EPR Properties (EPR) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2014 EPR Properties Earnings Conference Call. My name is Whitney and I'll be your operator for today. (Operator Instructions) As a reminder, this call 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 Chief Executive Officer. Please proceed.

Thank you, and good afternoon to all. Thank you for joining us. Its David Brain. I'll start with our usual preface. As we begin, let me inform you this conference call 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 condition 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, 2013.

All right. Again, good afternoon to you all; thanks for joining us for this earnings call for the first quarter of 2014. This is David Brain, the Company's CEO. And with me to go through the news of the quarter as usual are Greg Silvers, the Company's Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

As usual, slides are available to follow along some of the key points via our website at eprkc.com.

I'll start, as I usually do, with the headlines for the Company. For the first quarter of 2014, our headlines are, first, quarter results in line with our expectations with record quarterly revenue.

Second, key tenant industries and portfolio properties performance remain very healthy.

Third, new investment volumes on track with investment guidance.

Fourth, balance sheet position further strengthened by recent equity sales and enhancement of credit facilities.

Fifth, minor asset sale made to achieve strategic and portfolio management objectives.

And sixth, 2014 portfolio growth guidance affirmed but per share earnings expectations modestly revised, primarily due to higher equity position and impact of asset sale.

It's good to join you this afternoon to report on our first quarter for 2014. Again, the headlines I've read to you are indicative of consistent and material progress along our intended course with one modest change that allows us to achieve certain strategic and portfolio objectives at this time.

As indicated by our first headline this afternoon, quarter results in line with our expectations with record quarterly revenue. Our year has begun very much in line with our expected and intended course. We recorded record quarterly revenue of nearly $90 million, 8% ahead of the same time last year. And our FFO, as adjusted, up nearly $50 million, is 12% ahead of the prior year.

Our per share figure of $0.94 was the same as Q1 last year as a result of relatively higher equity or share count position.

As we have previously discussed, our first quarter results are always relatively lower than other quarters due to timing of some expenses. And with this in mind, the results we have posted for the quarter are right in line with our previous guidance and expectations for the year.

As mentioned in our headlines, we are revising our earnings guidance for the year, and I will expend on this point in a moment. But for now, I want to point out that the reported first quarter results for EPR are very healthy and very much in keeping with our expectations.

Our second headline this afternoon, key tenant industries and portfolio properties performance remain very healthy, is repetitive of prior quarters, I know, but nonetheless is very good news for current and future results.

2014 box office and total theater receipts are on course for another record year. This, again, is repetitious but news we enjoy sharing and feel we need to regularly, particularly in light of the continued technology-driven skepticism we find often expressed about our largest investment segment.

Our ski property investments have included their season with revenue and net results ahead of their five-year average, a key benchmark. Greg will have more on this in a moment.

The third headline this afternoon, new investment volumes on track with investment guidance, is also indicative of the health of our business and the outlook for increased shareholder results. Our investment outlays for the first quarter totaled approximately $70 million and year to date, we now stand at around $200 million invested, which is in line with our guidance range. As we reported to you previously, we continue to find substantial opportunities with a good market reception for our approach of directly negotiated build-to-suit transactions across all of our specialty categories where we have significant industry knowledge and client relationships.

And future portfolio growth is afforded by our fourth headline -- balance sheet position further strengthened by recent equity sales and enhancement of credit facilities. As we discussed to you on our last call, we have been utilizing our direct share purchase program, or DSPP, to raise equity during the very end of last year and the first quarter of this year. Year to date, we have sold over 1.5 million common shares at an average price of just under $51, raising approximately $80 million in additional equity beyond the $174 million raised in an overnight offering in the fourth quarter of last year.

Although we've currently halted our DSPP activity, we continued to be active in this regard in the first quarter because of our robust investment outlook for the year and reliable market conditions. This has led us to our current position of proportionately greater equity in our capital structure than originally expected, and no balance outstanding on our low-cost short-term revolving credit facility.

This position diminishes somewhat our very near-term per share cash flow results that we expect, but very positively leaves us in a great position to be aggressive in portfolio development.

Although, as I mentioned, we have not utilized our revolving credit facility of late, we have taken steps to enhance it nonetheless. With additional bank commitments, we have expanded the aggregate amount of our revolving credit facility by about one-eighth, to $535 million. This also helps us be poised to serve our customers and attractively add to our portfolio and shareholder results as opportunities arise.

Our next headline, minor asset sale made to achieve strategic and portfolio management objectives, is unusual for us and is about which I'd like to convey a few points. First, as I believe should be clear from my earlier comments, this sale was in no way motivated by a need for liquidity.

