EPR Properties (EPR) 2018 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Q1 2018 EPR Properties Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

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

Thank you, operator, and thanks to everyone for joining us today for our first quarter 2018 earnings call. I'll start the call by informing you that this call may include forward-looking statements as defined in 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 the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of these factors that could cause the 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, Greg Silvers.

Thank you, Brian. Hello, everyone, and welcome to our first quarter call. I'd like to start by reminding everyone that slides are available to follow along via our website at www.eprkc.com. With me on the call today is our CFO, Mark Peterson, who will review the company's financial summary.

Good afternoon.

Now I'll get started on today's headlines before discussing them in greater detail. First, strong quarter anchored by significant top line revenue growth. We're pleased to announce another quarter of record-setting results. As compared to the same quarter previous year, our top line revenue grew by 20% and FFO, as adjusted per share, grew by 6%. These results demonstrate the combination of consistency and growth inherent in our model, which benefits from our non-commodity focus.

Second, executing our capital recycling strategy. We are making significant progress on our stated intention of recycling capital through a recent paydown of our ski mortgage note with Och-Ziff Real Estate. Based on how we structured the note, this paydown and associated fees imply a cap rate of 6.8%. As we've stated, we are increasingly focused on accretive capital recycling and this transaction demonstrates the quality and desirability of our assets in the private market. I'll provide more color on this shortly.

Third, increasing earnings guidance, reaffirming investment spending and disposition guidance. We are happy to announce that we're increasing our earnings guidance while reaffirming our investment spending and disposition guidance. The increase in earnings is largely driven by the prepayment fee associated with the Och-Ziff mortgage paydown, and we are pleased that the economics of our deal structure will allow all parties to benefit.

Fourth, debt management further strengthens balance sheet. Maintaining a strong balance sheet, which supports our business objectives, is one of our core principles. As of the end of the quarter, we have no debt maturities until 2022. And subsequent to quarter end, we successfully issued $400 million in senior unsecured notes. Our capital position continues to benefit from consistent execution of our financial strategy. Mark will provide more detail on this topic.

Fifth, enhanced disclosure. We always strive to be transparent and provide disclosures to help you better understand our performance. While we've provided rent coverage data in the past, in an effort to enhance our disclosure, each quarter, we will now provide rent coverage at both the company and segment level. We're hopeful investors find this new reporting structure beneficial.

Now I'll go into the quarter in more detail. At the end of the first quarter, our investments were $6.8 billion, with 400 properties in-service that were 99% occupied. During the quarter, investment spending was $108.6 million, and our proceeds from dispositions were $10.5 million. Including yesterday's paydown of our ski loan to Och-Ziff Real Estate, we have completed $231 million of dispositions.

Beginning this quarter, we will provide quarterly reporting of our rent coverage for both the overall portfolio and for each of our 3 primary segments. We always look at rent coverage on a weighted average trailing 12-month basis. As detailed on this slide, our customers' reporting cycles vary due to the nature of their industries and their own company-specific practices. Many of our customers are public companies and do not provide any reporting to landlords until after they've completed their own public reporting. As such, for most of our revenue base, we'll be reporting TTM info 1 quarter in arrears. For example, our entertainment coverage this quarter will be for the trailing 12 months ended December 31, 2017.

For our Recreation segment seasonal businesses, such as ski and attractions and Education segment businesses such as public charter schools and private schools, we update our numbers annually after our customers report their results to us at the end of their operating season.

Our portfolio coverage had a 1.74x coverage ratio. Additionally, our portfolio has maintained this same level of overall coverage level of approximately 1.7x for the last 3 consecutive years, which highlights the consistency of the businesses that operate in our properties.

We will begin including this slide in our investor presentation, which will be updated and made available on our website after each quarter's earnings call.

Now I'll provide an update on our 3 segments. At quarter end, our Entertainment portfolio included approximately $3 billion of total investments, with 3 properties under development, 167 properties in-service and 23 operators. Our occupancy was 99% and our rent coverage was 1.62x. Investment spending in our Entertainment segment totaled $25.5 million, consisting of a $7.5 million theater acquisition with the balance being primarily build-to-suit development and redevelopment of megaplex theaters, entertainment retail centers and family entertainment centers.

