EPR Properties (EPR) 2014 Q3 法說會逐字稿

Ladies and gentlemen, good afternoon and thanks for joining us for the third quarter of 2014 EPR Properties earnings call. My name's Ryan; I'll be the Operator on the event, and at this time all participants are in listen-only mode. Later, however, we will be opening the lines to facilitate questions and answers. (Operator Instructions). And as a reminder, we are recording the event for replay.

I'll now pass the call over to your host, Mr. David Brain, President and Chief Executive Officer.

Thank you, Ryan. Good afternoon, all. We'll start with our call preface, which is, as we begin this afternoon, I need to inform you that this conference call may include forward-looking statements as 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 and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of these -- the factors that could cause results to differ materially from those forward-looking statements are contained in the Company's SEC filings, including the Company's reports on Form 10-K and 10-Q.

Again, good afternoon to you all. Thank you for joining us for the earnings call for third quarter of 2015. This is David Brain, the Company's CEO. And as usual, to go through the news of the quarter with me are Greg Silvers, the Company's Chief Operating Officer --

Good afternoon.

-- and Mark Peterson, our Chief Financial Officer.

Good afternoon.

Please remember, if you're not already there, there are slides that go with this narrative and they are available via eprkc.com.

We will start with the EPR Properties headlines for the third quarter of 2014. We have four. First, record quarter with results consistent with guidance. Second, key tenant industries demonstrate healthy performance. Third, balance sheet position and transaction capacity bolstered by equity offering. And, fourth, earnings guidance refined for 2014 and presented for 2015.

Well, it's good to join you this afternoon to report on the third quarter. Our first headline this afternoon is much the same as it's been for several quarters, and that is, a record quarter with results consistent with guidance.

This quarter we again achieved record quarterly revenues, this time of nearly $99 million, 12% ahead of the same period last year, and our reported FFO as adjusted of $58.5 million is 21% ahead of the prior year and, on a per diluted share basis, up 7%. These results are very much in line with our expectations and guidance. I believe they reflect well the very solid business model and progress at EPR.

Our second headline this afternoon, as usual deals with some of our clients' businesses. It is, key tenant industries demonstrate healthy performance. Last quarter we reported to you some softness in the summer box office, and while that was disappointing, the trend we expected at that time of a recovery in the latter portion of the year, is well underway.

Box office has now improved from a deficit compared to the prior year low point of down 7%, to now only trailing the prior year by less than 4%. And predictions for the remainder of the year and holiday season are to at least halve, if not completely close, that gap by the end of the year.

Our waterpark investments finished a strong summer season and yielded us participating payments ahead of last year.

Education is another key tenant industry that we usually report on to you in our third quarter call, because by this time reliable enrollment data is available from our school operators.

I'm pleased to tell you we have very healthy increases in our school portfolio enrollment. Total enrollment is up over 20%, and capacity utilization is up as well. These statistics are important, of course, because they are directly related to our tenants' reimbursements and revenues.

Next of note for the Company during the quarter is our third headline, balance sheet position and transaction capacity bolstered by equity offering. Near the end of the third quarter, the Company executed a successful equity offering that raised approximately $184 million on the sale of almost 3.7 million shares.

This was a very much normal-course offering that allows us to continue our program of portfolio expansion and increased shareholder returns, while keeping our leverage near our general target of 40% on a book basis. It has been a more turbulent and volatile equity market of late, so we're pleased to report this as completed, and that demand was strong enough that we upsized the offering from what was originally planned.

Our last headline this afternoon, as if often the case, deals with guidance. And it is earnings guidance refined for 2014, and presented for 2015.

Today we're announcing some increased near-term transaction guidance that Greg will detail, but we are not changing our 2014 earnings guidance due to the limited income statement impact available from the remainder of the year.

We are, however, tightening 2014 earnings guidance, now that we are within months of the end of the year. We are at this time able to tighten our 2014 guidance from between $4.00 and $4.10 for FFO as adjusted per diluted share, to a range of $4.03 to $4.07.

Further, we are introducing guidance also for FFO as adjusted per diluted share for 2015, of $4.30 to $4.30 (sic - see slide 22, "$4.40") with a transaction volume expectation of greater than $500 million.

The midpoints of the 2014 and 2015 earning ranges reflect an increase in cash flow per share of almost 7.5%. Mark has details on this, with what is what is not included therein.

Now, regarding our dividend, with our dividend being paid monthly and adjusted at the beginning of the calendar year, we expect to adjust our dividend before we join you next on a quarterly call.

