EPR Properties (EPR) 2013 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the third-quarter 2013 EPR Properties earnings conference call. My name is Brianna, and I will be your operator for today.

(Operator Instructions)

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 your host for today, Mr. David Brain, President and CEO. Please proceed, sir.

Thank you very much, Brianna, and good afternoon to everyone on the line, thanks for joining us.

This is David Brain. I will kick things off with our regular preface which is as we begin, I want to inform you that this conference may include forward-looking statements defined in the Private Securities Litigation Reform Act of 1995 identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms.

The Company's actual financial conditions results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of factors may 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 12/31/2012.

Again thank you for joining us for this call for the third quarter 2013. This is David Brain and with me to present the news of the quarter and take your questions are Greg Silvers, the Company's Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

Just a little reminder as usual that there are slides available via our website at eprkc.com, that might help to follow and elaborate on the comments.

I will take away with headlines, the highlights for the third quarter 2013 for EPR Properties and they are, first, quarter results ahead of expectations. Second, key tenant industries and portfolio properties performance remained strong. Third, significant portfolio growth achieved with accretive transactions across targeted investment areas. Fourth, further growth capacity enhanced with recent equity sales. Fifth, dormant Catskills, New York, land inventory has begun renewal as a contributing asset. Six, Standard & Poor's issues long-awaited outlook upgrade. And seventh and final, an increase 2013 guidance and announced 2014 guidance reflects substantial portfolio and earnings growth.

All right, we'll dive into these, it is good to join you this afternoon to report on this third-quarter and year-to-date 2013 results. This quarter is one of accelerated progress along our articulated course for the year. Our first headline this afternoon captures that theme. It is quarter results ahead of expectations. Just as I indicated with my opening comment last quarter, our first headline this quarter reflects that things are going very well in all respects at EPR. We continue to make meaningful progress in our strategic growth and outperformed the expectations that we laid out at the beginning of the year.

Our second headline this afternoon, key tenant industries and portfolio properties performance remains strong. It is very similar to one I've been reporting to you regularly over a number of quarters. Our portfolio performance continues to exhibit the fundamental strengths, even in an uncertain or tepid economy. We have often spoken of and documented, defying the skepticism of some casual observers of our target investment areas.

2013 box office and total theater receipts continue to outperform all prior periods and are on track for another record year, which will make it the eighth in the 13 years since the turn of the century to set a new all time high. Similarly, in our recreation investments we are seeing robust performance. Both our technology-enhanced golf practice facilities and our water park properties, which concluded their season during this last quarter, once again exceeded expectations, paying a substantial bonus in percentage rents. Our high quality portfolio consistently is demonstrating strong results.

Third headline this afternoon, significant portfolio growth achieved with accretive transactions across targeted investment areas, embodies several key concepts. First and most obvious, is that we are finding good investment properties with client operations that meet our rigorous underwriting requirements. Second is, that we've been able to maintain attractive investment yields significantly above our cost of capital, making them accretive to you, our shareholders. And lastly, our new investments have been and continue to be fairly evenly spread among our three target investment areas; entertainment, recreation and education, providing an increased portfolio balance.

Our ongoing strong performance across our portfolio continues to validate our categories of investment and strategic direction. This solid organic type of growth in categories of high knowledge and experience is in stark contract to low cap rate acquisitions of portfolios, about which a buyer may not have a great depth of understanding. And future portfolio expansion is expected as indicated by our fourth headline, further growth capacity enhanced with recent equity sales. Seeing several potential transactions turn into actual portfolio additions and our investment pipeline strengthening, we undertook multiple efforts to raise additional equity capital to pay down our short-term credit facility and provide the Company capacity to close on additional transactions.

During the quarter, we sold shares to our direct share purchase program or DSPP, raising about $40 million. And subsequent to the quarter-end we judged our needs still great enough and market conditions healthy enough that we launched and successfully completed an overnight common stock offering as well. We started with an offer of 3 million shares and found demand great enough that we were able to easily upsize it by 20%. A net of offering costs, rather, we raised $174 million. This allowed us to fully pay down our $475 million revolving credit facility balance and in total, these equity additions provide us the capacity to pursue the robust opportunities that we see.

Our fifth headline this afternoon is dormant Catskill, New York, land inventory has begun renewal as a contributing asset. During the third quarter, Empire Resorts, the playing casino operator at our Catskills land holdings, began paying a series of agreed non-refundable option fees. We have received nearly $1.25 million to date and beginning this month we expect to receive a $0.25 million dollars per month. The duration of these monthly payments is expected to vary based on the outcome of the election being decided in New York today.

If the expanded New York gaming proposition is defeated, we expect these payments to continue about six months until construction of the traditional Recino project as begun at our site. If the constitutional amendment allowing full casino gaming in New York passes today, these payments likely will go on for a year or more as the new gaming commission establishes procedures for enhancement licensure and our client, Empire Resorts, pursues upgrading to the most extensive license available in New York under the new law. Regardless of the outcome of the election, we look forward to this asset becoming increasingly productive towards shareholder returns. And an additional positive note is, as progress occurs, we expect there will be less distractions from litigation from our former development partner as we have announced there have been recent court judgments ruled in our favor that we expect, although not eliminate, will limit, further litigation.

