to another aspect of favorable performance during the quarter and just after the quarter end. EPR Properties continued its migration and conversion from secured debt to rated unsecured debt during the quarter, with a new $275 million 10-year bond issue. This was achieved at a 5.25 coupon and, just like our last bond offering, reflects a reduction or improvement in spread over comparable base rates. Of particular note is that in conjunction with this offering, Moody's Investor Services upgraded EPR Properties to BAA2, a notch above our previous rating.

Further, since the end of the quarter, we've been able to finalize a renewal and significant extension of both our revolving credit facility and bank term debt facility, with lower rates and more favorable terms. Here again, Mark will have more details and answer particular questions. But the key take away is that EPR Properties' cost of capital continues to decline and bolster the outlook for improved shareholder results.

Our fourth headline this afternoon -- investment spending remains on track, largely composed of build-to-suit projects -- supports not only the positive results of the quarter but also a robust outlook for the Company. One of the fundamental strengths of EPR Properties, our build-to-suit business -- which is multiple properties with repeat customers in niche categories that we understand in depth -- is proving to be a great asset, particularly in this time of cap rate compression. Currently, as is typical, we have a number of build-to-suit projects going that will afford us investment yields and duration of investment substantially superior to properties bought in the secondary market through a bid process.

We've been able to maintain our investment returns in the upper single digits, with strong portfolio performance and a reduced cost of capital, those things I mentioned before. And these together set the table for improved shareholder returns.

Lastly, I want to turn to our final headline -- guidance increased based on multiple positive elements. This is the result, as I say, of the advantageous components just reviewed -- strong portfolio performance, growth in investments without declining returns, and a declining cost of capital. I'm pleased to report to you we are modestly moving up our full 2013 FFO and suggested per-share guidance for the year by a penny and a half on the midpoint, to between $3.83 to $3.93.

Well, that's it for the headlines. Now I'll turn it over to Greg for his property details, and then Mark will have the financial report.

Thank you, David.

In the second quarter of 2013, our asset performance remained strong. And we continued to make progress toward meeting our full-year capital spending guidance, with approximately $84 million spent in the second quarter, bringing our total spend for the first half of the year to approximately $123 million. Our spending in the quarter included investments in each of our primary asset segments.

On today's call, I'd like to spend a few minutes talking about the performance of each segment, as well as detailing our second quarter investments.

In the entertainment segment -- as we discussed on our last call, the first quarter of 2012 was a challenging comparable for the exhibition industry due to 2012's release calendar. However, we also anticipated that the summer season would correct the slow start, with a projected strong performance from several titles. I'm happy to report that the summer film slate has delivered, with 2013 performance to date matching the record-breaking revenues of 2012.

Given that most pundits believe that this year's holiday season is stronger than last, the industry is positioned to once again set a new record for box office revenues. Additionally, as we have discussed, we continue to see very positive impacts from newly introduced enhanced-amenity theaters.

Per-cap food and beverage spending, which has historically been approximately [$3 million] to [$3.25 million], is more than doubling with expanded food and beverage offerings. While some of this additional revenue is being used to offset the loss of revenue from a reduction in seat count to allow for the expanded seating amenities, it still is an impressive trend.

For the quarter, investment spending in our entertainment segment was approximately $20 million related to six build-to-suit theaters and one family entertainment center. For the year, in addition to the six theaters under construction, we have two theaters that have completed construction, and we maintain a solid pipeline of potential opportunities, both build-to-suit and standing inventory.

In our recreation segment -- tenant performance at our TopGolf investments continues to exceed our expectations, with actual revenues exceeding underwritten numbers by approximately 20%. Our water park tenant continues to benefit from a warm summer, especially in Texas, with 2013's performance running slightly behind 2012's record performance, mainly due to two factors -- the first being the school year in Texas has shifted one week later compared to last year; and two, we have had some additional rainy days.