I ask you all to look for an announcement after the first of the year, and although I do not have formal guidance to give you with regard to the dividend, and no specific Board action has been yet taken, we expect the Company will follow our consistent historical practice of increasing the dividend at a rate commensurate with the increase in per-share cash flow expected.

Now, with that, I'll turn it over to Greg and then to Mark. We'll detail our financials, and I will join you as we go to questions in a few minutes.

Thank you, David. The third quarter continued our progression of an outstanding year in terms of our acquisition volume. Investment spending for the quarter totaled nearly $152 million and brought our year-to-date investment spending to approximately $472 million. The quarter's spending included investments in all of our primary segments.

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

In the entertainment segment, as we predicted, the third quarter began the process of turning around the summer's lackluster performance that stood at 7% down on our last call. As of this weekend, box office performance now stands at slightly under 4% down, and is back into the range of our prediction for the year.

With the remaining slate of titles, we remain hopeful for the year to finish only about 2% down from the prior year, after several consecutive record years. Notwithstanding the box office performance, the theme from 2014 will continue to be the widespread demand for, and consumer acceptance of, expanded amenity theaters.

This movement by operators to an increased focus on the customer experience should allow our tenants to diversify and grow their revenues through the use of expanded food and beverage options, including alcohol. The rapid adoption of this concept by the national exhibitors continues to drive more and more regional theater operators to follow their lead and adopt these new designs.

What these new designs mean for EPR is simply more opportunities for both development and redevelopment over the next several years.

For the quarter, investment spending in our entertainment segment was $10.3 million, comprised mainly of investments in five build-to-suit theaters, redevelopment of two existing theaters, and the build-to-suit construction of two family entertainment centers.

Our portfolio of entertainment properties now stands at 133 theaters and 6 family entertainment centers. We remain the go-to source for the theater industry, as we are the largest landlord for the three biggest exhibitors in the US, AMC, Cinemark and Regal. These longstanding relationships, along with our many regional exhibition partners, have and will continue to supply our development pipeline.

In our recreation segment, tenant performance continues to be strong, with Schlitterbahn delivering participating interest greater than we anticipated, which Mark will detail in his comments.

Our TopGolf properties continue their strong performance as we expand the number of locations, which in turn has strengthened the master lease portfolio.

During the quarter, our investment spending in the recreation segment was approximately $65 million, related to 12 build-to-suit TopGolf facilities as well as spending on the waterpark hotel located at the Camelback Mountain Resort.

In connection with the development at Camelback, on October 22 the Camelback team held a media event and hardhat tour of the waterpark hotel, which will set the standard for family-oriented recreation [resort] in the Northeast area.

The response was overwhelmingly positive, with media outlets from both New York and Philadelphia participating. The project remains on budget, with a planned phase 1 opening in spring of 2015.

With regard to our education segment, strong demand both in the category and in our development pipeline continued the robust opportunity theme that we previously discussed. As of the third quarter, we now have nearly 32,000 kids enrolled in our 60 public charter schools. This number represents a year-over-year enrollment increase of 23%.

Additionally, we now have a portfolio of 32 different operators in 19 different states, including the District of Columbia. Our school utilization, which measures actual enrollment versus school capacity, has increased to 88% as of September 2014, versus 85.5% as of September 2013.

These numbers reflect our commitment to continue to diversify our portfolio in terms of both operator and geography, while maintaining our position as a leader in financing and delivering quality real estate solutions that tap into this growing demand.

For the quarter, investment spending in the education segment totaled $75 million related to the build-to-suit construction of 17 public charter schools, 3 private schools, and 10 early childhood education centers.

Our investment pipeline remains robust and we continue to have strong confidence in our ability to grow this segment with quality transactions. Our overall occupancy rate remains strong at 99%.

As I've mentioned in my comments today, we continue to see many strong opportunities across our various segments. As a result, we are increasing our 2014 spending guidance from $550 million to $600 million, to $600 million to $750 million.

We acknowledge that this range is very broad, given that we're already 75% done with the year. However, the size of the range is primarily driven by a planned recreation resort acquisition of approximately $135 million, which we are still negotiating.

We referenced this deal in our last equity offering, and we're currently negotiating the documents relating to the acquisition. However, as we do not have definitive timing or certainty of the closing of the transaction, we felt it appropriate to broaden our range of investment spending.