Turning to industry updates. North American box office revenues were up approximately 5.5% versus the prior year through last weekend. The latest installment of Avengers: Infinity War has set the tone for the summer season with a record opening of $257 million and the balance of the summer slate looks strong as well. This performance continues to demonstrate that when the studios produce compelling content, there is no doubt that people want to consume that content in a theater. We continue to be encouraged by the results of our theater tenants converting more of their circuits to high-amenity theaters. For example, the 3 largest public company operators in the U.S. reported year-over-year food and beverage per cap growth ranging from 5% to 9% last year.

I would also like to relay the optimistic tone of last month's CinemaCon conference, which annually brings together all the key players in the movie exhibition industry, including EPR. One highlight of particular note was Disney's commitment to not materially change the release window for first-run movie theater exhibition, which is exactly the outcome that we expected when this issue bubbled up again last year.

At quarter end, our Recreation portfolio included over $2.2 billion of total investments with 4 properties under development, 86 properties in-service and 21 operators. Our occupancy was 100% and our rent coverage was approximately 2.08x.

Investment spending in our Recreation segment totaled approximately $62 million during the first quarter, which included $21.6 million on the Kartrite Waterpark Hotel in the Catskills and $18.1 million of new investments in the fitness space, with the balance being primarily build-to-suit development of golf entertainment complexes and attractions.

Yesterday, we received a substantial paydown on our $249 million ski property mortgage loan with affiliates of Och-Ziff Real Estate due to Boyne Resorts' purchase of the 7 properties they leased from Och-Ziff Real Estate. In exchange for our release of the mortgage of these assets, Och-Ziff paid down $150.8 million of allocated loan principal on the 7 properties, along with an additional principal paydown of $24.6 million.

Additionally, our loan requires interest to be paid through the end of the fourth year of the loan term, which represents approximately $45 million of prepayment fees. In summary, we received a total cash payment of approximately $221 million. The remaining carrying value of the loan is now approximately $74 million and our unlevered IRR is over 29% on this transaction.

Och-Ziff may choose to make additional paydowns of the note, but such paydowns are completely at their discretion and subject to the prepayment requirements of our mortgage note. The operators in our ski portfolio have delivered solid results this season and all of our ski customers have fully funded their off-season reserves.

Visits and revenue through March were up 9% and 12%, respectively, versus the trailing 3-year average, due in large part to significant outperformance at the resorts in the Pacific Northwest. Additionally, the cold spring allowed many tenants to extend their operating season by a few weeks and make up for days lost to unfavorable weather in the early part of the season. We will provide an update on the full ski season on our next call.

As many of you are aware, as part of our recent bond offering, we updated our risk factors to reflect the recent indictment brought against one of our borrowers and certain individuals affiliated with the Schlitterbahn Waterpark in Kansas City, Kansas. As this is an ongoing legal matter, we are very limited in what we can say about the situation. However, we can say that our mortgage notes are secured by 2 very successful Texas waterparks, along with the park in Kansas City, Kansas and that the annual debt service obligation has historically been covered by the EBITDA from the 2 Texas parks.

At quarter end, our Education portfolio included over $1.4 billion of total investments, with 8 properties under development, 146 properties in-service and 59 operators. Our occupancy was 98% and our rent coverage was 1.51x.

Investment spending in our Education segment totaled $21.1 million, primarily consisting of $8.4 million for the acquisition of 2 Early Childhood Education centers with the balance being primarily build-to-suit development and redevelopment of public charter schools, Early Childhood Education centers and private schools.

On the disposition side, we were fully repaid on a $10.5 million of mortgage loans during the quarter with a weighted average rate of 7.4%. In March, we entered into an agreement with our Early Childhood Education tenant, Children's Learning Adventure. This agreement provides that, one, that CLA will make rent payments to EPR. These payments were $750,000 per month for the months of March, April and May and will be $1 million per month for the months of June and July. Failure to make these payments will result in the immediate termination of the leases. All leases will terminate on July 31 unless terminated earlier for failure of payment.

CLA has made the payments for March, April and May. Accordingly, we have updated our portfolio occupancy reporting to reflect all open CLA sites as leased. We believe this agreement will allow CLA and their prospective partners ample time to execute a restructuring in advance of the July 31 termination date of our leases.