During the quarter, our investment spending in the recreation segment was $17.4 million related to three new build-to-suit TopGolf facilities as well as additional spending on improvements at our existing daily ski properties and our water park investments.

With regard to our education segment -- we continue to execute on our stated strategy of growing the asset class while increasing operator and geographic diversity. As we are in the traditional summer months, performance stats are not as meaningful. However, there are some continuing trends that speak to the underlying strength of the category.

In June, the National Alliance for Public Charter Schools announced that the national waiting list for public charter schools now approaches one mullion students. These kids are not enrolled but rather just looking for the opportunity to get into a public charter school. And we see this demand continuing to grow. With our continually growing expertise in the category, we see increasing opportunities in the education sector, both in public and private pay, and believe that EPR can take a leadership position, much like we enjoy in our entertainment segment, in financing and delivering quality real estate solutions that tap into this growing demand.

For the quarter, we deployed $45.4 million relating to the build-to-suit construction of 13 public charter schools and one early childhood education center. Our investment pipeline remains robust, and we continue to have strong confidence in our ability to meet or exceed our stated target of $125 million for this segment.

During the quarter, we also completed a swap of three St. Louis schools previously operated by Imagine that had lost their charters for three operational schools in Ohio. We're pleased to report we've already secured a sublease for one of the two Indiana schools operated by Imagine whose charter was not renewed. As we've previously stated, Imagine has remained current on all their rent obligations, and we do not anticipate any disruption of their payment.

Furthermore, Imagine continues to work through the academic challenges that resulted in the loss of certain charters. However, as we previously mentioned, the underlying demand for public charter school option remains in these communities, and we are confident that we will continue to identify solutions for the remaining non-operational schools.

With regard to the Sullivan County property investment, the New York legislature successfully passed a bill to introduce full casino-style gaming into the state if approved on a statewide referendum in November. As proposed, gaming would be limited to certain areas in the state including the Catskills and would be excluded from New York City and the surrounding counties for a term of seven years.

Our proposed tenant, Empire Gaming, is very interested in pursuing a full gaming option if the voters approve this referendum, which may result in the project being delayed until the results are known. However, we remain confident that our property continues to offer a first-to-market opportunity that is valued both by the New York State and our gaming partner.

Our overall occupancy rate remains strong at 98%. We also remain confident about our 2013 spending guidance at $300 million to $350 million and the continued growth of our pipeline beyond our committed or approved transactions. In addition to the approximately $123 million of spending to date, we have an additional $125 million of spending over the balance of the year related to projects already in process and approximately $70 million of additional spending related to projects that have been approved but have not yet closed.

As many of you may have seen in our recent bond transaction, we disclosed that we've entered into an LOI for an 11-property theater deal valued at approximately $115 million. As this transaction comes with existing debt, it requires several approvals, and we continue to work through those issues and the timing related to obtaining those approvals.

Our stated guidance, both capital spending and earnings, however, does not include this transaction. We are hopeful that we can complete this transaction and substantially increase our 2013 investment spending. However, the timing, if all issues are successfully resolved, would result in little impact from a 2013 earnings perspective.

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 was $40.2 million or $0.85 per share, compared to $43.1 million or $0.92 per share in the prior year. FFO as adjusted per share was $0.98, versus $0.92 in the prior year, an increase of approximately 7%.

For the first six months of the year, FFO as adjusted per share increased approximately 8% to $1.92 from $1.78 in the prior year. The main difference for the quarter between FFO and FFO as adjusted relates to $5.9 million or $0.13 per share and costs associated with loan refinancing, as we paid off approximately $144 million of secured debt related to our four entertainment retail centers in Canada, as well as our entertainment retail center in New Rochelle, New York. I will further discuss our significant debt refinancing activity in the quarter a bit later, in my comments on our capital markets activities.

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 7% compared to the prior year, to $83.6 million. Within the revenue category, rental revenue increased by $2.5 million versus the prior year, to $60.8 million, and resulted primarily from new investments.

