EPR Properties (EPR) 2017 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Q2 2017 EPR Properties Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to your host, Mr. Brian Moriarty, Vice President of Corporate Communications. Please go ahead, sir.

Thanks, Amanda, and thanks to everyone for joining us today for our second quarter 2017 earnings call.

As always, I'll start the call by informing you that this call may include forward-looking statements as defined by the Private Securities Litigation 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 factors that should cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q.

Now I'll turn the call over to company President and CEO, Gregory Silvers.

Thank you, Brian, and good afternoon, everyone. Welcome to our second quarter 2017 earnings call. Before we get started, I'll remind everyone that slides are available to follow along via our website at www.eprkc.com. With me on the call today are the company's CFO, Mark Peterson.

Good afternoon.

And CIO, Jerry Earnest.

Hello.

As usual, I'll start with our quarterly headlines and then pass the call to Jerry to discuss the business in greater detail.

Today's first headline, strong revenue and earnings growth. We are pleased to announce another quarter of record-setting results. As compared to the same quarter previous year, our top line revenue grew by 25%, and adjusted FFO per share grew by 10%. These results reflect the outcome of our non-commodity focus and broad demand in our primary investment segments.

Our second headline, record investment spending anchored by CNL Lifestyle Properties transaction. As we discussed on our last call, our second quarter investment spending was anchored by our $731 million CNL Lifestyle Properties transaction. The integration process associated with these properties has proceeded smoothly, and we are excited to significantly expand our Recreation portfolio with such high-quality properties and tenants. We also made significant investments across each of our primary segments, totaling over $200 million, and we maintain a robust pipeline of opportunities. Jerry will have more detail on these investments.

Third headline, increasing investment spending guidance and reaffirming earnings guidance. We are excited to be able to raise our investment spending guidance as we continue to demonstrate the momentum of our focused business model and the growing demand in our segments. Jerry will elaborate on this in his comments.

With regard to our earnings guidance, as we've updated you on our previous earnings call, we have an early childhood education tenant that is challenged by rapid expansion. We have discussed that we are in negotiations to restructure certain leases to provide some degree of relief. And in fact, we've entered into a temporary agreement with the tenant to receive payments while the terms of the permanent restructuring are finalized with all interested parties. These payments are consistent with the levels of rent that were assumed in the guidance that we affirmed on both our year-end and first quarter earnings calls.

Our increased investment activity and strong second quarter results could have resulted in EPR tightening our guidance range and raising the midpoint of guidance. However, due to the fact that we've not yet finalized a complete restructuring solution and we are -- and we were recently approached by another landlord of the tenant about potentially acquiring a substantial number of our properties with this tenant, we are electing not to change our earnings guidance at this time. Our current guidance incorporates the $0.02 to $0.03 potential impact that we believe could be associated with either of these outcomes.

Fourth headline. Theater exhibition remains resilient despite headline noise. Recent headlines would suggest that box office has seen significant declines and that premium video on demand, also known as PVOD, is an imminent outcome. Neither is the case.

First let's address box office. At the end of the quarter, box office was actually up 0.5% year-to-date. Through July, box office was down approximately 2%. However, please remember that box office growth has been exceptional, with over 9.8% cumulative growth during 2015 and 2016. This year's box office performance is well within the normal deviations we see during annual box office cycles and in line with our expectations that box office will finish essentially flat for 2017.

Quality of content continues to be the ultimate driver of box office success. While some third quarter softness in box office is anticipated, fourth quarter is expected to be exceptionally strong with excellent lineup -- with an excellent lineup of movies. Larger quarter-to-quarter swings are not atypical in this business, but annual performance has been remarkably consistent. Additionally, coverage for our theater portfolio on a trailing 12-month basis was at 1.7x to the end of Q1, basically flat with the comparable 2016 period. We expect that our Q2 trailing 12-month coverage will be approximately the same.

Separately, the topic of the exhibition window and the potential impact of PVOD has again become a topic of interest. In addressing this, I want to focus on the most salient facts. First of all, there is no simultaneous-release model that the industry will broadly support. Historical efforts have failed, and both exhibitors and studios have conducted consumer research, which demonstrate that willingness to pay at the required breakeven price points is negligible.

Two, the base price for movies streamed at home has been established with consumers at a range of $5 to $7. Asking consumers to pay $30 to $40 has proven to be unacceptable.