Now, our sixth headline today reflects the fruits of our consistent strong earning reports and our increased relative portfolio diversification for many quarters. And it is the Standard & Poor's issued, a long-awaited outlook upgrade. During the prior quarterly shareholder calls, and in many private meetings, we have been repeatedly asked why and how we received a credit rating from Standard & Poor's several notches below the investment grade ratings awarded us by Moody's and Fitch? With the early October announcement by Standard & Poor's that our Outlook has been revised upward to positive, we are hopeful in resolving this question for which we have not had a good answer. With the solid results of this quarter adding to the body of positive evidence in our favor, we look forward to further consideration of our rating from the agency and closing this ratings gap.

Now the last headline I have to offer you as usual concerns our guidance. It is increased 2013 guidance and announced 2014 guidance reflects substantial portfolio and earnings growth. The strong results I've outlined and Greg and Mark will detail for you, afford us the opportunity to raise our 2013 spending guidance to over $400 million and our FFO with adjusted expectation up to between $3.87 and $3.93 per diluted share. Which on the midpoint of $3.90 is an increase of $0.02 from our prior guidance.

We are also providing our initial guidance for 2014 results in this call. Based on the significant volume of build-to-suit projects we have either underway or signed and an attractive set of in-place property acquisitions before us, we expect investments of $500 million to $550 million next year and a range of FFO with suggested per diluted share of $4.12 to $4.22, an increase of 7% based on the midpoint of $4.17.

With that I will turn it over to Greg and I'll join you with questions later in the call.

Thank you, David.

In the third quarter 2013, we experienced continued strong performance in our portfolio, along with an acceleration of our capital deployment. Investment spending total approximately $130 million for the quarter and year-to-date spending was approximately $253 million at quarter-end. Subsequent to quarter-end we added a significant investment to our recreational portfolio and two theaters that were formally in joint ventures. These transactions have moved our capital spend in excess of $340 million, above the midpoint of our full-year spending guidance.

Accordingly, we are increasing our investment spending range for 2013 and I will provide additional detail on this increase later in my comments. Our spending during and subsequent to the end of the quarter, included investments in each of our primary asset segments. On today's call, I will spend a few minutes talking about the solid performance of each segment, as well as detailing our third-quarter investments.

First, broadly looking at the entire portfolio, our overall occupancy rates strengthened to 99% in the third quarter, up from 98.1% we reported at the end of the second quarter. In the entertainment segment, box office continued it's robust summer performance, and set an all-time record for the summer session up 12% over last summers performance. With several high expectation titles remaining for the holiday season, the industry continues to forecast another record breaking revenue year. We continue to see expanded opportunities with enhanced-amenity theaters and are adding new tenant relationships to our portfolio, while maintaining our position as the largest landlord to the three biggest theatre chains; AMC, Cinemark and Regal. For the quarter, investment spending in our entertainment segment was approximately $56 million related to the construction of eight build-to-suit theaters and the acquisition of three standing theaters.

As I said, subsequent to quarter-end we purchased our joint venture partner's interest in two theatres located in Illinois and in Florida for $18.6 million. In addition, we continued to work through the process on an 11-theatre portfolio valued at approximately $117 million. At this time we are targeting this transaction for a 2014 close and have not included it in our capital spending guidance for 2013.

As indicated by this recent activity, we continue to see significant opportunities to grow our portfolio through both build-to-suits and acquisition of standing inventory. Our recreation segment continues to perform well with Schlitterbahn contributing $877,000 in participating interest and topped off contributing $900,000 as percentage rent during the quarter. Both of these figures speak to the strength of the underlying tenant operations.

During the quarter, our investment spending in the recreation segment was $17.5 million related to six build-to-suit, TopGolf facilities, as well as spending our improvements at our existing daily ski properties and our water park investments. TopGolf investments continues to outperform our expectations and, as indicated by the introduction of three additional TopGolf projects beyond what we reported in the second quarter, we remain excited about the performance of these assets and the opportunity for growth that it presents.

Subsequent to quarter-end, we announced the acquisition of the Camelback mountain resort in Pennsylvania for a purchase price of $69.3 million. The property which averages 900,000 visitors annually has been in operation for over 60 years. It is located approximately 90 miles from New York City in the Poconos mountains and is a multi-season, family venue, offering skiing and tubing along with an outdoor water park and adventure park. The property is leased to the operator pursuant to a triple-net lease, with a 20-year term at an initial rate in the mid-nines.

Based upon the strong historic performance of Camelback Mountain, as well as the recognized unmet demand for lodging in the region, we are excited about the opportunity to finance the construction of a 453-room wilderness Lodge with an attached 125,000 square-foot indoor water park to be located at the base of the mountain. The Wilderness Lodge is designed to capture the existing unmet demand in the market with 900,000 annual visitors to the resort and more than 9 million overnight visitors of the region.