Percentage rents for the quarter included in rental revenue were approximately $600,000 versus $100,000 in the prior year. Mortgage and other financing income was $18.2 million for the quarter, up approximately $3 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 $300,000 versus the prior year due to higher property operating expenses at our multitenant properties. G&A expense increased by $230,000 versus last year, to $6.1 million for the quarter, due primarily to higher payroll-related expenses and professional fees as we continue to support our growth. Our net interest expense for the quarter increased by $1.5 million to $20 million. This increase resulted primarily from an increase in our outstanding borrowings during the quarter.

Equity and income from joint ventures increased by approximately $200,000, to $466,000 for the quarter. This increase was primarily due to an increase in income from our joint venture projects located in China.

Turning to the next slide, I'd like to review some of the Company's key credit ratios. As you can see, our coverage ratios remained strong, with interest coverage at 3.6 times, fixed charge coverage at 2.8 times, and debt service coverage at 3.0 times.

As discussed previously, we began paying a monthly common share cash dividend in May of this year. During the second quarter, we declared total monthly common dividends of $0.79. And our FFO as adjusted payout ratio for the quarter was 81%.

Our debt-to-adjusted EBITDA ratio was 5.1 times for the second quarter annualized, and our debt-to-gross assets ratio was 43% at June 30th. As you can tell by these metrics, our balance sheet continues to be in great shape.

Let's turn to the next slide -- I'll provide a capital markets and liquidity update. At quarter end, we had total outstanding debt of $1.5 billion. All but about $50 million of this debt is either fixed rate debt or debt that has been fixed or interest rate swaps, with a blended coupon of approximately 5.5%. We had $24 million outstanding at quarter end on our line of credit, and we had $20 million of cash on hand.

We are in excellent shape with respect to debt maturities. As of June 30th, we have no scheduled balloon maturities in 2013 or 2014, and what should be a very manageable amount of such maturities in each year thereafter.

Turning to the next slide -- we continue to reduce our cost of capital and level of secured debt. We issued $275 million of 10-year senior unsecured notes at 5.25% during the quarter. This issuance represented our third 10-year unsecured notes offering. And, in comparing it to our second deal completed last August, we are pleased to reduce the spread on this transaction by over 100 basis points.

As I referenced earlier, we used part of the proceeds from this issuance to prepay in full mortgage debt totaling approximately $144 million that had a weighted average interest rate of about 6.4%. The issuance of the senior unsecured notes and pay-off of the secured mortgage notes during the quarter allowed us to lower our secured debt levels from 16% to 11% of real estate assets.

As David mentioned, in conjunction with this bond issuance, Moody's upgraded both our corporate and senior unsecured notes ratings from BAA3 to BAA2, recognizing the continued improvement in our financial and operating metrics as well as the quality of our asset base.

Turning to the next slide -- we are also pleased to announce that subsequent to quarter end in July, we amended and restated both our line of credit and our term loan facility. The amendments to the line of credit included increasing the size of our line from $400 million to $440 million, increasing the accordion feature from $100 million to $160 million, extending the maturity date from October 2015 to July 2017, with an additional one-year extension available at our option; and reducing the interest rate and facility pricing. At our current credit ratings, interest on the line of credit is as LIBOR plus 140 basis points, a reduction of 20 basis points from the previous agreement; and the facility fee was reduced by five basis points.

The amendments to the term loan included increasing the size of the facility from $255 million to $265 million, increasing the accordion feature so that the maximum amount available under the facility goes from $350 million to $400 million, extending the maturity date from January 2017 to January 2018, and reducing the interest rate in all but the lowest rating agencies' ratings categories. At our current credit ratings, interest on the term loan is at LIBOR plus 160 basis points, a reduction of 15 basis points from the previous agreement.

In summary -- it was a very successful quarter in terms of raising new debt and lowering our cost of capital, while at the same time extending duration and increasing our financial flexibility. As we move forward in a rising-interest rate environment, we think we are well positioned with over 95% of our debt at fixed rates and low debt maturities over the next several years.