Please note that the midpoint of our earnings guidance does not reflect rents on these properties after July. If CLA is not able to execute on a restructuring, we will have the ability to regain possession and lease our properties to an alternative operator as several parties have expressed interest in our diversified portfolio of 21 open schools.

Moving to our disposition and investment spending guidance. Our disposition guidance remains unchanged at $350 million to $450 million. However, we now know that $220 million -- $221 million of this range will be realized from the previously discussed paydown of our ski loan to Och-Ziff Real Estate. We expect the remaining of our -- remainder of our disposition volume to come primarily from our Education segment, which will include the $10.5 million realized during Q1, along with the sale of public charter schools pursuant to tenant purchase options.

As Mark will discuss in his comments on our earnings guidance, we are reducing expectations for the dollar volume of charter school tenants exercising their purchase options, which will result in lower expected charter school termination fees. We will also pursue disposition on an opportunistic basis in our Entertainment and Recreation segments to take advantage of the continued strength of the private market.

We are reiterating our investment spending guidance range of $400 million to $700 million. We will only grow our investment spending towards the top end of our range if we significantly exceed the top end of our dispositions guidance range or if we find attractive investment opportunities that work with our cost of capital. We are not believers in growth for growth's sake and we will remain disciplined in our underwriting and allocate capital prudently in a manner that drives shareholder value.

With that, I'll turn it over to Mark for a discussion of the final -- with -- for the financials, and then I'll rejoin you later.

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. Net income for the first quarter was $23.5 million or $0.32 per share compared to $48 million or $0.75 per share in the prior year. FFO was $61 million compared to $73.9 million in the prior year. Lastly, FFO, as adjusted for the quarter, increased to $94 million versus $76.5 million in the prior year and was $1.26 per share versus $1.19 per share in the prior year, an increase of 6%.

Before I walk through the key variances, I want to discuss 1 adjustment to FFO to come to FFO as adjusted. As previously announced, we completed the redemption of our 7.75% inaugural senior unsecured notes originally due in 2020 for the outstanding principal amount of $250 million plus a premium for the terms of the indenture of $28.6 million. The premium along with the $3.3 million write-off of noncash deferred financing costs are classified as costs associated with loan financing or payoff in our income statement and are added back to FFO to get the FFOs adjusted. Subsequent to quarter end, we were pleased to replace this debt with the new 10-year senior unsecured notes at a much lower interest rate. I will discuss this issuance later in my comments.

Now let me walk through the key line item variances for the quarter versus the prior year. Our total revenue increased 20% compared to the prior year to $155 million. Within the revenue category, rental revenue increased by $21.9 million versus the prior year to $128.9 million. This increase resulted primarily from rental revenue related to new investments, including those assets purchased in the CNL transaction in April of 2017. As Greg mentioned, we also recognized $750,000 in revenue related to Children's Learning Adventure during the quarter, a decrease of $2 million versus the prior year.

Percentage rents for the quarter included in rental revenue were $1.3 million versus $850,000 in the prior year. This increase was due to percentage rents related to several recreation properties and 2 private schools.

Mortgage and other financing income was $21.4 million for the quarter, an increase of approximately $3.8 million versus the prior year. In addition to other lending activities, recall that we funded a $251 million mortgage note receivable with Och-Ziff Real Estate in the second quarter of 2017 in connection with the CNL transaction. Offsetting this increase midway during the first quarter Endeavor Schools exercised their right to convert their $143 million mortgage note secured by 28 early education and private school properties into a master lease arrangement. There was no gain or loss on conversion. Our monthly cash payment and term are unchanged, and our financials from the date of conversion now reflect real estate assets and rental income instead of a mortgage note receivable and interest income.

On the expense side, our property operating expense increased by $1.2 million versus the prior year due to approximately $650,000 in real estate taxes paid on behalf of CLA as well as higher property operating expenses at our multi-tenant properties. G&A expense increased to $12.3 million for the quarter compared to $11.1 million in the prior year due primarily to increases in our payroll and benefit costs, professional fees and franchise taxes.

Now 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 and improving with fixed charge coverage at 3.2x, debt service coverage at 3.7x and interest coverage at 3.7x.