Leveraging the successful operation of the wilderness launch concept in the Dells and the Appalachian mountains, as well as significant equity investment from the wilderness and Camelback principals, we believe this investment will further strengthen the performance of the overall property. Upon completion of the indoor water park hotel, it will become subject to a long-term master lease, including the resort property. We anticipate EPR's portion of the development costs will be approximately $110 million or approximately 70% of the expected $155 million total spend. Construction of project has already commenced, however, as the terms of our agreement require that all of the borrower's equity be injected in the project prior to our spending, we do not anticipate advancing any funds for this project until the second quarter of 2014 or later.

With regard to our education segment, we continue to expand and diversify our public charter school portfolio. As we move from 41 schools in 2012 to 54 schools in 2013, from 13 operators to 19 operators, and we have increased our geographic diversity expanding from 13 states in 2012 to 19 states in 2013. We have increased our year-over-year enrollment by 22% or nearly 5000 students, while increasing our schools' capacity by nearly 31%.

As these numbers indicate, we remain positive on continued expansion of our public charter school portfolio as there appears to be no cessation for the demand of school choice. In our addition to our public pay charter school portfolio, we continue to grow and expand the private pay portfolio with further investments in early childhood education centers, as well as potential investments in private K-12 facilities.

Although we are beginning to see increasing competition in the education space, we remain confident that our early ground work to understand how to underwrite these assets and develop relationships with authorizers, educators and operators, will allow us to successfully compete and capture a significant portion of the assets that we desire to own and finance. For the quarter, we deployed $55.6 million related to the build-to-suit construction of 15 public charter schools, and 5 early childhood education centers. Our investment pipeline for education remains very strong and will allow us to continue our strategy of diversifying in terms of both operator and geography. Subsequent to quarter-end, we completed an additional swap of one of our non-operational Imagine schools. We now only have three schools that are non-operational in the portfolio.

With regard to our land in the Catskills, several events have occurred or are occurring as we speak that will impact this investment. First and most timely is the vote that is occurring in New York today on the referendum to permit full casino-style gaming in certain jurisdictions in New York. The results of this vote will be known shortly, however, I wanted to update you on what it means to EPR in terms of timing and milestones depending on if the vote is successful or not.

If the legislation is passed, it is our understanding that our operator, Empire, will pursue a class three license or a full casino, including table games. As the legislation dictates, upon passage, a committee will be established by the gaming commission to solicit and evaluate perspective applications. We anticipate that this process will take approximately one year, resulting in the project commencing, if awarded a license, in 2015 and opening in mid-to-late 2016. If the legislation is defeated, there is no impediment to Empire pursuing a relocation of their existing class two license to our site and could result in construction commencing as early as summer of 2014.

Notwithstanding, the expediency of the class two option, the passage of the referendum should significantly enhance the revenue production of a casino operator and enhance our total rental revenue through percentage rent participation. Under each of these scenarios, Empire will be responsible for the cost of constructing their improvements on the EPR parcel and will need to raise the capital associated with these costs.

Additionally, during the quarter the United States District Court for the Southern District of New York, dismissed the compelling antitrust suit against the Company and certain of its subsidiaries. In this matter, the plaintiffs have subsequently filed a motion for reconsideration, as well as a notice of appeal. Also, the New York Supreme Court in Sullivan County denied in its entirety, the article 78 petition filed by certain entities controlled by Louis Capelli, wherein he challenged certain actions by the Town of Thompson and its Town and Planning Boards upon and EPT Concord, our wholly owned subsidiary, as a master developer for our Catskills land designated as the Concord project. The plaintiffs have filed a notice of appeal of this decision as well.

As I stated earlier, our overall occupancy rate strengthened to 99% in the third quarter, up from 98.1% we reported at the end of second quarter. Based upon the level of capital investments to-date and the strength of our investment pipeline, we are increasing our 2013 investment spending guidance from $300 million to $350 million to $400 million to $425 million. As I noted previously, this number does not include the 11-theatre, $117 million transaction. Although there is a chance that it could close in the latter part of 2013 our expectations is that it will occur in 2014. Initial investments cap rates across each of our segments remain fairly consistent averaging 9 to 9.5.

2014 is shaping up to be a very strong capital investment year as we are introducing 2014 investment spending guidance in a range of $500 million to $550 million. A 27% increase from this year's expectations at the midpoint. Of this spending guidance, approximately 60% relates to spending on projects that have already closed in 2013 or expected to close by the end of the year, and the remainder of our 2014 investment spending relates to investment spending on specific projects that have been approved but are not yet expected to close until 2014.