Given the timing of the transaction, it should have minimal if any impact to 2014 earnings. However, should the transaction close, we believe that it would contribute meaningfully in 2015, and have included it in our 2015 guidance, which Mark will discuss.

Also in conjunction with this call, we're also introducing 2015 estimated spending guidance of $500 million to $550 million. Importantly, given our large composition of investments related to build-to-suit projects, approximately 50% of this estimated investment spending is related to projects that have already closed in 2014 but will carry over into 2015.

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 third quarter increased to $54 million from $47.6 million in the prior year. FFO per share was $1.00 this quarter and in the prior year. FFO as adjusted the quarter, increased to $58.5 million versus $48.2 million in the prior year, and was $1.08 per share for the quarter versus $1.01 in the prior year, an increase of 7%.

Now let me walk through the key line item variances for the quarter versus the prior year. Our total revenue increased 12% compared to the prior year, to another record quarterly amount of $98.7 million.

Within the revenue category, rental revenue increased by $12.2 million versus the prior year, to $74.4 million, and resulted primarily from new investments.

Percentage rents for the quarter included in rental revenue were $1.2 million versus $1.3 million in the prior year.

Other income decreased by $1.1 million versus the prior year. This decrease was primarily due to $1.2 million in nonrefundable option payments received from Empire Resorts, related to the planned Adelaar casino and resort project that was recognized in income in the third quarter of last year.

Additional nonrefundable option payments received since that time, totaling $2.75 million through quarter end, have been deferred and will be recognized in income in the future as part of lease accounting, should a lease agreement be finalized with Empire on this project.

Mortgage and other financing income was $19.5 million for the quarter, essentially flat versus the prior year.

As discussed previously, we sold four public charter schools earlier in the year for approximately $46 million. The decrease in financing income as a result of the sale of these schools was offset by the impact of additional real estate lending activities and favorable participating interest income.

We recognized approximately $1.4 million of participating interest income this quarter, versus approximately $900,000 in the prior year, related to our investment in the Schlitterbahn waterparks, due to another strong revenue performance this season.

On the expense side, our property operating expense decreased by $631,000 versus the prior year, due primarily to lower bad debt and other nonrecoverable expenses at our multi-tenant properties. G&A expense remained relatively flat quarter over quarter at around $6.7 million.

Our net interest expense for the quarter increased by $366,000 to $20.8 million. This increase resulted from an increase in our outstanding borrowings during the quarter, and was partially offset by a decrease in our weighted average interest rate.

During the third quarter, we also recorded a provision for loan loss of $3.8 million that relates to the full amount outstanding of one note receivable, that was originated at the beginning of 2006. This note was made originally as a bridge loan to an anticipated larger transaction that the Company chose not to pursue in the same year, and thus the charge is comparable in nature to an abandoned transaction cost.

Recent changes in the borrower's financial status are such that future payments are no longer considered likely, although we will continue to pursue recovery. We have no other relationship with this borrower other than this one note receivable.

Finally, income tax expense for the quarter relates to the Canadian tax law change that I have discussed on previous calls. $363,000 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 strong, with fixed charge coverage at 2.9x, debt service coverage at 3.2x, and interest coverage at 3.7x.

Our debt to adjusted EBITDA ratio was 4.7x for the third quarter annualized, and our debt to gross assets ratio was 39% at September 30. As you can tell by these metrics, our balance sheet is in great shape to fund our strong pipeline.

Let's turn to the next slide, and I'll provide a capital markets and liquidity update. At quarter end we had total outstanding debt of $1.6 billion. All but about $104 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 5.4%. We had $34 million outstanding at quarter end on our line of credit, and we had $8.4 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 for the remainder of 2014, and less than $100 million of such maturities in each of the next 2 years thereafter.

Turning to the next slide, during the quarter we issued approximately 3.7 million common shares in a registered public offering for net proceeds of approximately $184.2 million.

This offering was in excess of three times oversubscribed, allowing us to exercise the over-allotment. The proceeds from this offering we used to pay down our line of credit, which had a balance of $208 million at the time of the offering.

Additionally, during the quarter we increased the size of our funded term loan from $275 million to $285 million. This loan carries a stated rate of LIBOR plus 160 basis points and is due in 2018.

Turning to the next slide, as Greg mentioned, we are increasing our investment spending guidance for 2014 to a range of $600 million to $750 million from a range of $550 million to $600 million. We are also narrowing our guidance for FFO as adjusted per share for 2014, to a range of $4.03 to $4.07 from a range of $4.00 to $4.10.