Second, although there was no need at the company level for liquidity, we believed the transaction would be a good demonstration of liquidity of the asset type. As an investor in non-commodity asset types, we often get questions about the potential for sale and valuation level for the assets we own, particularly our public charter school assets. When confronted by the opportunity to sell several of our Imagine public charter schools, one of the largest tenant concentrations in our portfolio, for an amount substantially above our acquisition costs and at a good cap rate, we seized the opportunity.

Third, it is important to note that the credit enhancement covering our master lease with Imagine, an approximately $16 million letter of credit, does not reduce with this sale. Thereby, our credit support in this investment was improved.

And last point I will make about this transaction is that it validates our accounting for our master lease with Imagine as a financing. I'll remind you all that we own the schools leased to Imagine but account for this transaction as a financing due to its unusually long 25-year duration. As a result of this treatment and the escalators contained in the lease, we book substantial revenue in excess of cash payments during the early years and accumulated deferred rent asset on our balance sheet.

The transaction price achieved in the sale covered all of the deferred rent associated with these properties such that we still recorded a gain in excess of all asset values. Financially, this sale is a good transaction and strategically, we believe it has significant merit.

The last headline this afternoon, as usual, concerns our guidance. It is 2014 portfolio growth guidance affirmed but per share earnings expectations modestly revised due to a higher equity position and impacted asset sale.

As I indicated earlier, we are finding good opportunities to deploy capital consistent with our guidance of $500 million to $550 million in 2014 transaction volume and have achieved approximately $200 million in transactions closed to date. We are, at this time, affirming that portion of our guidance.

We are, however, revising our guidance for FFO as adjusted per diluted common share for 2014 primarily as a result of the sale of high-yield assets just discussed, and the proportionately higher equity position in which we find ourselves. We currently expect that our FFO as adjusted per diluted common share for 2014 will be between $4.00 and $4.10.

To be clear, I want to add to this we absolutely expect no revision in our dividend level through the balance of 2014. With this revision and expected cash flow per share, our dividend only changes from the payout level of 82% to 84%, still a very reasonable and conservative payout ratio.

With that, I'll turn it over to Greg and join you later as we go to questions.

Thank you, David. As I report to you today, we've made substantial progress toward meeting our full-year capital spending guidance with approximately $69 million spent in the first quarter, and a $117 million acquisition that closed subsequent to quarter end.

I will have more on the portfolio acquisition later, but I would like to start today by spending a few minutes discussing the performance of our segments, our first quarter investments, and highlighting the continued development of our plan for 2014.

In the entertainment segment, our primary asset type, theater exhibition, continued its strong performance year to date with revenues approximately 10% ahead of last year's pace. With the summer season kicking off in May, we face some significant comps from last year. However, the industry experts maintain their forecast for the overall year to be up 1% to 2%.

For the quarter, investment spending in our entertainment segment was $10.3 million, related to three build-to-suit theaters; redevelopment of two existing theaters; and construction of two family entertainment centers. As in previous years, overall construction spending in the entertainment segment, as well as our other segments, is typically lower than the balance of the year, primarily driven by delivery schedules and winter weather conditions. However, these projects continue to move forward.

Subsequent to quarter end, we completed the acquisition of an 11-theater portfolio which is master-leased on a triple-net basis to Regal Cinemas. As we discussed previously, we identified and secured this portfolio in the latter half of 2013. However, as it was encumbered by CMBS debt, it took a significant time to gain the necessary approvals from the servicer to complete the transaction.

The properties were acquired at an acquisition price of $117.7 million and at a 9% initial cap rate. The theaters contain 139 total screens and have 13 years remaining on the lease term. We were very pleased to complete this acquisition and continue to expand our relationship with Regal Cinemas, one of the country's largest and most successful operators.

Our recreation segment continues to out-perform last year's comps, with both our ski properties and our TopGolf properties showing continued revenue strength. While the season is not entirely complete, the numbers through March for our ski portfolio indicate that we will again exceed the five-year average coverage of 1.7 times, with both attendance and revenues up approximately 6%. We will update you on the final numbers on our next call.

Our six open and operating TopGolf properties continue to exceed expectations, with the portfolio running above a 3.0 cover.

In our recreation segment during the quarter, our investment spending was $20.7 million, related to build-to-suit spending on nine TopGolf entertainment facilities as well as funding improvements at Wisp, our daily ski property located in Maryland.

Additionally, while the season has yet to commence, we have news to share surrounding our Schlitterbahn investments. Specifically, on April 25, the Guinness Book of World Records certified that the Verruckt water slide, which is planned to open this season, is now the world's tallest water slide at approximately 168 feet. In addition to the excitement garnered by the sheer size of the ride, both the Travel Channel and Good Morning America will be featuring national segments in May on this new ride and the Schlitterbahn properties. We look forward to this national publicity and the resulting attendance increases that we hope it will generate.

With regard to our education portfolio, we continue to reap the benefit of the record-breaking growth statistics that we discussed in our last call as we continue to see increasing opportunities in the education sector.