Number three, consumers have already been flooded with subscription video-on-demand options. At an average price of $8 to $10 per month, providers such as Netflix, Amazon and Hulu are beginning to compete directly with traditional TV networks by offering a wide variety of new content. This further adds to the price value expectation for at-home viewing and reduces the likelihood for consumers to pay $30 to $40 for a single title.

Lastly, it is most important to remember that the experience provided by a theater setting is the reason why many consumers choose to view movies in theaters. This is what PVOD is truly competing with. It's the sight. Even 60-inch TVs can't compete with the visual storytelling power of a 60-foot screen. It's the sound. Reviews of the recent release of Dunkirk speak to the incredible full immersion it creates. It's the experience. Theaters create an insulated environment free from interruptions, which is even further improved by the offerings of enhanced amenity theaters.

In summary, we direct your attention to the many exhibition analysts that track this issue more closely. They have largely concluded that PVOD lacks consumer demand and that this issue is largely overblown. We agree with that conclusion.

Now I'll turn it over to Jerry.

Thank you, Greg. Our investment spending during the second quarter of 2017 was very strong, in part due to the closing of the CNL Lifestyle Properties transaction but also as a result of continued strong deal flow across all 3 investment segments.

The CNL Lifestyle Properties transaction investment spending totaled $731 million, with the balance of the investment spending consisting of $205 million, for a total of $936 million in spending for the second quarter and bringing year-to-date spending to $1.2 billion. The strong spending pace reflects the depth of business demand by our tenants and the strong execution across all our investment segments. As such, I'm pleased to announce that we anticipate this momentum continuing, and we are raising the midpoint of our 2017 investment guidance by $150 million to a range of $1.45 billion to $1.5 billion.

As Greg noted in his headlines, box office revenue is stable. However, our forecast for the year is not a quarter-to-quarter estimate but rather where we believe it will end the year. This year is heavily weighted to the holiday season, with the latest installment of the Marvel franchise, Thor, the DC offering Justice League and the next installment of the Star Wars franchise. We still believe that 2017 will be essentially flat to 2016, a record-breaking year. Also please note, these slight variations in performance have little impact on our rent coverage.

Overall, the business is healthy and continues to demonstrate that the out-of-home entertainment experience offered by our exhibition tenants is valued by consumers.

In his headlines, Greg mentioned the concerns regarding premium video on demand. I think it is important to note that our exhibition partners are investing millions of dollars to reinvent and enhance the out-of-home movie experience for consumers through conversion to the high-amenity theater format. The overwhelming consumer demand for these theaters and their enhanced performance demonstrate the success of this investment. Our exhibition operators have seen substantially increased revenue generation with the new format. These renovations have also benefited EPR not only in terms of extending a property's lease term but also from a performance standpoint.

As we noted in our year-end call, for renovated theaters that have been open for a full year, we have seen over a 40% improvement in total theater revenues, which has translated into higher coverages and greater opportunities for percentage rent. Further, in addition to the conversion of theaters in our existing portfolio, the opportunity to purchase additional theaters for conversion to the high-amenity format has continued to expand our theater acquisition opportunities.

For the second quarter, investment spending in our Entertainment segment totaled $84.1 million, consisting primarily of build-to-suit development, redevelopment and acquisitions of megaplex theaters, entertainment retail centers and family entertainment centers. In summary, at the end of the second quarter, the company had over $2.7 billion invested in the Entertainment segment, with 6 properties under development, 159 properties in service and 22 operators.

In the Recreation segment, during the second quarter, we significantly expanded our portfolio of ski properties and attractions with the CNL Lifestyle Properties transaction. In addition, we have continued the successful expansion of our portfolio of high-performing Topgolf properties. We are excited with the additional diversification that the Northstar ski property brings to our collection of ski properties. Performance for all our ski properties has been strong on a year-over-year basis.

For the trailing 12-month period, to the end of April, revenues were up by 17%, fueled by double-digit attendance growth, and our overall lease coverage is in excess of 2x. The company also provided a $251 million 5-year 8.5% secured loan to Och-Ziff Real Estate for its purchase of 14 CNL Lifestyle ski properties valued at $374.5 million. The overall debt service coverage on the loan based on the underlying rental income is approximately 2.5x.

We're pleased to report that our attractions portfolio, including the CNL Properties, are performing as expected even as we transition to a new operator on several properties. While these results are promising, it remains early in the seasons, and we will have a clearer picture on our third quarter call.