Furthermore, we believe that our leading market positions in unique niche categories will allow us to continue to invest with higher relative yields versus more commoditized real estate types and will provide a significant cushion against any future spread compression that may come with rising interest rates.

Turning to the next slide -- we are increasing our guidance for FFO as adjusted per share, as David mentioned, from $3.79 to $3.94, to $3.83 to $3.93. And as Greg mentioned previously, we are maintaining our 2013 investment spending guidance of $300 million to $350 million.

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

Thank you, Mark; thank you, Greg.

As we go to your questions, I just want to reiterate a point I brought up at the first headline. As I said, I think you heard throughout the call, things are going well in many respects. Portfolio performance is positive, investment opportunities are strong. Capital cost is declining and, notably, is being locked in for long durations. And the balance sheet is really an excellent shape. So it's a very good position we find ourselves in and we're glad to report to you.

With that, we'll go to questions. Ian, are you there?

(Operator Instructions) Craig Mailman, KeyBanc.

Just curious on the investment spending and guidance -- it sounds like even if you get near or above the high end of the $300 million to $350 million at this point, maybe close a theater transaction, that guidance -- probably at the high end, not going to go much higher? Is that sort of a fair way to look at it?

You saying earnings guidance, Craig?

Yes, just giving the timing and the rampant spending on products you do get [signed]. Is this kind of adjusted guidance range a pretty good sense at this point in the year for the balance?

Craig, it's Greg. I think the answer is it's the best knowledge we have right now. So we're giving you the greatest visibility. If we have -- clearly, the more build-to-suits that we do will not impact that earnings, just because they don't -- if we get one of the closings like that big theater deal -- if that comes quicker, then yes, it could impact that. But it being in the second half, the more meaningful impact of any investment is going to be in 2014 now.

Craig, there's no doubt that the math is just such that you get towards the end of the year, it impacts this year less. But if you think of it on a rolling 12 months forward basis, these things are very important to increase the outlook as we continue to look out through not only the balance of '13 but to '14.

Right, that's helpful. I guess I was just getting at -- is there anything in the till that could get guidance kind of moving higher here for the balance of the year? Do we have enough time, basically?

First, the top end of (technical difficulty) it's possible, because we have other standing inventory that we look at. We also have a component of percentage rents in the back half of the year, and the jury's still out on some of that period. But we try not to over-budget that.

But we still think, with things going well for us, we'll probably be towards the top end of that guidance range. And that's why we have it set there, yes.

That's helpful.

Then, I guess, this is for Mark. Just as you look at your sources and uses here for the balance of the year, what kind of dry powder do you think you have before you would need to get some more equity in the stack?

Yes, I think the good news is we have a lot of flexibility. We have $24 million on our line. Of course, the line is a $440 million line, so we've got plenty of availability there. We're a little under 43% levered on the debt-to-gross asset basis at the end of June, 42.6%. And if you were to finance that with all debt, we'd be slightly over 45% at the end of the year. We said our range is 35% to 45%. We said at times we can go outside of that range for a temporary period.

So we could do it all debt. But our plan includes a slug of equity via either direct share purchase plan opportunistically, or otherwise. But we do have equity in the plan. But we don't have to issue equity, so we're in a good position.

Okay.

Then, just lastly on the balance sheet -- the $199 million of land for development -- is that all Concord?

No, it's about $194.5 million or $195 million Concord, and then there's another land that's not related to Concord that's in that number.

I'm just curious. Because it sounds like Empire could, or sounds like they're going to, wait until they see what happens with the referendum here on gambling. At what point do you guys say the project is going to take too long to monetize? Maybe someone's going to pay more for that land, because they want that future project to go forward? When do you just monetize the land?

When we get an offer. I think, Craig, it's just -- I think right now, the outlook is this is the best route to pursue. But I think if somebody came forward with an offer, we've said repeatedly, we're open to that.