For the quarter, we deployed $36.3 million related to the build-to-suit construction of 14 public charter schools, three private schools, and six early childhood education centers, along with the acquisition of one early childhood education center. Subsequent to the end of the quarter, we also sold four public charter school properties located in Florida and leased to affiliates of Imagine schools for net proceeds of $46.1 million. The properties had an original acquisition cost of $41.5 million.

Even though this transaction impacts our future earnings in the short term, the decision was part of our strategy to lower our tenant concentration in the education segment, and Imagine now represents less than 6% of our total revenue.

Additionally, this transaction demonstrates the increased liquidity in the space that we discussed on previous calls. As you can see from our continued expansion in the segment, this sale has not in any way diminished our enthusiasm for the education space and we expect to continue to make significant investment in this segment.

With regard to our Sullivan County, New York, investment, now known as Adelaar, we continue to make progress through the application process with our proposed tenant, Empire Gaming, submitting their $1 million application fee in April. As we have indicated previously, the process of awarding the license is a highly structured and detailed process that will not complete until the latter part of the year. However, we continue to work with our tenant to showcase the property and its many amenities throughout the process.

Our overall occupancy rate remains strong, at 99%. We remain very confident about our 2014 spending guidance and are reaffirming our stated range of $500 million to $550 million of investment spending. As David mentioned, we are re-setting our earnings guidance to reflect the events discussed today. However, given our strong growth profile for this year and beyond, we believe that the steps were the correct ones to take as it positions our balance sheet and our asset base to drive substantial and reliable growth for the future. We continue to see exciting opportunities in each of our investment segments and are enthused about the opportunity to execute quality transactions that will drive our success.

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 first quarter increased to $52.7 million from $48.3 million in the prior year. FFO per share was $1 this quarter, compared to $1.03 in the prior year. FFO as adjusted for the quarter increased to $49.6 million, versus $44.1 million in the prior year, and was $0.94 per share for both quarters.

Before getting into more detail on our financial results, I want to point out our balance sheet and liquidity position, which is exceedingly strong. Our book leverage is only 39% at quarter end, versus 41% at the same time last year, and we have no outstanding borrowings on our line of credit.

We have achieved this position by taking advantage of market opportunities. Over the last two quarters, we have raised more than $250 million of common equity, locking it in at rates that are attractive relative to our investment yields.

Furthermore, as Greg mentioned, we also sold four public charter schools for proceeds of approximately $46 million after quarter end, providing -- even further provide powder to fund significant investments we expect over the remainder of the year.

Moving to the next slide, there were two gains and one expense for the quarter that are included in net income and FFO but have been excluded from FFO as adjusted, and I want to discuss these items before reviewing the other variances versus the prior year.

First, during the quarter we reversed a $3.4 million liability to transaction cost, as the payment is not expected to occur. This liability was established in connection with the acquisition of Toronto Dundas Square in March of 2010. The gain has been reclassified to discontinued operations for the quarter.

Second, we completed the sale of an excess parcel of land adjacent to one of our public charter school developments in Arizona and recognized a gain of $330,000.

Third, deferred income taxes spent for the quarter of $407,000 is excluded from FFO as adjusted as it represents the noncash reversal of a portion of the deferred income tax asset that was recognized at the end of last year due to the Canadian tax law change effective 1-1-14. I discussed this tax law change on our last call.

Now with that, 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 a record quarterly amount of $89.9 million. Within the revenue category, rental revenue increased by $6 million versus the prior year to $66.4 million, and resulted primarily from new investments.

This increase was partially offset by the impact of the weakened Canadian dollar exchange rate versus prior year of over 9%, which reduced rental revenue in our Canadian properties on a comparable basis by approximately $700,000.

Percentage rents for the quarter included in rental revenue were $319,000, versus $447,000 in the prior year.

Mortgage and other financing income was $18.7 million for the quarter, up approximately $870,00 from last year. This increase is primarily due to additional real estate lending activities.

On the expense side, our property operating expense decreased by $585,000 versus the prior year, due primarily to lower bad debt and other non-recoverable expenses at our multi-tenant properties as well as the impact of the weakened Canadian dollar exchange rate I discussed earlier.

G&A expense increased by $810,000 versus last year to $7.5 million for the quarter due to primarily to higher payroll-related expenses, including stock grant amortization, as we continue to support our growth. Not also that, as expected, G&A in the quarter included additional employee benefit-related expense of approximately $600,000 that does not repeat itself for the balance of the year.

Our net interest expense for the quarter decreased slightly by $90,000, to $19.9 million. This increase resulted from a decrease in our weighted average interest rate on our outstanding borrowings, but was offset by an increase in our outstanding borrowings during the quarter.