Our pipeline of opportunity is evenly balanced across each of our segments but investments continue to skew to build-to-suit projects that allow us to capture maximum lease terms, as well as increased rate. We continue to be pleased with the number of opportunities that we are seeing as the pipeline significantly exceeds the spending guidance that we have adopted. Not all deals will close for a variety of reasons, but the absolute number of opportunities, as well the velocity of deals is increasing.

With that I will turn it over to Mark.

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

Now, turning to the first slide, I am very pleased to report another solid quarter for EPR. FFO for the quarter increased to $47.6 million or a $1 per share from $44.4 million or $0.94 per share in the prior year. Excluding charges for transactions and refinancing costs, FFO, as adjusted per share, was $1.01 versus $0.96 in the prior year, an increase of approximately 6%. For the first nine months of the year, FFO as adjusted per share, increased approximately 7% to $2.93 from $2.74 in the prior year. 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 8% compared to the prior year to $87.8 million. Within the revenue category, rental revenue increased by $2.4 million versus the prior year, to $62.2 million that resulted primarily from new investments partially offset by net decreases in rental revenue on certain existing properties. Percentage rents for the quarter, included in rental revenue, were approximately $1.3 million versus $500,000 in the prior year. The increase relates primarily to percentage rents of $900,000 earned on our TopGolf facilities. Note that we had previously planned to recognize percentage rents related to TopGolf in the fourth quarter of this year, as in the prior year.

Other income was $1.4 million for the quarter, up approximately $1.2 million from last year. This increase was primarily due to option payments totaling $1.2 million we had previously received from Empire resorts in connection with our land in the Catskills. These payments became non-refundable during the third order and were recognized as income. Mortgage and other financing income was $19.6 million for the quarter, up approximately $2.6 million from last year. This increase was primarily due to additional real estate lending activities.

In addition, as Greg also mentioned, we recognized approximately $900,000 of participating interest income this quarter related to our investment in the shorter-bond water parks due to yet another strong revenue performance season. On the expense side, our property operating expense increased by $640,000 versus the prior year, due primarily to higher property operating and bad debt expenses in our multi-tenant properties.

G&A expense increased by $1.3 million versus last year to $6.8 million for the quarter, due primarily to higher payroll-related expenses, including higher incentive compensation and stock-grant amortization as we continued to support our growth. Our net interest expense for the quarter increased by $440,000 to $20.4 million. This increase resulted primarily from an increase in our outstanding borrowings during the quarter, was partially offset by a decrease weighted-average interest rate, on our outstanding borrowings.

Discontinued operations for the quarter includes a gain of $3.2 million related to the sale of three vineyard and winery properties for total proceeds of $22.3 million. The net book value of remaining vineyards and wineries was $10.6 million at quarter-end.

Now turning to the next slide, I would like to review some the Company's key credit ratios. As you can see our coverage ratios remain strong with interest coverage at 3.5 times, fixed charge coverage at 2.7 times and debt service coverage at 3.1 times. During the third quarter, we declared total monthly common dividends of $0.79 and our FFO as adjusted payout ration for the quarter was a conservative 78%. Our debt to adjusted EBITDA ratio was 5.2 times for the third quarter annualized and our debt to gross assets ratio was 44% at September 30. Note that both of these metrics are prior to our substantial equity raise and pay down of debt subsequent to quarter-end.

Let's turn to the next slide, I'll provide a capital market to liquidity update. At quarter-end, we had total outstanding debt of $1.5 billion. All but about $118 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 5.5%. We had $68 million outstanding at quarter-end on our line of credit and we had $24 million of cash on hand. We are in excellent shape with respect to debt maturities. As of September 30, 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.

Also, as David mentioned, S&P revised their outlook for our senior unsecured notes from stable to positive. Recognizing the continued improvement in our financial and operating metrics, as well as the quality of our asset base.

Turning to the next slide, as discussed previously, in July, we amended and restated both our line of credit and term loan, reducing the interest rate on both of these facilities and substantially increasing our credit capacity. Subsequent to these amendments, we exercised a portion of the accordion on our line of credit such that we now have $475 million of availability at LIBOR plus 140 basis points at our current credit ratings. Our term loan is currently $265 million and matures in July of 2018. The term loan bears interest at LIBOR plus 160 basis points at our current credit ratings. And has been fixed with interest rate swaps of approximately 2.4% to 2.5% through July 2017. Both of these facilities represent attractive low-cost financing as we continue to fund our growth.

Turning to the next slide, during the nine months ending September 30, we have issued approximately 885,000 common shares under a dividend reinvestment and direct share purchase plan, for net proceeds of $43.8 million. This plan works very well in raising common equity at low-cost in monthly increments of up to approximately $40 million and matches up nicely with funding a portion of our build-to-suit projects.

Additionally, subsequent to quarter-end on October 23, we issued 3.6 million common shares in a registered public offering and received net proceeds, after the underwriting discount and operating expenses, of approximately $174 million. The offering went very well, allowing us to up-size it by 20% and executed an all-in costs of slightly over 3%. The proceeds from this offering were primarily used to pay off our line of credit, which had a balance of $160 million at the time of the offering. Thus, with the full amount available under our $475 line of credit, and no debt maturities until 2015, we are well-positioned to fund our investments as we close 2013 and head into next year.