Great, thank you.

Thank you.

Tony Pallone, JP Morgan.

When I look across these triple net lease REITs, a lot of these guys seem to be just on fire in terms of the deal flow that they're transacting. And you guys have been pretty consistent, and arguably a bit more modest than in prior years. Can you maybe talk through just how you bridge that difference? Is it just purely the others playing at a different point in the credit spectrum, or just what you think -- GAAP? Or is it that you are seeing tons of deal flow, and you're just not comfortable with pricing?

I think it's the latter, Tony. As we've talked about, with this other deal, we've got deal flow that takes us up well over $400 million. And we've got far more to look at and that we continue to look at. What we've grown comfortable with is telling people what we have very well underhand and know we can absolutely deliver. And we do not want to disappoint on that.

So there's a lot of deals that are floating out there. Some of it is a quality issue -- we're not happy with the quality, so we pass on it. As we've talked about on theater deals, there is more pricing expectation on standing inventory, and those deals are getting bid down. But we're looking at continuing to grow 8% to 10% off our asset base, and do that with quality assets that are going to deliver 15, 20 years of lease life, and of the quality that we think are enhancing to the portfolio rather than detracting.

: Broadly, Tony, I'd just say philosophically, we probably have a bias towards doing less of what we know a lot about -- and that's just the DNA of the Company -- than guys who reach out and try and do more of things they know less about and bid at lower prices. If we could do twice the volume at half the investment spreads, we probably -- we would not do that. We would do have the volume at twice the investment spreads.

So it's philosophically an approach that we have a better screen. We get the same financial result of those two routes, and we would do things we know more about and we feel better about.

That's helpful. Do you think, though, just in terms of -- it just seems like some of the volume that they're seeing is so high -- do you think that this level of activity is occurring because it's happening at the very high investment-grade credit -- 15-year, whether it's a drugstore or whatever the case may be? Is it just that different product type and credit profile? Or do you guys like seeing huge volumes, too?

I think there probably maybe is a lot going on there. But Tony, you tell me. It seems like there's kind of an arms race, and sometimes pricing is not that important anymore, especially initial investment yields. I mean, people are willing to -- cap rate compression is on, and people are going for volume within that cap rate compression. We generally don't play that way.

Okay.

On the theater deal that you guys have tied up -- can you talk about just yield and/or maybe the economics? Because it sounds like you've got to assume some debt, and you don't know what rate that would be at, and so forth?

Yes, I don't think we -- it's in the range that we talked about, around the 9% going-in yield. And so, like I said, this is another deal that didn't get shopped, but it was brought to us -- one of our operating partners. We haven't disclosed the debt. I don't know that we can do that. I've given you the stuff that [are on] our side.

So I think we're very comfortable. It's a national theater operator. It's got well over 10 years left on the lease, on a master leased asset of 11 assets. So it's a group of assets that we like. They're consistent with the quality of what we own.

Okay.

And then, Greg, on the year-to-date box office -- what was that number? It sounded flat the way you described it. I don't know if you gave an actual number.

I will tell you, it's actually -- going in previous to last week, we were slightly ahead. This last weekend, we're slightly down, a little over 1%, because of last weekend, with "Batman" on a comparable basis. We should go back this weekend to flat or slightly ahead of 2012's pace. So (multiple speakers) it's roughly even at this point.

With a record year, we still consider that with a strong outlook for holiday a good place to be.

I would tell you that the marketplace is still saying 2% to 3% up for the year. We came out of first quarter about 11% down, but we talked about that was really kind of "Hunger Games" oriented, is kind of when that came out, out of line with what was traditionally being a summer fare product. But it continues to be very strong and robust, with some really good August titles.

And as we talked about, we move into the holiday season, where we now have "Hunger Games" in the holiday season. We have another Marvel movie with Thor, and we now have another "Hobbit" movie coming as well. So quite a lot of exciting titles.