Finally, income tax expense for the quarter relates to the Canadian tax law change that I discussed previously. $407,000 of this expense is the non-cash deferred income tax expense that was excluded from FFO as adjusted. The remainder is current tax expense.

Turning to the next slide, I would now like to review some of the Company's key credit ratios. As you can see, our coverage ratios are very strong, with fixed charge coverage at 2.8 times; debt service coverage at 3.2 times; and interest coverage at 3.6 times.

We increased our common dividend by 8.2% in the first quarter to an annualized dividend of $3.42 in 2014, and our dividend continues to be well covered by our cash flow.

Our debt-to-adjusted-EBITDA ratio was 4.9 times for the first quarter annualized, and our debt-to-gross-assets ratio, as I mentioned earlier, was 39% at March 31.

As you can tell by these metrics, our balance sheet is in a great position to fund our expected growth.

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 $60 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 no balance outstanding at quarter end on our line of credit, and we had $20.4 million of cash on hand.

We are in excellent shape with respect to debt maturities. As of March 31, we have no scheduled balloon maturities in 2014, and less than $100 million of such maturities in each of the next three years thereafter.

Turning to the next slide, during the first quarter, as David mentioned, we issued a little under 1.6 million common shares under our dividend reinvestment and direct share purchase plan, for net proceeds of $79.5 million. This represents an average net price of just under $51 per share. This plan continues to provide a very cost-effective way of raising common equity in smaller increments.

Additionally during the quarter, we increased the size of our line of credit from $475 million to $535 million, which carries a stated rate of LIBOR plus 140 basis points, and increased our funded term loan from $265 million to $275 million, and that carries a stated rate of LIBOR plus 160 basis points.

Turning to the next slide, we are confirming our investment spending for 2014 of $500 million to $550 million and revising our guidance for FFO as adjusted per share to a range of $4.00 to $4.10, from a range of $4.12 to $4.22, primarily due to the sale of the public charter schools and the additional common share issuance during the first quarter.

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

Well, I think that those comments covered the issues and the events of the quarter, so I'll just open it up to questions at this time.

(Operator Instructions) Craig Mailman.

Hey, guys. Could you maybe give a little bit of background on the process for selling the charter schools, and maybe who the buyer is?

Sure, Craig; it's Greg. We were approached by a third party private buyer who actually owns and develops charter schools in Florida. They wanted Florida schools, and so they approached us and we owned those. They are a private buyer; they're not a public entity. And approached us about if we would be willing to sell and we worked through where we thought it made sense for us to do it and were able to successfully close those.

We set out some criteria for the sale we thought would make it attractive to us and they were willing to meet that criteria.

Criteria -- you just mean pricing?

Yes, mainly.

Can you remind us what the initial cap rate was in the acquisition versus where you guys sold it?

Sure. The initial cap rate was a 10, and this was a low- to mid-nine.

Is it just in your general master lease agreement that even if you sell assets, they don't get to kind of take them out of the master lease from a coverage perspective, or is that just unique to this master lease?

The way ours is drafted is they don't get to remove that unless with our consent. And so when we carve these out, we talked about some of the features -- one of those features is that the LC would not accompany those in a sale. And so they were willing to take that as a condition and we were able to maintain that on the balance.

Okay; that's helpful. And then, Mark, on the balance of $500,000 of taxes that wasn't related to the part in the adjusted FFO, what are you guys paying taxes on?

Well, in Canada, there was a law change. We used to have the income fairly well sheltered by having in-country debt and then inter-company debt on top of that. And then the tax law went into effect -- which we anticipated -- that went into effect 1-1-14 that limited the amount of debt that you could have in Canada, which suddenly we became a taxpayer.

And because we had had taxable income greater than booked in the prior years, as we had a deferred tax asset to recognize, that was a big gain to recognize in the fourth quarter, non-cash. And now what you're seeing and you'll see for the coming future is the reversal of that non-cash asset -- you'll see non-cash expense, which is what the $407,000 is. And that'll be booked each quarter, but excluded from FFO as adjusted.

Okay. Then just lastly, on Adelaar. $750 million, but kind of what's your responsibility there going forward, from an investment perspective?

Well, our plan has not changed, in the sense that we're anticipating that we're a ground lease to the casino and we may have some investment in infrastructure, which we'd maintain.

Well, infrastructure investment and some of the other amenities there -- the retail village and the water park hotel. But the casino, the company hotel, gaming floor, all that, will be the investment of our lessee, Empire Resorts.

Right, but on the retail piece -- like, how much are you guys thinking you're going to spend up at that site going forward?

I think as it sits right now, there's probably kind of $100 million to $125 million, $130 million, depending upon how it leases and how things are -- what kind of tenancies we have. And that non-casino spend, that's with substantial equity by the tenant. So those are just individual deals that we'll evaluate as they come about.

Great; thank you, guys.

Anthony Paolone.