Turning to the next slide, we are increasing our 2013 guidance for FFO as adjusted per share from $3.83 to $3.93 to $3.87 to $3.93. And, as Greg mentioned previously, we are also increasing our 2013 investment spending guidance from $300 million to $350 million to $400 million to $425 million.

Turning to the next slide, we are also providing guidance for 2014 FFO as adjusted per share of $4.12 to $4.22, and guidance for investment spending of $500 million to $550 million. As Gregg mentioned, of the spending guidance, approximately 60% relates to spending on projects that have already closed in 2013 or are expected to close by the end of the year. And the remainder of our 2014 investment spending relates to spending on specific projects that have been approved but are not expected to close until 2014.

Because approximately 75% of our expected spending relates to build-to-suit projects, that generally have a 9 to 12 month build cycles, it is important to note that most of the earnings impact related to our investment spending is in the year following the actual spending we report. Therefore, new build-to-suit projects that we may add to investment spending over the course of the year, are not expected to meaningfully impact FFO per share results in 2014. It should also be noted again, as Greg mentioned, that the portfolio acquisition of 11 theatres is included in the investment spending guidance for 2014 rather than 2013 and remain subject to certain conditions to closing.

We think it is also helpful to investors to share key assumptions regarding G&A expense and our land in the Catskills contained in our 2014 guidance. First, we expect G&A expense to be approximately $28 million to $29 million for 2014. Our G&A expense is expected to be approximately $600,000 higher in the first quarter than the full-year number divided by four, primarily due to certain employee benefit expenses that are recognized in Q1 as in prior years. Second, our FFO per share and investment spending guidance includes the Catskills project at its status quo. We believe this is prudent given the continuancies which remain for this project to move forward, and we will provide the financial details of this project once such contingencies are removed and timing is better known.

Note that unlike the option payments we recognize in income this quarter, the non-refundable option payments that we expect to receive in the future which David described are creditable against future rent payments. Thus these payments will not be recognizable as income when received, but rather will be deferred and recognized as income as part of lease accounting should Empire sign a definitive lease agreement in the future, or alternatively, would be recognized as income upon a decision by Empire to abandon the project.

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

All right, that's a lot of detail on 2013 and we have heard a lot of insight with regard to the outlook for 2014. What we've not touched on is the dividend but I will mention that before we go to questions.

We do not have a specific 2014 dividend level to offer you at this time. But I can tell you that we do expect to review our dividend and have an announcement in advance of our January monthly dividend that will be paid in February. The reason I mention this is because that's a different timing from prior year as we have moved to a monthly dividend. So rather than late in the first quarter, it will be in January. Nothing currently has been approved by the board, but historically we have increased our dividend in concert with our increasing per share cash flow to maintain a low 80% payout ratio.

With that said about the dividend, now I will open it up to questions.

(Operator Instructions)

Craig Melman with KeyBanc Capital Markets.

Hi, guys. Mark, could we just go back to the comment about the payments from Empire? I wasn't clear on something getting deferred?

Yes.

Are you guys going to get the $250,000 a quarter?

Here's the situation. We received $1.2 million prior to this quarter that became non-refundable in the quarter and is not accretable against future rent, it's ours period. So that was recognized as income. As we go forward they are going to pay us option payments in monthly installments and those payments are accretable against future rent, although they're non-refundable, accounting will not let us recognize those income until -- they want to associate those with the lease account. So, while those payments will be received and our commitments by Empire and will be receiving, are not refundable since they're creditable, we won't recognize those until the lease commences and it will be part of the lease accounting when that happens.

So Craig, it's not in the budgeted numbers for FFO. FFO suggests as you heard, but it will be collections we will be making and eventually find its way because they're non-refundable, into earnings at some later date. We expect as we sign a lease either, depending on the outcome of the elections, six months or when further licenses are awarded, more like 12 months.

Okay, so in 6 or 12 months you'll get another bigger thing, another income that you'll recognize?

We will be collecting it over the time, we will just recognize it at that time.

Assume there is a lease signed, we'll start straight-lining that rent and this will be cash payments against that future rental stream so it will be recognized as part of the lease stream.

Right. I guess you guys will have 750 for next quarter or it's not going to show up?

We're going to have 750 if we get those monthly payments it will be in cash and deferred revenue, deferred income on our balance sheet and will be recognized as of income in the future.

Yes.

Okay. I got you.

Why now? Is it after the litigation's done that you guys are going to non-refundable? Our was it just in the original agreement?

Craig, it's Greg. Really it was part of the original agreement but part of it is now we have definitive plans with the vote and no timeline. Once we had a timeline, we kind of said this is the appropriate time to be paid for that and to create a level and a sense of urgency to get it done.

Okay. That works. All right. I guess that's it for me for now. Thanks.

Thanks, Craig.