We typically do not provide quarterly guidance. However, I would like to mention that this updated guidance implies a range of $1.03 to $1.07 for the fourth quarter.

In comparing our fourth quarter estimate of FFO as adjusted per share to that reported for this quarter, it should be noted that our combined percentage rents and participating interests are expected to be approximately $2.2 million lower in the fourth quarter versus this quarter, due to our typical seasonality in these amounts. Furthermore, the fourth quarter will of course include the full impact of our recent equity raise.

Turning to the next slide, we are providing guidance for 2015 FFO as adjusted per share of $4.30 to $4.40, and guidance for investment spending of $500 million to $550 million. Our 2015 guidance assumes that the recreation resort investment opportunity Greg discussed earlier, closes by year-end 2014.

As Greg mentioned, approximately 50% of our 2015 investment spending guidance relates to spending on projects that have already closed in 2014.

In addition, because the vast majority of our expected investment spending relates to build-to-suit projects that generally have 9- to 12-month build cycles or longer, it's important to understand 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 2015.

We think it is helpful to investors to also share key assumptions regarding G&A expense as well as the Adelaar project contained in our 2015 guidance. First, we expect G&A expense to be approximately $32 million for 2015.

Our G&A expense is expected to be approximately $550,000 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 as adjusted per share and investment spending guidance includes the Adelaar project at its status quo, pending the outcome of the award of certain casino gaming licenses by the state of New York, expected to be announced soon. We expect to provide the financial details of this project once a final decision has been made, and we will update our guidance as needed.

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

Thank you, Mark. Thanks, Greg. As we go to your questions, I'll just add on to a topic Mark raised there, that I did not think rose to the threshold of being headline for the quarter because there are no new real developments; but is often of interest because of the potential for substantial change and earnings impact. And that is the status of licensing of a casino and our land development in Sullivan County, now known as Adelaar.

As indicated by my preface, the real news here is, there is no news. Our proposed tenanted partner in this project, Empire Resorts, also known as the operator of the Monticello Raceway, and potentially the Montreign Resort Casino at Adelaar, continues to make progress with their application to the New York State Gaming Commission and the ad hoc Gaming Facility Location Board, but no conclusion has been reached in the process despite an original calendar given out by them, indicating the Board would reach a conclusion about new licenses in upstate New York by the end of October.

On this topic, I want to let you know that we do expect to issue a press release about this whenever the New York State Board decision is rendered, and further expect to hold a special conference call to go over all the plans and details some time following that.

I'll warn you, though, it may take some time to get from the New York Facility Location Board decision to that special conference call, because there still will be some specific issues about the license and the development that we expect will still be -- need to be negotiated with the Gaming Commission following a decision by the siting Board.

If anyone would like to keep a real-time watch on this topic, I invite you to go to gaming.ny.gov. But we will try and keep you informed on it as best as we are able.

So, with that, about that topic, I'll open it up to questions.

(Operator Instructions). Dan Altscher, FBR Capital Markets.

Kind of a big-picture question, I guess, as it relates to last night, regarding Regal -- potential M&A on that front. Broadly speaking, any comments you can think about on Regal, or how M&A maybe broadly across the sector might impact the Company?

Yes. It's Greg. I think as -- what we've talked, at least internally, is that I think -- going -- you've got two things that are real positive forces moving into the cinema industry right now, one being the anticipated 2015 record year. And by all standards, it's anticipated to be quite large.

Second of all, this movement to the -- that new, high-amenity theaters. So, I think there is a thought process that it's -- could be a very good time for somebody to be looking at that, and Anschutz may be looking at dealing with his position with Regal.

For us, we actually see opportunity. As someone who's -- if there's someone who's going into the space, we have a great relationship with Regal. We would anticipate that those relationships would maintain and that someone probably would not want to go into the space without thinking about growing it and having intentions of that. So, we see those are -- as positives.

Okay. And then a question about 2015 guidance. I think the point, Mark, that you made about how spending on build-to-suit maybe doesn't really come through until the following year -- so, as we think about maybe what 2015, maybe on a pro forma or an adjusted basis, could look like if all that spending was actually being captured, is there a way to maybe parse that out or think about what that full, kind of like, run rate is on a fully-deployed basis?

Well, it's pretty difficult. I mean, new spending, if it takes 9 to 12 months, will have on average -- if it started at the beginning -- I guess, less than 6 months in the P&L, if you think about it.