Thanks; good afternoon. I guess the first question is you guys upped your line capacity. You sold a bunch of equity and you also sold some assets. So I'm just wondering why hoard so much balance sheet capacity?

Well, I guess, Tony, we felt that we kind of started on an orientation because we knew we had -- as we gave you guidance to $500 million to $550 million, we knew there'd be a lot of opportunities; we have a lot of visibility of opportunities. We're guiding for things we know are very realizable. We even know there are opportunities beyond that.

We started on a course at the end of last year of building balance sheet capacity; we're still on it. We just think it's a good season and so we're not -- we don't have guidance beyond the $500 million, $550 million, but we really think we have good capacity for further transactions. And market conditions, with tapering and they were somewhat unstable at some times during 2013; we weren't sure. So we thought we'd build that capacity while we knew it was available.

Got it. A number that the net lease companies -- seem to be seeing a number of very large transactions in the market and there just seems to be a lot of deal flow. You guys have stuck to your guidance because you just mentioned there seems to be some stuff out there. Are there any big transactions out there that you think fit EPR's profile as opposed to maybe some of the different stuff that your peers do?

We're looking at things. I don't know that there's anybody -- any things that we're willing to discuss or comment on. But we have kind of our strike zone of things that we think fit within our portfolio and with our kind of investment criteria, and we continue to evaluate those.

Tony, I think it's clear that there are some things out there; we've made a policy of giving guidance when we know we have more realizable transactions and we'll just wait beyond that.

Great. No, I understand not wanting to put in your guidance but am I right, though, in reading you that building up some of this capacity is because of just the opportunity set that's out there?

I think that's accurate. We continue to see -- we've moved, Tony, last year from $400 million last year to $500 million to $550 million, and I think we continue to see that growth. With a lot of what we're doing, also in the build-to-suit, if you kind of look at all of the things, some of those new disclosures that Mark's provided, that show a substantial build-to-suit, as some acquisition opportunities present themselves, you have to be ready to move on those.

Yes, I wouldn't read into the hoarding cash, if that's what you want to call it, related to some pending large transaction, necessarily. What we thought was with respect to Imagine, we took advantage of an opportunistic situation. With respect to line of credit, we think it's the right move because, like Greg said, we've got a large pipeline and we have a lot of build-to-suit and we think getting the capital at a very accretive level kind of up front, particularly when you have such a large percentage of build-to-suit, it was a smart idea.

Okay. On the charter school sale, the cap rate you mentioned -- I think you said low nines -- is that a cash number, of what's the GAAP? It just seems like financial (inaudible) is pretty dramatic.

Yes, I'll walk you through -- the GAAP rate was over a 12%, probably got 12.3%, because there was a non-cash piece. As David said, we did get paid for that non-cash accrual that we had built up over time. But yes, the book impact is over a 12%; the cash was running somewhat over a 10% in terms of cash. Those were the two relative numbers.

So that's why it makes a very big impact because it was a very high yielding thing, and on a book basis more so than cash. We've not been fans of a lot of straight-lining and a lot of advance booking, and so we had a chance that that comes down a bit. And our credit strength through this transaction goes up a bit, and it was a good price, and so we decided to do it.

It does impact, very near term, per share results as we see it today, but we think maybe we can make this ground up later, where the Company's in a great position to continue to grow.

Okay. Just to make sure I've got this right -- 10% is the cash GAAP rate on the sale price, not -- because I think you'd mentioned something about (inaudible)

No. Let's make sure -- 10% was the original acquisition cap rate. The cash cap rate that we sold was, as I said, low to mid-9. But the current rate that it was earning, on a GAAP basis, was above 12%, based upon that direct financing methodology. And that's why you see us -- the actual book gain was smaller because we had to plow back and in some of that deferred rent asset, we had to eat through. But the actual numbers were original 10%, to sell in the 9%s. So we'll book a couple hundred thousand gain in the second quarter.

The economic gain is much bigger than (inaudible) million because we had to cover this non-cash piece.

Okay. And then, just last question for me, the theater portfolio. Can you remind me what you do with -- I think you assume debt, right, through that process? So what are you booking in terms of the rate on that? That you have to, like, mark it to market, or how does that work?

Right. It was about $91 million worth of debt that we assumed. That'll be booked closer to $99 million just mark to market. We booked it -- 7.4 is the stated rate; it'll be booked more around a 4%, possibly lower, rate just because of the short term to nature. It's due in July of 2017 so there's only about a little over three years left on it. So you book it at a much lower rate than the stated rate, and then we'll pay off that debt in July of 2017.

Okay, great; thank you.

Thank you, Tony.

Dan Altscher.

Hey thanks, and good afternoon. Thanks for taking my questions. I was interested -- on the charter school side, it sounds like you were approached on this portfolio. But parsing from the comments together about trying to demonstrate liquidity and de-risking the portfolio, if this buyer had not come to you, would you have still gone forward with trying to de-risk, with trying to demonstrate liquidity, or just it's a matter of circumstance?