Emmanuel Korchman with Citi.

Hey good afternoon guys. (multiple speakers) If we look at the news in the Catskills, sort of, maybe we'll ignore today's vote since none of us have any info on that one. Which of the two possibilities is sort of best for you guys especially with the comment that you'd collect on the percentage rents. I would assume that a full-scale casino would be sort of beneficial to EPR?

I think, Manny, it's Greg. It is a double edge sword in the sense one is more expedient and one may be more economically lucrative. I don't think we want to weigh in. We've tried to be agnostic with the New York State saying we think we can proceed with either way. I think we're happy with either vote, we want some finality to it. Rather than try to pick one side or the other, I think what we've said and maintained is that we have a winning scenario under either way and we are anxious to get that process moving.

And then, if we think about the class 3 license. There was an article in the Wall Street Journal a couple of days ago, they have did a pretty good job laying out all the potential players in the region, made it clear that only a couple of them would win effectively. So, does Empire have some type of lead versus other competitors up there or is it just that you guys think they will be in a better position to open, should the resolution pass?

I think again, I think if you look at some of the dictum that came out regarding the legislative intent, one of the major issues was, speed to market. I don't think there is anybody, we already have a master plan that has already been approved, and we have all of the necessary infrastructure and approvals for the environmental impact or otherwise that would allow us to be a first of the market player. Again, if you look at how the legislation is drafted, it is very much descriptive of the type of project that we have, that we are offering and we think, based on our discussion with all of the players involved, that we are well-positioned to be a leader in the pursuit of one of those licenses.

Thanks for that color, Greg. And switching gears to Camelback for a second, Great Wolf is literally around the corner from the resort. Could both indoor water park-type properties draw enough people to make them both profitable?

Absolutely, they both operate similarly in the Dells. They are both very -- (multiple speakers)

In a smaller market with even not only two like that but several others, they operate very productively for everybody.

Thanks for that guys.

Thank you.

Dan Altscher with FBR.

Good afternoon. Thanks for taking my question, looked like a pretty good quarter.

I wanted to ask on the acquired theaters, can you give us a sense of maybe the deal terms there and maybe the expected economics for the ones you acquired in the third quarter? And also for the deal that sounds like it's going to close in 2014, as well?

Sure, and I'll give you general terms, it's Greg, Dan. I think what we have said consistently is these are kind of low to mid-nines, in that sort of terms. They're generally 15 to 20 year terms and triple-net based and I think our, the theater portfolio that we are looking at has about a 14-year remaining term with a national operator and is consistent and on the economics that I just discussed.

And then, switching to schools, it looks like you made some progress in getting one of the schools that was dark, back into action. But what needs to happen to get the remaining three properties that are left? What are the options there?

Sure, I think they need to be more geared toward sell or actually sublease on those properties. The swap opportunities, I think, we fairly exhausted the ones that we're interested in. I think on a go forward basis we'll be looking at introducing, either a new operator via sublease or an outright sale of the property.

So that's a pretty interesting point in terms of not looking to swap anymore. Am I reading that correct that maybe the tenant doesn't really have any additional properties that are interesting to you on a go forward basis? Is there was another, if something happened with one of the other properties that there wouldn't be swap opportunities in the future?

No. Let's be clear about this. Part of the issue is, they have an existing credit line that is secured by several of their properties that could be swap candidates but that doesn't necessarily create anything for us, that is essentially them having to pay down the line or pay us to effectuate the swap. I'm saying there's not many candidates remaining for swap. That's not a qualitative issue, that's mainly, there's less that they own free and clear without any sort of financing that are available for swap.

Okay. Thanks for clarifying that.

Anthony Paolone with JPMorgan.

Thanks. Good afternoon. (multiple speakers) Why do you think the deal pipelines gotten bigger?

You know, part of the issue I think, is the strength of the underlying, especially the theater industry we have had several years of our performance, but I also think there are more and more, I think triple-net competitors are moving, whether it be up the credit curve and we're seeing less people looking in some of our spaces. We are seeing more people, a lot more competition from the non-traded guys but I do think the underlying fundamentals of the tenants business are what's the main driver of this.

Yes, fundamentally I think Tony the businesses good in our tenant industries. And people have expansion plans and financing at some of the main street level particularly for development projects is still very tough.

To read into that, when you talk about the underlying business fundamentals, is that suggesting that cap rates have been where they are? And the cash flow of the properties is a little bit better so they can extract a little more proceeds and it makes more sense? Is that kind of what you mean?

I think part of the issue also is, I'll talk first of all about theatres Tony, is the dynamics of what's going with the enhanced-ammenity theaters. We are actually changing the cash flows and the relative how those cash flows are shared. Traditionally, if the model used to be that two-thirds of the cashflow were from box office and that was going to be shared on a proportionate share with the studio. Now if that's come back to the line to where 50% of the revenues are box office and 50% are food and beverage and the margin on the food and beverage is better than what you were with regard to sharing with the studio, it's really kind of changing a little bit of that. And we have several of those high-amenity theaters that are under construction right now to where there is a lot of recognition of, not only is the underlying box office strong, but the consumer spend in the box is increasing.