So, you'll have, as that rolls over, the full impact of that. but I don't have that quantified in any way, because the reality is, that's -- our business suit -- our business suit business is -- does have a delayed earnings impact and we -- a lot of the growth this year is really from the build-to-suit business we did last year.

Yes. Okay. And, just thinking about fourth quarter as well, certainly, I guess, the implied quarter-over-quarter decline in core FFO really seems to be a lot driven upon the higher share count -- did that predominantly seem like the major delta, or is there any other -- something specific that might pop up in the quarter, that you're contemplating?

Well, like I said, I think the other big thing is the percentage rents and participating interest are seasonal in nature, and we expect the fourth quarter to be $2.2 million lower than that in the third quarter. So, that's a pretty big impact on the fourth quarter on a comparable basis.

Okay. Yes. That got -- that makes sense. Sorry. the call was fading in and out a little bit before, so I probably missed that part, but -- okay. No, that's great. Great quarter, and -- for this one. Thanks much.

Craig Mailman, KeyBanc Capital.

Just to follow up on the guidance question, how much of the $500 million to $550 million is already identified?

About -- well, identified or -- what I said was, 50% of it is already closed. Meaning that it's projects that we have started, and that we will complete in 2015. So, the spending of these projects will carry over into 2015, and that represents 50% of that. Now, there are far more projects than that, identified. But those are not closed.

But really, Craig, to address your question, the -- all of the expectation (inaudible) is identified. We do our expectation based on -- highly on identified and not speculative projects. So, as Greg said, a lot of them are underway, but they're all identified to a very high degree.

No [trouble]. I apologize. I had missed the 50%, so that's what I was getting at. I guess I'm just trying to get a sense of, how much do you guys anticipate closing, kind of -- I guess the investment spending's helpful, but as I look at where I was relative to where you guys came out in guidance, I was a little bit ahead. And a lot of it just comes down to timing of deliveries and yields.

So, as you guys look at -- I know the recreation acquisition's a little bit fluid. It could be -- for all intents and purposes, it's first quarter of 2015, for when it comes in from an economic perspective. But just, can you give us a sense of -- I know you have (inaudible) from the stuff that -- the 50% that's already closed; but for the balance of the potential spend, how much could hit and when?

So, you're right; schedule - page 20 of our supplemental lays out everything in process, and when we expect that to close. And if you think about the incremental after that, both for the fourth quarter, except for the recreation resort opportunity, which is an acquisition end 2015, it's build-to-suit spending.

So, it has that -- the new spending beyond what's scheduled there, has -- beyond third quarter, is really build-to-suit-type spending that takes 9 to 12 months to play out before it goes in service. So, if you follow page 20 and assume the new spending, other than the one recreation resort opportunity, is build-to-suit type of activity, then you can kind of estimate when that's going to go in service.

Yes. It just kind of -- it bleeds in over the year. And it's -- the schedule does change occasionally. It has to do with a lot of things -- weather and technical issues associated with specific sites. And sometimes it does change a bit, Craig, but --

And we're not contemplating a lot of acquisition activity, and next year's guidance is predominantly -- as I said, the vast majority of it is build-to-suit. So, again, if you combine page 20 plus what we expect to do in fourth quarter, and our guidance for 2015, kind of get a sense of when that goes in service, to when we get the full earnings impact.

All right. That's helpful. And are yields being maintained or is there any downward pressure on them?

There's always pressure, but we've been pretty successful in maintaining those yields in and around 9%, so it's probably looking as -- that 8.5% to 9.5% range, but it's not -- we've not seen the pressure that other categories have had.

Okay. And then just one last one. The -- Greg, you talk about the redevelopment opportunities as people go to more higher-amenity theaters. As you look at the in-place portfolio today, what do you think's the opportunity embedded that you guys could potentially get at to redevelop?

Well, I think it -- and honestly, it's a little different story, Craig, so you understand. Most of these redevelopments are theater operators redeveloping these and extending for term.

Now, what it creates from an opportunity standpoint for us -- and this is probably a little more detailed question than you wanted -- is, most every theater parking lot is based upon the number of seats in the theater.

So, if you have a 4,000-seat theater and it's generally, call it, 2 1/2 or three to -- seats per every parking space -- so, say you have 1200 to 1500 seats. If you change that to a high-amenity and you go to 1800 seats, you effectively then open up a lot of your parking lot for ground lease; for restaurant development -- things of that nature.