I think it's a little bit of both, Dan. I mean, there's one thing for we're lowering our concentration as we're growing our other names in the portfolio. So I think this was an opportunity for us when we were approached and we looked at it to say, yeah, we think this is a good thing to do. We think it lowers that concentration quicker than just overcoming it through acquisitions.

And it also demonstrates, as David said, kind of liquidity in the property type, especially given the fact that there has been some noise with that name. And if there's demand in that area, we think it bodes very well for the entire portfolio.

Right. We were not actively seeking this, but the chance to demonstrate liquidity, as you say, and get a cap rate that's attractive, that captures -- validates our accounting. We don't usually -- that's one of the highest relationships that we have where we book a lot of non-cash rent, and to take that down, to alter the portfolio composition, and to increase our credit enhancement in this transaction all seemed very appealing to us.

Okay. And since we're starting to wind down the school year and approach a new one in a couple of quarters, I guess, can you remind us, on the charter school front, when -- if there were any schools that might have charter revisions or have charter issues -- when the actual operators might hear about it and when you might hear about it; and finally, when we in the market might hear about it also?

It's probably going to be in the early part of the summer. It'll be close to school year when those things are normally heard about. We're not aware of any of those issues right now.

There's a lot of notification that goes on about now. We don't have anybody notified of a charter issue. And then, charter [replications] occur usually outside the school year, but we don't have any anticipation of that.

Okay, great. And maybe just a quick one -- and I apologize if I missed this before. But can you just parse out the guidance modification, how much of that is related to the sale of the four properties versus the, I guess, additional equity contribution?

Yes. So if you parse it out, that Imagine sale is about $0.07 to guidance just because if you do the math on the $46 million of proceeds and pay down a very low rate line of credit versus earning over a 12%, you'll calculate that to be about $0.07.

The additional equity issuance is another couple of pennies relative to our guidance.

And then we did have some Canadian exchange rate adjustments -- I mentioned a little bit of that -- in the first quarter, and we adjusted that to the new rate over the remainder of the year. That went up about 9%. The Canadian dollar weakened by about 9%, which is the weakest it's been since 2009, I believe. So we adjusted that and that had a bit of an impact. So that's really the midpoint of guidance, taking it from where we were to where we are.

Great; that's perfect. Yes, that's super helpful. Thank you so much.

Andrew Rosivach.

Hi, guys; thanks for taking my question. I know this has nothing to do with what happened with Imagine, but this has become an issue in the healthcare sector. Could you remind us what your -- what the tenant purchase options are in some of your charter schools? And kind of your outlook on whether or not those may get exercised?

Yes, generally those from us are going to be somewhere in that seven- to 10-year range. Imagine doesn't have any purchase options. So it's really tenant-by-tenant driven.

And remember, those come with a premium if they do happen to exercise those. We'll get a bump on the deal as a result.

That's right.

And sorry -- did you say those were seven to 10 years out?

Yes; true.

Got it. And when you say you get a premium, like what would be the yield that they would pay, for example?

Generally it's 15% to 20% off of original cost.

Over cost; got it. Okay, thanks a lot, guys.

Welcome.

Nick [Surface].

Yes, actually it's Michael Bilerman; good afternoon. In terms of the DRIP, what's your take-up on the dividend reinvestment plan on the equity versus just your normal (inaudible)? How much comes through the dividend reinvestment, rather?

Dividend reinvestment is pretty small -- about $10 million -- I think it's about $4 million or $5 million a quarter, maybe $10 million, $15 million a year; $15 million, $20 million a year, something like that. It's pretty small.

And that's embedded in the rest of the year's guidance, in terms of that equity coming?

Yes.

So back in late Feb, when you reported results, you'd already done 1.3 million of equity, almost $65 million. So I guess I'm a little bit confused why an additional $15 million of equity would have caused -- decreased the guidance.

(inaudible - multiple speakers)

At the time of the call, we really weren't planning on continuing the program, but we had a lot of interest, we liked the price, we could do it inexpensively and lock it in, and we raised an additional 300,000 shares, is what it comes out to be. And at a guidance of $4.17, it is about close to $0.02 a share to do the math over the remainder of the year.

So you're saying the Canadian tax stuff is $0.03 for the year?

Yes. Canadian is $0.02 to $0.03 and the equity is about $0.02 and then Imagine was about $0.07.

Can you just -- I think you've got about $190 million of the investment spending with the portfolio transaction and what you did in the first quarter. Can you just review - of the balance, the $311 million to $360 million -- how much of that is already sort of in the hopper with ongoing redevelopment and build-to-suits and how much of that is targeted transactions? And within the targeted transactions, is there anything under LOI?