Right, I mean our clients are much more bullish now about the pro formas of their plans. So are we based on what we see as the results within our portfolio and they want to move ahead with some of these development programs.

We have talked about the explosive growth in the public charter school area.

That continues to be very strong with hundreds of units started per year. And we're only really tapping the outer edges of the potential of that market.

Okay. And so then, if I look at your investment volume expectation for 2014, the 500 to 550, did I hear right that you take 60% of that and that's basically spend on existing or soon-to-be locked-up projects and then on top of that you have the theater portfolio? Is that right?

Yes, that is correct, it would include that. (multiple speakers) I think what we're saying is 60% is things that are under contract and approved right now, 40% is identified but not yet closed. So a lot of what we are saying is identified -- all of it's identified, it's just that it's in some portion of closing. 60% of that is either already closed, or expected to close by the end of the year or shortly thereafter. The remaining of that will be further in the year but it is not a go find, it has been identified and it has been approved, it is just yet to effectuate the closing.

Got it. And the theater portfolio though is part of the 60 not the 40?

Yes, part of the 60, that is correct.

Okay. Got you. With regards to the percentage rents and participation on TopGolf and Schlitterbahn, how should we think about those on a go forward basis? For instance for TopGolf? Is that something that we should expect annually if they keep up this level of activity in the third quarter each year? Because it seems like you are going to have more dynamic percentage rents than you used to with just the theaters going forward.

I will let Mark to speak a little bit about this, but I think on TopGolf, yes, I think that is a little more we can plan. And as we add units, we could see that growing a little bit but that will play itself out as we move forward with them. With regard to Schlitterbahn that is a little more seasonally driven. I mean for the last two years we had very strong seasons and hit that number, but it is a shorter season, it is impacted (multiple speakers), it has more volatility into it. I feel more strongly about the TopGolf being built into that and some level of Schlitterbahn being built in to that but I don't know that we should just lock into that number for Schlitterbahn going forward.

Schlitterbahn the last three years, I think it was 400, than roughly 800, than 870, 877 this quarter. So the last two years have been very strong years, but it does depend on weather to some degree, whether we get that extra or not. As far as TopGolf, I agree with Greg. That 900,000 based on the current performance we feel very good about and we're doing more TopGolf facilities. We expect that number to grow as we head into 2014.

Okay. But that $900,000 that's not something we should put in every single quarter. That is just the third.

(multiple speakers)

No, I'm sorry. Just the third quarter.

These are annual events that which we measure and look at collection.

There might be a small amount of TopGolf percentage rents in the fourth quarter but the lion's share was this quarter for sure.

Okay. Then finally with regards to the Catskills. Any update now that things seem to get a little further down the path in terms of what EPR would have to spend?

Well, I think it is actually been interesting, what we've said is that we would have some spend on infrastructure, however, we've recently have been approved by the Town of Sullivan for IDA bonds to support the infrastructure. So that number still remains in flux because it may get significantly lowered by the fact that there is industrial development bonds that may actually provide the capital for that. So part of that is continuing to work through that process, but I think we have many levers that we can pull, but I think we feel that if anything that number is actually been decreasing.

Does that mean then that any ground rent would just go to support the bonds?

No, totally different. The bonds would be supported by common area maintenance and other charges, not the ground rent.

I see. And then that sort of $3 million annualized number I guess that you may get for six months or a year or so, depending on how the ballot measure breaks, is that any representation of what the ground rent ought to be going forward or is that a placeholder?

That is not a representation. It is more of a placeholder and what we think is kind of indicative of what we talked about getting some urgency to it but it is not necessarily representative of what the final number will be.

(inaudible) tie up the best and most advanced site in terms of speed to market that there is.

Okay. Great. Thank you.

Thank you, Tony.

Rich Moore with RBC Capital Markets.

Hi, guys, good afternoon. I have a question for you on -- I guess I'm trying to figure out what is going on over all with the portfolio. So, as an example, last quarter I think you had 114 theaters in this quarter you have 118 theaters and you bought three, so one sort of appeared. I am guessing it came out of the build-to-suit portfolio. But then you have eight that you are working on now, you had six before. I'm trying to keep track I guess.

(laughter)

Then I look at charter schools I see the same thing. You had 41 and now you have 47 and you have more under construction than you had before. So I'm curious. Can you give us an update on these different buckets, what is being delivered? And is there any chance we could get a schedule of how you see these deliveries panning out over the next couple of years?

Yes, that might be the best answer to that Rich, it's Greg. I think let us take a look at doing something like that. You are correct, what you're seeing is things that as they complete their construction cycle they spring in there and so when we say eight build-to-suit theaters, those are theaters that are under construction but are not yet complete. So they are truly in our build-to-suit category and then we move them in and so our total number -- why don't Mark and I take a look at what we can do to clarify that and kind of put things into completed and in the right number, build-to-suit.