So, what we're getting when we're doing the redevelopment is a lot of term extension on our leases. So, the theater operator is coming in and doing that; or, we're actually buying an older theater and redeveloping it and getting that whole new, brand-new lease.

Okay. Then just one last quick one. The $500 million to $550 million -- what's the breakout for education and entertainment -- kind of, breakout between the categories, for all three of them?

I think the best guidance to give you there is probably that it's very -- it's fairly even. It's been fairly even over the last couple of years.

Right. Great. Thank you.

Anthony Paolone, JPMorgan.

Greg, just on that redevelopment, I wanted to follow up. What -- can you walk through -- trying to understand what you're really making on these -- so, in some of these instances you'll have a theater lease, I assume, that expires. And then you're putting the money in to convert it into something different.

I'm just trying to understand, what was, say, the last cash rent, and what will be your new cash rent, to just understand what the incremental return is. Is there a way to put brackets around that?

Sure. I mean, if you think about it generally, what we're doing is, we are not necessarily -- we're not taking a degradation in our rent. Any more -- additional money, we're putting into the theater, we're getting paid on that rent and we're getting extension of term.

So, we are -- what we're seeing is, as theaters are nearing their term -- let's say they have 5 years or less. Our theater operator approaches us; says they want to convert. They ask us for $2 million of funds, because we can't fund the FF&E portion of that. Then what we will do is, we'll get paid on the $2 million in addition to the primary rent, and we will extend that term out to not less than 10 years.

And Tony, just to be clear, I mean, you started the question with conversion to another use. That's [not what's] happening. That's not is -- what's happening. We are basically converting these for continued use as a cinema. It's just on a redeveloped basis.

Got it. I understand. Understand. And then, in terms of looking at your 2015 -- you mentioned kind of going evenly across the categories, but if we look at, kind of, just page 20 of your (inaudible) the -- you're kind of skewed to education at the moment. Is that just kind of where the deals right now are falling, or -- and that'll even out? Or, how will that work?

Well -- this is Mark. We've said education is really growing at a faster clip than the other segments. So, I'd say it is a little bit more weighted toward education. And in the recreation area, the TopGolf client is growing quickly as well. So, probably a little more skewed to those, but we'll see how the year plays out.

Well, and also, even though we look at it a little -- couple of different ways, as we've talked about before, when theater properties begin construction and not -- as we've said, technically we have five under construction, two under redevelopment. The next major wing of those probably won't start until the spring of next year.

So, you may have more projects, but not necessarily as much investment spending related to that. So, it's -- all becomes about timing of when you want to open those. And the other parts of the projects are a little less long of a building cycle.

I see. Okay. And then, again on the $500 million to $550 million, it sounds like most of that is generally identified and relates to build-to-suit-type activities. I was just wondering if you can speak to more regular way acquisitions, and what that environment looks like. Because it seems like you did find some things here, late in the year, to do.

Yes. And that's true, Tony. I mean, the -- for us, though, it's -- the acquisition is a more opportunistic -- I mean, I'm -- that doesn't mean we're not actively looking and talking with people about acquisition opportunities. We generally just don't model those in. The build-to-suit is actually more regular and recurring, and that's easy for us to be -- to conservatively model.

Yes. If you think about this year's guidance at the top end, $750 million, well, that includes two big acquisitions that add up to about $250 million. Back those out, you're at $500 million, similar to this year's $500 million to $550 million.

We're just not baking in the big acquisitions, although they may happen, and if so we'd likely increase our guidance. Because the nice thing about those is, they have immediate accretion.

Okay. And then just last one for me -- I think David mentioned, as you kind of talked around the dividend a bit, to kind of grow in lockstep more or less with cash flow, which has been the historical norm -- but just, any reason to think that cash flow grows differently than FFO, looking out?

No. Not really.

Okay. Thank you.

Daniel Donlan, Ladenburg Thalmann.

Just going back to Craig's question, because I also came out a little bit higher on next year versus your guidance -- and in looking at page 20, what you had said in the owned build-to-suit in-service estimates, that number is now -- call it $112 million. But it had been $151 million.

So, kind of, what was the delta there versus last quarter? Because that's a pretty big driver of kind of why, I think, some people were a little bit higher than maybe where you came out with. Was there a project that just dropped out? Was it actually delivered in the third quarter? What was the delta [for that]?

Yes. I mean, I think the primary difference could be delivery. It's a different period in time that you're going forward from. So, the end of second quarter is different than the end of third quarter.