During the second quarter, our Topgolf properties continued to enjoy strong consumer acceptance and maintained their robust performance with strong overall lease coverage. As the Topgolf rollout continues in numerous new cities, we are pleased with the rapid ramp-up and reliable performance of our investments. At the end of the second quarter, we had 4 Topgolf properties under construction, with 27 open and operating properties.

Recreation spending, including the CNL Lifestyle Properties transaction, totaled $775.6 million during the second quarter, with $24.3 million spending on Topgolf properties under construction and $18.9 million in water park spending, including Adelaar.

In summary, at the end of the second quarter, the company had over $2 billion invested in the Recreation segment, with 5 properties under development, 78 properties in service and 19 operators.

In our Education segment, all 3 of our education property types, which include public charter schools, early childhood education centers and private schools, benefited from continued consumer demand, which translates into opportunities for us. As mentioned previously, our performance continues to demonstrate our extensive operator relationships, combined with our industry knowledge and build-to-suit program, provides us with a competitive advantage financing the growing need for high-quality education facilities.

As we've discussed on previous calls, we remain committed to increasing the tenant diversity of our public charter school portfolio and reducing our concentration of Imagine Schools. As part of this effort, we have engaged various brokers to help in this process. Part of the feedback that we have received through this process was the need for additional lease term on these assets. To facilitate this change, we entered into an agreement with Imagine to restructure the leases on 6 properties in exchange for lowering existing annual cash payments by approximately $500,000 and restructuring remaining lease terms to 10 years. Imagine agreed that upon the sale of these properties, the new buyers would have the right to enter into a new 20-year lease.

These were the 2 -- these were 2 benefits of this transaction -- there were 2 benefits of this transaction. First, we believe that it will aid in the disposition of these assets. And second, the change has resulted in the lease structure no longer being classified as a direct financing lease. This change, however, did result in a noncash impairment charge, which Mark will discuss in greater detail in his comments.

During the second quarter, investment spending in our Education segment totaled $76.3 million, primarily consisting of build-to-suit development, redevelopment and acquisition of public charter schools, early childhood education centers and private schools. In summary, at the end of the second quarter, the company had over $1.4 billion invested in the Education segment, with 16 properties under development and 140 properties in service and 61 operators.

Montreign Resort Casino by Empire Resorts continues to have steady construction progress to open on or before March 31, 2018. As we noted previously, Montreign Resort Casino announced that it had entered into a license agreement to be rebranded as a Resorts World property, which we believe will strengthen the Montreign Casino and ultimately its performance.

Construction of a water park hotel located in the Adelaar casino and resort development continued during the second quarter. We invested approximately $2.7 million on this development during the quarter. We presently anticipate opening the water park hotel property in the first half of 2019.

In terms of capital recycling during the second quarter, in addition to the 5 small family entertainment centers from the CNL transaction, we sold 8 other properties for a total of $112.4 million. Four properties were sold in the Education segment, consisting of 3 charter schools and 1 early childhood education facility. Two of the charter schools exercised their lease termination buyout options, and the third charter school was sold to a third party. The other properties consisted primarily of one megaplex theater and one entertainment retail center anchored by a megaplex theater. Net gains on the sale of these properties totaled $25.5 million. As we have discussed, we view both dispositions as -- we view dispositions as both offensive and defensive opportunities. For the charter school buyouts, we received a significant premium related to the exercise of the lease termination buyout. And for the entertainment properties, we are aware that both of these properties will be subjected to new competitive pressures and use this opportunity to sell weaker properties at nice gains.

We have a number of pending disposition transactions, which we anticipate closing during the balance of the year. Our disposition guidance is $175 million to $250 million for 2017. However, as Greg mentioned, there is a possibility of a transaction involving an early childhood education tenant, and these numbers do not anticipate that event.

Property occupancy for all our properties remained strong at 99%.

In summary, we are extremely well positioned with our focus on the experience economy. Our momentum and outlook remain very strong as we continue to achieve significant transactions flow based on our focused and disciplined strategy. And to repeat, we are raising our 2017 investment spending guidance to $1.45 billion to $1.5 billion.

With that, I will turn it over to Mark for a discussion of the financials, and I will rejoin you for questions.

Thank you, Jerry. I'd like to remind everyone on the call that our quarterly investor supplemental can be downloaded from our website. We hope you like the updated format of this report.