I will tell you that things that have already been purchased for things that have been started -- meaning that the construction's started -- we have about $460 million in process. So to meet our midpoint for the balance of the year, we have about $60 million to $70 million of either acquisitions or new build-to-suit projects that we'll have to begin.

That page 20 that we added to our supplemental, if you take the $69 million, to Greg's point of what we've already done, plus the Siniscape transaction, which books around $127 million at a fair value basis, and then look at the schedule as to what we expect to spend on things that are already in process as of March 31, you'll get another $260 million. So that gives you the $460 million that Greg's referring to.

In other words, at $525 million midpoint, $460 million's already done or in process as of the end of the quarter.

And when does that -- in terms of the remaining $270 million, when does that spend occur? And when is there revenue recognition?

The schedule that we had last quarter really lays it all out for owned and mortgages in terms of when we expect to spend it. And then we also have a owned in-service estimate for that, so I can just refer you to page 20 of the supplemental. It's all there, I think.

Okay, I've got it. In terms of -- what did the buyer line up on the Imagine schools in terms of a master lease? Did Imagine just give him -- it was just individual credit on those, or were they able to negotiate a master lease?

I think they kept the four properties together.

Under one --?

Under one lease.

And you were saying 12% is what you're earning today on the $41.5 million, but effectively it's an 11% GAAP sale yield on the $46 million?

We were earning a little over a 12% on the $46 million that we had on the books.

On the $46 million -- on the gross basis, which is effectively where you sold it at. So they get the -- your GAAP cash and existing and sale yield's the same. It's more of the fact that you -- the cash was difference.

Yes, the cash difference -- the difference between the GAAP was there was only a $200,000 (inaudible), but for the actual true economic it was more like a $5 million gain. (inaudible - multiple speakers)

Can you call the Series E at all -- the preferred that's sitting up there at 9%?

No. First of all, it's not callable and very difficult to try to rein in, frankly. We've looked at that but it's not callable.

So you can't get rid of it?

No.

And then, how should we think about, given the balance sheet capacity, where you feel comfortable taking leverage either on a debt-to-EBITDA, debt-to-gross underappreciated book basis? So you've talked a lot about raising additional equity. You sold the schools. You've made a whole big deal about the balance sheet position that you're in.

I sort of want to get a perspective as you ramp leverage back up and earn the accretion from that investment, how far are you going to push it? Or should we think about this as status quo?

I answer that that we have a very good situation. We can be opportunistic. We can fund the rest of the plan via debt and end up at about 43% leverage for the year, so that's one way to go.

That's well within the range, Michael. We've consistently guided 35% to 45%, and we even said at a lower debt cost period, as we are, we'd probably be to the higher end of that range and we're not, right now. So I think there is capacity there.

Is there anything that you have under letter of intent or under contract at all in terms of portfolio transactions? Or individual --

(inaudible - multiple speakers)

Really, no. The one theater was the portfolio transaction; otherwise, we have the more granular build-to-suit business we've talked so much about that's really filling out the balance of our expectations and guidance.

Right. It just seems that with only having to add $40 million to $90 million to hit spend guidance for the year, you don't need a lot to happen. So I'm just trying to get a flavor of how much is being worked upon because it definitely sounds as though you don't need a lot to get there.

It's true, but we're not going to take the summer off. We'll be working to grow that number.

Yes, we hope to increase that guidance.

The later we get in the year, the more the spending rolls into the next year to the extend it's build-to-suit. You don't get it all immediately.

Thanks. Your guidance is a spend in calendar year rather than an out.

Right. That's true.

Right. So the numbers you were telling me before were spend in the year, or over the life of --?

No, spend in the year. The $460 million was spend in 2014.

Got it; thank you.

You're welcome.

Rich Moore.

Hi, guys; good afternoon. The sale of the four assets, the Imagine assets, the charter school assets, brings Imagine down a bit as one of your largest tenants. But do you have any plans to reduce their exposure in the portfolio even further?

I think, again, we will take a look at things. I think we're opportunistic -- things come along and again, we're presented with an opportunity that we think makes sense for the portfolio. It's no different than any asset that we would look at, though, Rich.

But that being said, Rich, everything's for sale at a price. But at this time, no -- there are no further plans to take down the Imagine investment.

Okay, thank you. And then, when you think about the cap rate you got, was that sort of what you were expecting? Because I know you had mentioned before that there was a possibility you might do some charter school sales. Was that a number that you sort of thought the portfolio would be representative, I guess, of the Imagine portfolio?

In some ways, I think we would probably say that the less the portfolio might have a little bit more of a premium on it just because there has been noise around Imagine. And so I think when we would look at that -- notwithstanding the fact that reliability that it showed, there has been noise. So with that, I think there's discount. So I think this bodes well for the balance of the portfolio.