End of third quarter, our spending is expected to be about $120 million as we finish the year. That number would have been different at the end of second quarter, depending on what we had going. I think that's your primary difference.

Okay. Well, I guess (inaudible) --

(Inaudible) probably some [of that's] put into service.

Right. Yes. I mean, I just (inaudible) --

(Inaudible). You can't tell from this.

Yes. Right?

Okay. I just --

(Inaudible) you either lose the project or it went into service.

Yes. Yes. Yes. And it's -- we didn't lose anything that was in process, so that -- had to go in service.

Yes. We didn't lose it, I guess, but it had to --

I guess how I've been modeling it is, I just assumed that the owned build-to-suit in-service estimates is what you were going to deliver, rent-paying, some time during the fourth quarter. I guess, is that different -- am I misunderstanding that?

No, that's correct. During the fourth quarter -- last quarter would have shown third or fourth quarter. So, you would have had some go in service, and there could be some movement between what you planned on going to fourth versus third, and what actually happens. And then this is updated for then what's in service at the end of the third quarter, that we expect to go in thereafter. I don't know if that answers your question.

Right. I was comparing the -- yes. I was comparing fourth quarter to fourth quarter. So, I guess the next question would be, how much actually was delivered -- how many -- how much developments were actually delivered in the third quarter? What was the nominal amount?

Yes. I don't have that handy, but I suspect it wasn't that much different than planned, because we pretty much are right on where we thought we were going to be.

Okay.

And we can get that number for you.

Sure. Sure. And it was just -- it was $77 million per the supplemental from last -- so, I'm just kind of curious, because it -- again, the difference the fourth quarter this time and the fourth quarter last time just seemed to be a little bit more than I would have expected. And I realize things move around from time to time.

Yes.

So -- and then, what are we thinking on -- or, what are you guys thinking on G&A for next year?

So, as I said, probably around $32 million.

Okay. Is there -- that seems - that's up from about -- I guess it might be almost $28.5 million this year, from -- up from $25.6 million. It's -- why is that? How come your G&A's not scaling a little bit better than -- just given your [size]?

Yes. I will say, one thing that swings the delta somewhat is stock (inaudible) variable compensation, which does vary from year to year. But I will say that we still expect our G&A expense to be around 7% next year, not much different than this year -- actually, probably a little bit lower than this year. So, there is a little bit of leverage.

Okay. Okay. And then lastly, as it pertains to gaming, have you guys -- I know you've talked potentially about looking at doing sale-leasebacks in the gaming space. Is that still an open possibility, or are you still kind of researching that? How should we think about that, looking out to 2015?

Well, I think it's still a distinct possibility in 2015. I think we have the -- more normal-course development of the build-to-suit-type business that we've exhibited for the last couple of years, built into our expectations. So, that would be -- really be an (inaudible). But we continue to look at that.

Just like we talked about Adelaar, it's not in the numbers; so, too, in any additional things in gaming. And Dan, really going back to your question about scale -- the scale being achieved -- a part of this really is, the Company is building scale, and some in the recreation and the education categories. So, it's not just continuing scale the same.

And that's been a -- so, the cost is not run forward with the growth of the Company, but it's not really scaled a lot because we've building those two businesses, that for the last couple of years have only been 12%, 14% of total revenues. So, as those begin to get scale, I think you begin to see some of that advantage as time moves along and those business segments grow.

Okay. Thank you very much.

Rich Moore, RBC Capital.

The note receivable that you guys had the loan last time -- what was that again? Could you remind me?

All right. It's in the education category, Rich. It relates to -- as Mark indicated, it's about 9 years ago, it was really when we began looking at and exploring in the education category. It was an early transaction. It was a prelude to a larger transaction.

We ultimately did not get comfortable with that note, though it performed for 8-plus years, and but -- and we were never comfortable with this education company. This is the only relationship we had with them. It's a large, international education management organization.

And now there are some changes afoot, that we believe it's prudent to reserve that note, although we do have some collateral we are going to pursue against that. It's not representative of the -- much representative of the current state of affairs, but it hearkens back to the early days of education, when we were looking in that category.

Okay. So, you've basically written off the whole thing, in essence, Dave, is that right?

We've written off the whole thing. We do think there is a course for recovery potentially if -- to pursue recovery of some. But at this time, yes, we've [reserved] the whole thing. And it's a fairly -- it's a fairly unrepresentative and isolated type of item. As I say, it relates to a number of years ago.