I think what he said is correct. When you look at the lease expiration schedule that excludes construction in process, so it's going to be those things coming into service but we really talk realtime about things in process. And to your point, maybe a schedule that shows in-process and expected delivery dates.

We could do something like that.

So I guess the real, thank you that's be great. The real issue is are you getting any payments of any kind, I guess whether they're mortgage payments or actual lease payments as you go? I guess it would be as big of a deal, or do we get these only as they come online?

Generally while we are constructing it is capitalized interest, so you're not getting the income effect generally until it is put in service and --.

So it would be helpful to know exactly when these come online from a modeling standpoint. Okay. Good. Thank you, so you added three TopGolfs. What do you think about TopGolf? That is expanding quicker than I thought it might. Is there more --?

I said we added three TopGolfs, it's three TopGolfs that's under construction. If you think about it we added two last year completed into the portfolio. So, these are -- again, it is suffering from the same issue that you mentioned before. Some of those our build-to-suit, or all of those of build-to-suit projects, so they're averaging maybe two to three a year that they are bringing online.

So even though you have six underway, those six Greg will--?

As an example, we're going to open one in Dallas at the colony in mid-November. That's in that process because it's not open. There are others that may have just started. So when we report six they are in different phases which would go to the point of your schedule which would give you a better idea if we put in expected delivery dates.

Okay. Good. Thank you. How about Toby Keith's, by the way, guys? What's the status of that? How do you guys feel about that product at this point?

Currently, probably not going to expand in that. We're having some litigation with them and not necessarily thinking that's a way that we'll grow. Interestingly enough though, what we have seen with the expansion of the enhanced-amenity theatres, we're not getting extra space back. We talked about this Rich, two or three years ago when we thought we might have 14 -- 24 screen theaters that are becoming 14 screen theaters. What we're seeing now is most of our theater operators are wanting to keep the space and you know, create dine-in options or higher amenity options so we are actually not having to find that many or we're not seeing that many opportunities to take space back and re-let it.

That's good news, I didn't realize that, that's great. Thank you for that. Then the last thing I had Mark, there's a mortgage note that looks extremely short-term for $11.8 million, I was curious about what that is? It wasn't that last year and is now due in December.

There was a secured debt that matured. One of our Atlantic joint ventures. It was an interim note to the ultimate purchase that Gregg referred to in our comments. We bought subsequent in the quarter so we financed the payoff of the loan knowing we are going to buy it, we closed on that subsequent to the end of the quarter.

Okay. Great. Thank you, guys.

Thank you Rich.

[Dan Donlon with Littenberg Salman].

Thank you, and good afternoon. Hey, it has been a long day in the triple-net world. I had a question on the G&A. Did you say it's going to be $28 million in 2014?

I think I said $28 million to $29 million.

What is driving that increase? It looks like it's going to come in somewhere around $26 million or so in 2013 and that's up from $23 million in 2012 and $20 million in 2011. What's driving the increase there?

The main thing driving the increase is really adding people and as we expand these businesses and we are growing quickly, and there's a piece of it that's stock ran amortization that takes a bit of time to get to fully into P&L. If you think about it, if someone starts and they take a big chunk of their long-term incentive and stock ran amortization it takes awhile before you fully see the impact of that. Nonetheless, our G&A we expect to be roughly a little over 7% next year. This year we will finish somewhere in that ballpark, a little higher. I think we'll leverage that down a little bit next year. So I think it is still competitive relative to our peer group.

Dan, I would say we used to have G&A in the 5%, 5.5% to 6% range and it's probably gone up as Mark indicates to the 7%. But we really have added the additional scope of investments we've done. Some of these investment categories are still early innings in terms of still being in the hundreds of millions and not of into the scale that we think they are capable of. So, I think that comes down over time as now we've expanded from just entertainment to entertainment, recreation, education. We really have emerging businesses that are not quite at scale as they are capable of. We'll be up in that 7% range but we think we can get that down over time.

Okay. Yes, that was my question more or less. And, then just lastly on the TopGolf success you guys are having. Are you starting to see other concepts come to you guys given the success there? Do you have anything that you might be able to announce sometime next year or what's going on? Just kind of curious.

Dan interestingly enough, we have concepts like that come to us the life of our existence. Being in the entertainment and recreation space we get those, we have nothing to announce, nothing, but we do get a lot of feedback from people and we get feedback from people who are, people who know people at TopGolf and they have become our agent or ambassador to other people. But nothing that we have to announce right now.

Okay. All right. Thank you very much.

Thanks, Dan.

It looks like there are currently no more questions in the queue.

All right. Well, I think we have covered a lot. I will take it to thank everybody for joining us this afternoon. We always appreciate that. We appreciate contact any time. Feel free to reach out to the company if you need further questions answered. We thank you for joining us this afternoon and look forward to seeing you next quarter. Thank you.

Thank you.

Thank you.

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