Okay, good; thanks. And then, it doesn't sound like anything changes on the existing Imagine situation with you guys -- you guys and Imagine. Nothing changes as a result; it's just these four are gone.

That's correct.

Okay; well, thank you. And then, how many screens, again, on the Cinescape purchase?

139.

139. So none of these is, I assume, a megaplex that's too big, so to speak?

No, these are all 16 screens or smaller.

Okay, great; thank you. And then, you had an increase of 100 basis points in the occupancy of the entertainment segment, which I assume was at the retail side of things -- is that true?

That's correct.

And so really nothing else to lease in there; that's pretty much what you have?

Yes. It all comes -- I mean, we've had some good execution continuing on in Canada. So relatively, over all, it's strong.

Okay, good; thanks. And then, Mark, the line of credit -- I mean, you increased the capacity, but really it's all part of the $600 million accordion feature that was there before, isn't it? Nothing was recast, was it?

That's correct; we're just hitting the accordion and we have -- there's more to go if we so desire to take it up to $600 million; that's right.

All right; so this was always there. It's not really a particularly --

No, it wasn't always available. You've got to have banks signed up to take the capacity. So we were able to sign up additional banks to allow us to increase it. You can't use the $600 million; we just have capacity to get banks to commit to lend $600 million.

Right, I've got you. But no reason to think that they wouldn't go there.

No, but -- true. But you've still got to go out in the market and do the work.

You've got to do the work; I've got you. And then, the $1.2 million spending in Sullivan County, was that infrastructure for the quarter?

Yes, it actually continued the planning and we've got the civil-type plans that are going toward the infrastructure, and that continues forward.

Okay, great; thanks. And then, $28 million to $29 million of G&A for the year, Mark, is still what you're thinking?

Right. That guidance range is still what we're expecting; yes.

Okay. And then, Greg, did I see you up on that slide? Was that you in that picture?

Actually no, but I am holding a place for you, Rich.

Okay, good.

I think at 60 miles an hour, it would be great. You're going to love it.

I think that would be interesting. All right, thank you guys.

Thank you.

Dan Donlan.

Thank you and good afternoon. Just to follow up to Rich's question, Greg, did you say that you think the rest of the Imagine portfolio would get more of a premium to what you sold, or did you mean the entire --?

I meant the balance, the non-Imagine portion of the portfolio, which now is greater than 50%. The non-Imagine is now greater than the Imagine and we think that, given the fact that those have not had any sort of noise around them, that there's probably a premium to that side.

What about them from a location perspective? I don't know if Florida matters versus another state, and how do you think about that. I actually saw an Imagine school sell in Boynton Beach recently for a 7.5 cap. So just kind of curious.

Yes, I think it just -- for us, this was a Florida buyer. The group that bought these are headquartered in Florida, and so I think -- I don't think that Florida is any more better state than Arizona or some others. I think this just happened to be that that was a Florida-centered buyer.

Okay. And are you seeing any increased demands on the build-to-suit side from institutional investors? Or any increased demand on the buy side? And there -- clearly some of the single-tenant asset classes are getting bid up quite a bit. Are they starting to venture now into your area, given the deals?

There's no doubt. We're seeing more and more interest, as we had talked about in the [ab] talks, about -- the charter school space continues to be an expanding area and given the lack of some product in some of the other traditional net lease space, we are seeing more and more people venture into that, whether that be the public non-tradeds or, like I said, the private buyers. These are -- actually work well on some 1031-type buyers. So we are seeing that kind of move to that and we think that -- we're hopeful for -- will kind of demonstrate that liquidity.

We're really not seeing a lot of people do the build-to-suit business that we do. So that I think we're still very comfortable with the space that we're occupying in, but we do think there is -- and demonstrating a lot more liquidity in the product type will give investors more comfort in the overall category.

The build-to-suit versus buying standing properties with investment history is still a major difference between us and the competition and limits our competition and improves our ability to continue to grow.

Okay. And then, the last question would be, is there any price where you might say, you know what? we're going to unload more of these properties. I mean, a low 9th cap rate is kind of where I was valuing this property stream. Like, if you were able to get something closer to an 8 on an going-in-and-build basis, would that also kind of get you off the sidelines? You know, go ahead and monetize some of these assets?

I think we just have to look at it on a property-by-property basis, and on a portfolio management basis. I mean, do we have geographic or tenant exposures in places? Is it a property that we think -- whether that be charter school or theater or whatever it is -- that we want to take a look at and say, this fits with our long-term plans? But as David said earlier, everything's for sale at a price. Does that price meet with our risk tolerance and our portfolio strategy? And we look at that as it becomes available.

Okay, thank you.

Thank you.

There are no further questions in queue.

Okay. Well then, I'll thank everybody for joining us this afternoon. We invite your contact otherwise and we will see you at the end of next quarter with the results then. Thank you very much.

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