It's somewhat akin, as I said in my comments, to an abandoned transaction cost. It was a pretty large transaction. Again, the underwriting suggested we shouldn't do it, and then -- but we had a performing note, and now they've had changes, and so we had to reserve it.

I think that's right. It's very fair to say it's related -- it's kind of a transaction [cost] (inaudible).

Okay. Good. I've got you. Thanks. And then you guys -- you added, I think, what, two private schools in the quarter, and seven charters, as I counted from your press release.

That's correct.

And so, do you get the same dynamics with the private schools? I mean, you -- I think you mentioned those dynamics -- the numbers for enrollment and all that. Was that just charter schools, or does that include --

That was just charter schools -- the charter schools. Our private schools are also -- I don't have those numbers (inaudible), but they've opened very strong. And so, it was in conformance of -- with what we discussed in a previous call about being in some gateway cities.

So, we're in Brooklyn and San Jose, and they've both come out equal for the enrollment to our projections. So, we feel very good about where we're at, and they're already talking about expansion.

Okay. Good. Both of those, Greg -- they're talking about expansion?

Yes. Both of those.

Okay. Got you. Then the -- on the theater side of the world, I guess one way around the world, you guys have stuff going on in China, and you include a bit more of that, it looked like, in the supplemental this time. So, you have, I think -- well, you have a 19-theater project you're doing with Shanghai Film -- is that -- ?

No, no, no. We -- no. We have four theaters --

We have one -- three with Shanghai Film.

Three -- one that -- so, that -- now, their performance continues to do very strong, and so there may be some reporting of that.

But this is the continuation of what we said, of kind of continuing our kind of research in -- sizing up the opportunity; seeing if it evolves to a model that we think fits our performance metrics. But the properties -- they've actually performed quite well, and we continue to build relationships with that country.

Still is a pretty modest investment, though. Very modest.

Oh, very. Less than $10 million total.

Okay. And so, were you -- are you thinking of adding more, or -- (inaudible).

We're always -- I mean, I think we're still looking at that. I think we're being approached by the operators to do more, and we're evaluating that, and see how -- directionally, which way we want to go with that. But it's been very positive.

Okay. Good. Got you. And then -- so, who do you think buys Regal, by the way? The reason I ask that is, if it's someone like AMC, that's your biggest tenant. That would make that (inaudible) once again --

That's probably not possible from an antitrust standpoint, just if you think about national operators. I think there's clearly -- with what happened with AMC, there are international players who are wanting to access this market.

So, I -- rather than speculate, I think they'll -- they probably will. But I think there's a lot of people who are looking at the opportunity set to get into this kind of media.

Okay. Good. Thank you. And then on the recreation side of things, the revenue is up big, 2Q to 3Q, and bigger than we had anticipated. And I'm not sure what I missed there. I mean, what -- why is that so much larger?

Well, part of it's the percentage interest that we recognize in the third quarter, which was $1.4 million (inaudible) waterparks, up $500,000 from last year.

But I mean, I think it was bigger than that, wasn't it, Mark?

The --

It also could -- as we're [bringing] properties online -- TopGolf properties online -- we now -- as we said during the quarter, we're talking about five, and last quarter we're not talking about eight that are online. So, yes, we're bringing on more properties that start generating paying rent, so --

Yes. And the percentage --

Okay. Yes. That was probably -- yes.

And participating interest was $1.4 million. It's just an increase of $500,000 over the prior year. So, I think it's a combination of those two things -- a lot of TopGolfs in -- going in service, and then percentage rent and ongoing income from Schlitterbahn.

Okay. Good. Thank you. And I guess the last thing -- I'm just sort of curious, why do you increase a term loan only $10 million?

Oh, we had a local bank with interest, and it's real easy to do, and it's cheap financing. So, we took advantage of that. We have the ability to take that to $400 million from the current $285 million. But we had a nice local relationship, and that's not unusual on the smaller banks, to do it in $10 million, $15 million chunks.

Okay. Good. Great. Thank you, guys. I appreciate it.

Sure.

And we have no other questions, so, David, I'll pass it back to you for any closing comments.

All right. Well, we only have really one key closing concept to convey to everybody, and we're putting that slide up now, and that is, you've got to stay tuned to the World Series and the team of destiny tonight, and support the Royals for us. We very much want this. Thank you all very much for tuning in.

Thank you.

Thank you.

Great. Thanks, everyone, for your time and your participation, and have a great rest of the day.