Now turning to the first slide. Net income for the second quarter was $74.6 million or $1.02 per share compared to $49.2 million or $0.77 per share in the prior year. FFO was $85 million compared to $72.2 million in the prior year. Lastly, FFO as adjusted for the quarter increased to $94.9 million versus $74.7 million in the prior year and was $1.29 per share for the quarter versus $1.17 per share in the prior year, an increase of 10%.

Before I walk through the key variances, I want to discuss certain of the adjustments to FFO to come to FFO as adjusted. First, we prepaid in full a mortgage note payable during the quarter for $87 million and recognized a gain on early extinguishment of debt of $1 million that has been excluded from FFO as adjusted.

Second, we recognized a gain on insurance recovery of $606,000 related to a theater that had suffered flood damage last fall, which has also been excluded from FFO as adjusted.

Third, pursuant to tenant purchase options, we completed the sale of 2 public charter schools during the quarter for net proceeds of $22.2 million and recognized a termination fee included in gain on sale of $3.9 million, which has been added to get to FFO as adjusted.

Lastly, as Jerry discussed, we continue to take steps to further reduce our Imagine holdings. To help facilitate future property sales, during the quarter, we entered into negotiations with Imagine to restructure the leases on 6 properties in exchange for reducing the future rental payments and/or the remaining lease terms. Imagine agreed that upon the sale of the properties, they would enter into new 20-year leases with the buyer or buyers. As a result of the change in lease terms, we evaluated our investment in these direct financing leases as of quarter end. This evaluation, along with the annual evaluation of the unguaranteed residual value on the remaining properties in the direct financing lease, resulted in a total impairment charge of $10.2 million. $2.9 million of this amount was a charge against the unguaranteed residual value and thus has been added back to FFO as a real estate impairment. The remaining $7.3 million relates to the noncash income that we recognized through June 30 due to the direct financing lease structure, and this amount has been added back to get to FFO as adjusted.

As Jerry mentioned, we anticipate that the amended leases will be classified as operating leases going forward. Note that had these leases been accounted for as operating leases from the dates of acquisition, the properties would have been depreciated, and our basis in them would have been lower by about $5 million at June 30, which would have eliminated the $2.9 million real estate portion of the impairment charge.

Please also note, while the current annual cash rental payments on these leases were reduced by approximately $500,000, the impact on our annual FFO run rate is approximately $1.2 million due to the additional noncash income that was previously recognized under the direct financing lease structure.

Now let me walk through the key line item variances for the quarter versus the prior year. Our total revenue increased 25% compared to the prior year to $147.8 million. Within the revenue category, rental revenue increased by $23.4 million versus the prior year to $119.5 million and resulted primarily from new investments, including the impact of the CNL transaction.

Percentage rents for the quarter included in rental revenue were $1.6 million versus $422,000 in the prior year. The increase was primarily due to percentage rents accrued related to our private schools and a recreation property. As in prior years, we expect percentage rents to be much higher in the second half of the year versus the first half.

Other income decreased by $800,000 versus the -- for the quarter versus last year and was primarily due to less insurance recovery gain recognized in the current year than in the prior year. As I mentioned earlier, insurance recovery gains are excluded from FFO as adjusted.

Mortgage and other financing income was $23.1 million for the quarter, an increase of approximately $7.1 million versus the prior year. The increase was due to additional real estate lending activities during 2016 and 2017, including the funding of a $251 million mortgage note receivable with Och-Ziff Real Estate during the quarter in connection with the CNL transaction. This was partially offset by the sale of 8 public charter schools in the latter part of 2016 that were classified as direct financing leases.

On the expense side, G&A expense increased to $10.7 million for the quarter compared to $9 million in the prior year, due primarily to increases in our payroll and benefit costs and professional fees. The increase in payroll and benefit costs is due to additional personnel to support our growing asset base as well as increases in amortization of share-based awards.

Our net interest expense for the quarter increased by $10.2 million to $33 million. This increase resulted primarily from higher-average borrowings. Transaction costs decreased to $218,000 from $1.5 million in the prior year due to a decrease in costs associated with the potential and -- with potential and terminated transactions as well as our early adoption of the FASB's clarification of the definition of a business.

Gain on sale of real estate was $25.5 million for the quarter and related to the sale of the properties Jerry described for total proceeds of $112.4 million. The prior year gain on sale of real estate was $2.3 million and related to the exercise of one tenant purchase option on a public charter school.

Turning to the next slide. For the 6 months ended June 30, our total revenue was up 17%, and our FFO as adjusted per share was up 6% to $2.48, certainly strong performance through the first half of our fiscal year.

Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be strong, with fixed charge coverage at 3.1x, debt service coverage at 3.6x, interest coverage at 3.6x and net debt-to-adjusted EBITDA ratio at 5.3x. Also, our FFO as adjusted payout ratio was 79%. Adjusted net debt to annualized adjusted EBITDA, which I have previously discussed eliminates the penalty for the build-to-suit projects under development and annualizes projects placed in service during the quarter, was 5.8 -- 5.08x or about 20 basis points lower.

Now let's turn to the next slide for a capital markets and liquidity update. At quarter end, we had total outstanding debt of $2.8 billion. 97% 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%. We had no balance on our $650 million line of credit, and we had $70.9 million of unrestricted cash on hand. During the quarter, we prepaid in full 5 mortgage notes for $117.2 million, which were secured by 15 theater properties and had a weighted average interest rate of 4.5% for GAAP purposes but an actual cash weighted average interest rate of 7%. Subsequent to quarter end, we prepaid in full 3 mortgage notes payable totaling $24.9 million, which were secured by 3 theater properties and had a weighted average interest rate of 5.8%. After these paydowns, we have only $12 million in maturities through 2019 with manageable maturities thereafter. We are now substantially out of secured debt.

In May, we issued $450 million of 4.5% senior unsecured notes in a registered public offering at our lowest spread ever for a 10-year bond. Due to the strength of the demand for this issue and the attractiveness of the terms, we upsized the bond by $150 million over our initial expectations despite these additional proceeds being dilutive to FFO in the short term. As a seasoned issuer with over $2.4 billion of unsecured bonds outstanding represented by 8 different issues, we continue to have strong access to the public debt markets.

Additionally, during the quarter, we issued approximately 8.9 million common shares in connection with the CNL transaction, valued at over $657 million or $74.28 per share. As you can see, our balance sheet and liquidity position continues to be in excellent shape such that we do not anticipate the need to access the capital markets over the remainder of the year. Rather, we can be more opportunistic in raising capital when market conditions are most favorable.

Turning to the next slide. As Greg discussed, we are confirming our guidance for 2017 FFO as adjusted per share at a range of $5.05 to $5.20 and increasing our guidance for investment spending to a range of $1.45 billion to $1.5 billion from a range of $1.3 billion to $1.35 billion. Disposition proceeds are expected to total $175 million to $250 million for 2017. And this range does not include the potential sale of properties related to one of our early childhood tenants, as Jerry described. Guidance for 2017 is detailed on Page 30 of the supplemental.

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

Thank you, Mark. As you can tell by our results, our strategy of focused investments continues to be successful. And notwithstanding the handwringing about threats to box office, our business remains very stable. We continue to be the market leader in experiential real estate. We believe that investors are becoming increasingly aware of the value of these experiential assets, and our position gives us a unique opportunity to take advantage of this societal shift.

With that, why don't I open it up for questions? Amanda?

(Operator Instructions) Your first question comes from the line of Craig Mailman from KeyBanc.

So Greg, I hear you on the movie theater side, and that was helpful that you gave us kind of where you think the trailing 12-month coverage will come in. Just curious, as it relates to AMC with the news earlier this week and the impact that had on them, kind of if you guys see at all any concerns about coverage levels, can you explain...

Craig, we don't on our -- in our properties. I know they've got a significant amount of integration that they're trying to do with their recent acquisitions. But in our properties, we've not -- our properties are trending kind of with the kind of box office that was up. I mean, as I said, there were headlines that reflected that box office was down, and I know there was a discussion of quarter-over-quarter box office being down comparing to 2016. But for the year, we were up. And so we still feel really good about our properties, and their performance has been kind of consistent.

Their parents come into the news, too, with just some of the regulations in China. Is -- have you guys had any kind of amenitized plans for some of those theaters fall through? Or has there been any impact from that kind of pressure on the parent company?

We haven't seen that yet. I mean, clearly, that's something that we monitor. And even in their announcement, their CapEx spending didn't come down significantly. So it appears that they're still very committed to the continuation of their amenitization program. And so for our direct involvement with them, we have not seen any impact to date.

That's helpful. And then maybe just turning to Imagine real quick, just I guess on the -- I get that people want longer lease terms, and you guys are restructuring, but why couldn't you guys have just put new 20-year leases on it and marketed it that way? Was there something that the specific buyers want to sign their own lease and have their own kind of terms in there?