Got it.

Then, last one, just on the Imagine swap -- can you just maybe walk through that again; I didn't catch all of it -- and just --

Sure.

-- what's the last -- just the update on where that is?

Sure. We've gotten -- we talked about having about four assets remaining under that group. We swapped out to three new schools, and we swapped three St. Louis assets for three Ohio assets. We talked about also that -- on the last quarter, there was made mention of the fact that in Indiana there were two schools for which it was announced their charter would not be renewed. And we had talked about those were two schools that were on our watch list. One of those schools we've already subleased on, and the other one we haven't. So we currently have three nonoperational schools that we're looking for.

So the overall number -- with the different issues that have gone on, we originally started with nine -- we had whittled that down closer to two. And then, with the Indiana one adding another one back, we're at three.

But they're all paying rent.

They're all paying rent, though.

Right. I'm sorry, so -- not to be confused here, but you had four assets that hadn't -- that were in St. Louis still needed to be addressed. You swapped three. So that leaves you with one. And then you had two --

One. That is correct.

And then you had two more in Indiana that lost their charter --

Right.

And one of those you subleased.

That is correct. And then we had one asset in Atlanta that was subleased. And that sublease did not get renewed. So that gives us the three that we have.

Okay. Thank you.

Thank you.

Thanks, Tony.

Daniel Altscher, FBR.

A question for you about TopGolf. I think, Greg, you mentioned that results there are exceeding your expectations. Did you mean revenue or attendance at the actual facilities? Or did you mean your actual results from TopGolf?

We're actually talking -- we're talking about both results. And we basically -- what I [said] was we underwrote the asset at a level, and the revenue results are exceeding those by over 20%. So they're performing very well.

And they're generating percentage rents beyond our expectations. So they're generating for us as well as for our customer, our client. Great results.

Great.

Maybe also, just dispositions on wineries. It doesn't look like there was anything else in the quarter. Is that right? And if so, what's left? And how much longer do you think that's going to take?

Yes, at June 30th, $30 million was the number. We sold one small one subsequent to the end of the year for $1.5 million --

Yes.

-- roughly, with no gain or loss. So the remaining -- we think we'll be down to roughly around $11 million by the end of the year.

Yes.

We've got a couple of others that are in process.

Under contract, in process.

And Dan, it's because of that de minimis level, as we mentioned on our last call -- we're not reporting on its specifically anymore on a proactive basis.

Yes. Got it.

And then, just one more, if I may -- with the new monthly dividend policy in place, what do you think -- has there been any reaction -- positive, negative -- from shareholders? Or do you think it's doing what you were looking to accomplish there? Or any feedback you can give us about the new monthly dividend policy?

I can tell you, Dan, we were out meeting with institutional investors and got real positive feedback from them, in the fact that they thought that adding a retail component would be very positive. And they felt that the move to that would be viewed very positive from the retail community. It's hard to get direct feedback from retail other than anecdotally getting a shareholder letter or something like that. But we have gotten the feedback, when meeting with our institutional investors, that they see it positively.

Great. Thanks so much.

Emmanuel Korchman, Citi.

As we look at your remaining acquisition guidance, could you possibly help us divide that between standing inventory and more build-to-suit type stuff that won't be income-producing for a few more months?

I'd say that right now, on the entertainment side, excluding the big theater deal, probably 30% of that is standing, 70% of that is build-to-suit. Of the education space, most of that -- a good 80%, 85% of that -- will be build-to-suit. And on our recreation side, probably half of that will be standing, and half of it would be incremental -- mainly our TopGolf facilities that we're building.

Is that the same case for the 125-70 split that you show in the disclosure? Or is that just --

Yes.

-- generally speaking about the rest of that mix? Or both?

Yes, the 125 is the completion of build-to-suit (multiple speakers) --

-- process, yes.

So that's definitely of that ilk. And then the 70 is deals we've approved.

Approved, but have not closed.