Yes. I mean, I think they want to control, again, kind of stepping into their own kind of new lease. And so that's kind of the feedback that we've had. The good thing is we're in active negotiations on several of these properties, so this is direct feedback in support of those transactions.

And if you guys were to sell all the ones that you're marketing, kind of what would the exposure that's left to Imagine be?

Mark, do you?

We've got about $153 million on our books between the note we have and the properties on our books, whether it be in the direct financing lease or otherwise. So $153 million. We expect sales will...

It's about $50 million. Just call it $50 million. So it'd take it down...

Maybe $100 million.

$100 million.

Yes, take it down to $100 million or about -- lower the exposure by 1/3.

Your next question comes from the line of Nick Joseph from Citi.

Just maybe staying on the Imagine sales, what's the expected timing of those deals now that you're able to renegotiate the leases?

Again, as always, sales kind of move. We've said that we plan $50 million by the end of the year for this. So we're going to stick with that. Again, some of these are in more active negotiations than others, but we still feel comfortable, Nick, with that kind of guidance that we've provided.

Would you expect to sell them as a portfolio or as individual properties?

I don't think that -- we are not going to comment on that right now just because if we're in active negotiations with several people, some may be bigger transactions than others, and I don't want to penalize discussions on that. So again, we talk about these 6 as the opportunities that we're marketing, and we think we can move those.

Appreciate that. And then in terms of AMC, obviously, their pre-announcement earlier this week, one thing that they talked about were attempted expense reductions going forward. I'd imagine rent is a large component of that. So how do you think -- or have you had discussions with them in terms of rent reductions just given their lower EBITDA expectations for the year?

Nick, we've had no discussions on that. And given our coverages, we wouldn't anticipate having those.

In fact, they called out a lot of specific expense line items, and rent wasn't one of them.

Yes.

And then finally, just do you sense any change in their appetite for amenitized theaters or the ability to invest in these theaters going forward?

Yes. Nick, what I said was I don't know if you followed their 8-K that came out the following evening. They really did not substantially move down their kind of planned CapEx spending. So at least at this point, it doesn't look like they're in any way materially changing their outlook on amenitization. I'm sure, as they talk on their earnings call next week, they'll be -- or tomorrow, I think it's now -- they moved it up. We'll have -- they'll give more color on that. But from what we've seen, we continue to move forward on the projects that we're working on. And from their, at least released documents, it still looks their -- like their commitment still is there.

(Operator Instructions) Your next question comes from the line of Rob Stevenson from Janney.

Question on the theaters from a different standpoint. Of your 144 megaplex theaters that you guys own, what percentage have already been converted into one of the new formats? And then how many are you currently working on with an operator to convert?

We probably have about 25%, Rob, of ours that have been converted. We probably have another 13 to 15 that are actively being converted now. As we've talked about before, Rob, it really is a situation of seat turns. We actually have theaters that are so productive at this point it doesn't make sense for them to convert. If you have high enough seat turns in an existing theater, it doesn't necessarily work to convert. So again, I wouldn't interpret that -- the fact that we're kind of approaching kind of 30% that that's all that we're going to do. What we said, I think, on our last call is that we would be probably 1/2 to 3/4 of ours over the next 18 to 36 months.

Okay. And then how many Topgolfs are still under construction or yet to be constructed under your agreement?

We have 4 that we have under construction right now. We probably have an additional 2 beyond that, that are in planning phases. So again, that would take us to about 33. We always thought this number would be somewhere in the low to mid-30s, and it looks like it's going to be under our existing arrangement.

Okay. And then one last one for Mark. What are the known nonrecurring FFO items in the second half of the year at this point? In other words, what's the known gap between NAREIT and as-adjusted FFO in the back half of the year thus far?

I don't know if I have that number on my fingertips. But obviously, we don't plan any impairment charges, so that won't be the case. The transaction costs, the typical line items, I don't have -- we don't give guidance at that level, each of those line items, but it's more of the typical sort of adjustments we've had in previous quarters. With the exception of the fact, to FFO as adjusted, we will have -- termination fees will be larger in the back half of the year related -- if you look at our guidance, you'll see it, larger termination fees. There'll be a larger addback from FFO to get to FFO as adjusted for those fees.

I am showing no further questions at this time. I would like to now turn the call back over to Mr. Greg Silvers, CEO and President.

Again, we greatly appreciate everyone's time and attention today. And we thank you and look forward to talking to you on our next earnings call.

Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.