That's a combination of standing and otherwise.

And then, Mark, what brings the top end of your guidance down by a penny from last time?

Really, what we're trying to do is narrow the range from 15 to 10, raise the guidance at the midpoint by a penny and a half. So just a narrowing of the range, but a raise at the midpoint. We have the ability potentially for some things to happen to exceed that, but that's our best estimate at this time as far as a range.

Hey, David, it's Michael Bilerman speaking. Just want to come back to Concord for a moment. As much as I would love someone to come knocking on my home door and offer me a big check for my home -- unless I go hire a broker and try to market it, and then try to sell it, the likelihood is I'm probably not going to maximize value.

So I'm just curious, at this point -- it's $195 million, it's over 5% of your balance sheet. Why not pursue a dual-track process at this point, prepare it for sale, hire a broker, and try to see what you get? And that way, you'll be in a position to make a decision, rather than just sitting and waiting, and letting this capital earn nothing for shareholders?

Because I can't, under my agreement, my option agreement with Empire.

But at what point does that option agreement end?

Well, it ends at the end of this month, and we've extended on a monthly basis. And we expect will have another extension here shortly, and we'll disclose all the terms of that. And it was kind of on a very short month-to-month extension series coming into the deliberation of legislation, which just got passed in June, in the end of the legislative session in New York. So there wasn't an ability, because we didn't know what the terrain would look like, to look like what it was worth extending beyond June to any great degree.

So it extended in July, and those negotiations are going on now. And there'll be probably an extension, as Greg indicated, up through the election in November. So it'll probably go on at least till then.

And so at that point, you'll reevaluate again in November whether to sit on the capital?

As we always do, yes.

Okay. Thank you.

Rich Moore, RBC Capital Markets.

On the three charter schools that you were talking about that had lost their charters now, that you have left, it seems like it's getting kind of late in the year for anything to happen for the 2013-'14 school year, is that right? And if that is --

Yes --

-- what happens?

Well, I think it's very similar. I think what will occur, Rich, is -- remember, two of those three just happened recently. One decided not to take their sublease, and the other one just elected not to seek renewal of their charter. So we had the number -- the nine dribbled down to eight. And we have one of those schools. I think the other St. Louis school -- we are underway looking at a swap asset with Imagine.

I think the other two -- I think we'll have sublease candidates. But my guess is it will be for the '14 school year, not this year. But we've demonstrated last year, when we had nine schools, that they can carry those schools and pay rent and not miss any payments. And in fact, that number is lower than it was last year.

Okay. And Greg, those are with Imagine as well? Those two?

Yes.

Those other two. Yes, okay. Great.

Then, back on the acquisition side of the world -- there has been a lot going on with the whole triple net space. And I'm curious, from your point of view -- is the interest rate increase that we've seen recently causing any broader cap rate changes that you're seeing? And is it causing any change in the players who you're bidding against, or who you're seeing in the marketplace looking at these various assets?

I would say a little bit, in the sense of -- we are spread players. So when we're bidding deals, we're conscious of what our cost of both our debt and our equity is, and what we think is an adequate risk-adjusted spread for that.

To the second part of your question -- yes. Whether it's the public non-traded REITs, there just seems to be a lot more people chasing not as many deals. I mean, I'm seeing there's more volume, but I think it's changing inner hands. There's not a lot of new product being introduced. That's why we're still very successfully catching these build-to-suits, where we're seeing little or no competition, really, from those traditional competitors.

Okay. And net-net, Greg, it sounded like the cap rates are still flat with where they were, or maybe even coming down some?

Yes. I think our tenants clearly want them to migrate down, but we're still in the low nines or so, so still very soundly in the range that we talk about.

Okay.

And then, Mark, I'm curious -- you might've mentioned this, but my phone died in the middle -- why did you pay off the mortgages? What was the impetus behind paying off those with the bond?

Well, first of all, they're at -- 6.4% was the average rate, and we refinanced those with 5.25% rate. And when we did our debt deal, the bond deal rates, we did that at a 2.17% treasury. And about three days later, it went to 2.60%. So you think about what you're saving. And then the projections, if you look at banks' projections, have that interest rate rising even further.

Locking in at lower rates made sense from a rate perspective and an economic perspective. It also made sense from a reducing our secured debt. And that was part of the impetus for the Moody's upgrade.

Yes.

And frankly, we had hoped for an S&P upgrade as well, which we continue to work on. So there's kind of a dual track there. Economically it made sense, and secondly, un-encumbering our balance sheet to improve our financial metrics for rating agency purposes.

Okay, good.

And then, the last thing -- on the early childhood centers that you guys sort of introduced us to last time -- what, I guess, is going on there?

We're continuing to build deals in our pipeline. I think we've got one -- as we talked about, we've got one underway. We've got several, Rich, in our pipeline. We think, as we talked about, that it can be somewhere between a $35 million and $50 million annual component of our educational platform. We continue to believe that. But we wanted to introduce that before there are actually some in our deal flow. But we see those working their way through. And hopefully you'll see more of that introduced as we move through the year.

Very good. Thanks, guys.

Thanks, Rich.

Dan Donlan, Ladenburg Thalmann.

Just real quick -- I think you mentioned that -- I was off the call at the onset, but did you give the exact rent coverage of the ski portfolio and where that is on a trailing 12-month basis?

No, but we can. On a trailing 12, it's [1.7], which is the historical average.

Okay. And then (multiple speakers) --

It did dip, you remember, two years ago, when we had a very difficult winter. But it's returned back to its natural average.

Okay.

Then, on the Imagine portfolio -- can you give any rent coverages there as well?

Well, we've talked about -- there's two levels of rent coverages that we talked about. And on a property level, we said that it's closer to a [1.8] or a [1.9] on a property level. But the more interesting factor is where are they at corporately. Because we know they're carrying some of these properties. We think that's closer to a [1.2, 1.25], we've talked about historically, we think they're generating after carrying these properties that are not operational -- approximately $10 million of free cash flow beyond the rent obligation.

So we're fairly comfortable that this is -- it's not a situation where we're going to see any stoppage in rent payment. Remember, we have a $16 million letter of credit. And they do have free cash flow beyond servicing the properties. And as they take some of those properties and either sell them, sublease them, do something with them, and move them off their balance sheet; that that will only improve over time.

Okay. Thank you.

Thank you, Dan.

Josh Patinkin, BMO Capital Markets.

Going back to the Imagine corporate coverage -- does that include a maintenance CapEx in that number?

Yes.

Thank you.

And I'm thinking about the Empire State Building, and your ownership of the John Hancock Observatory. Have you guys looked at the observatory there and thought about investing?

Well, we saw the numbers. But I don't think they are considering breaking that out as a separate investment opportunity and selling off that as a way that they've listed that. I mean, remember, we finance triple net investments. That's what we do. We would have to have a tenant that was wanting to operate that and would see the value, and would bring the credit support necessary for it to work for us. But it's a space that, if it becomes available, we will look at it, if it meets our underwriting.

Okay. And how has the John Hancock Observatory performed since you bought it?

It's performing exactly as we underwrote it. Everything seems to be very strong, and we're starting -- we hope -- as we move forward with some of the new improvements, and they're putting additional investment -- our tenant is committed to spending more and more of their money to further enhance and freshen the product -- that it will only get better.

Very good, thank you.

Thank you.

Thank you.

There are no further questions in the queue. So at this stage, I'd like to turn the call back over to David for closing remarks.

At this point, we just usually thank everybody for joining us. And we always appreciate your inquiries outside of the call, and glad to respond. And we will look forward to seeing you next quarter.

Thank you, once again.

Thank you.

Thank you.

Thank you for participating in today's Conference, ladies and gentlemen. This concludes the presentation, and you may now disconnect.