And at quarter end, our net debt-to-adjusted EBITDA ratio was higher -- I'm sorry, at quarter end, our net debt-to-adjusted EBITDA ratio was higher than our targeted range for this measure at 5.8x. However, we've reduced our net debt subsequent to quarter end in conjunction with the OZRE prepayment discussed by Greg and we anticipate additional dispositions over the remainder of 2018. These dispositions, along with free cash flow, are expected to have the impact of reducing this ratio.

Lastly, we increased our monthly common dividend by almost 6% in the first quarter to an annualized dividend of $4.32 in 2018. This marks the eighth consecutive year with a significant dividend increase.

Now let's turn to the next slide for a capital markets and liquidity update. At quarter end, we had total outstanding debt of $3.1 billion of which $2.5 billion is either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.6%. We had $570 million drawn at quarter end on our $1 billion line of credit and $24.5 million of unrestricted cash on hand.

In addition to completing the redemption of our 7.75% senior notes during the quarter, we prepaid in full a secured mortgage note payable of $11.7 million. After these paydowns, we are pleased with the fact that we have managed our debt maturity laddering such that we have no debt maturities until 2022 and manageable debt maturities thereafter.

Subsequent to quarter end, we issued $400 million of 10-year senior unsecured notes at a coupon of 4.95%, the proceeds of which were used to reduce our line of credit. Strong investor demand allowed us to upsize the amount and take advantage of an attractive interest rate. We think extending our average debt duration makes a lot of sense in today's rising interest rate environment.

Turning to the next slide. We are pleased to announce that we are increasing our guidance for 2018 FFO as adjusted per share to a range of $5.75 to $5.90 from a range of $5.23 to $5.38. As Greg mentioned, we are confirming our guidance for investment spending of $400 million to $700 million and disposition proceeds of $350 million to $450 million. Guidance for 2018 is detailed on page 28 of our supplemental.

Turning to the next slide. Given the number of changes impact our increased earnings guidance, I thought it'd be helpful to provide a roadmap from the previous midpoint of FFO as adjusted per share guidance to the current midpoint. Starting with the previous midpoint of $5.31, we had the impact of the $45 million prepayment fee from OZRE received in the second quarter, offset by the impact of further dilution from our convertible preferreds of $0.03 for a net impact of $0.58 per share, and then subtract the lower termination fees related to educational properties of $0.13 per share for a net $0.45 per share increase related to prepayment and termination fees. Next, we had the impact of the expected CLA payments through July, net of expenses of $0.05 per share and subtract $0.01 related to the increase in expected G&A expense related primarily to professional fees. Finally, there is a positive $0.02 benefit related to other items such as the expected mix and timing of investments.

While the net impact of approximately $0.58 per share from the prepayment fee from OZRE will be in our second quarter earnings, as I mentioned last quarter, we expect prepayment fees and termination fees associated with public charter school properties to occur predominantly in the back half of the year. Note also while our 2018 guidance is unchanged for percentage rents and participating interests, these amounts are historically lower in the first half of the year than in the second half of the year and we continue to expect the same for 2018.

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

Thanks, Mark. I want to make a final comment regarding our potential for growth in our existing segments. We've recently been on the road with existing and potential tenants and whether their product type is theater exhibition, live performance venues, amusement and water parks or recreational hospitality, the main theme of our discussions was the continued consumer enthusiasm for their experiential product. This demand translates into opportunity for EPR and we expect this opportunity set to grow as more and more companies turn into this consumer preference. As a leading provider of real estate capital for entertainment and recreational assets, we are well positioned to ride this wave of opportunity as the consumer transformation continues to gain momentum.

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

(Operator Instructions) Your first question comes from the line of Anthony Paolone from JPMorgan.

First I have questions on CLA. Can you just walk through, again, what the process is to get beyond July? Like, what do they need to do? Does it have to go in front of, like, a creditor committee or just -- what are the bogeys we should be looking out for?

No, from our standpoint, Tony, we entered this agreement to kind of not to be so much subject to the -- the bankruptcy court has approved this agreement. So the leases -- we will either get a restructuring or the leases will terminate, and then we will pursue getting possession in state court. So by July 31, without our consent, they will no longer be part of the jurisdiction of the bankruptcy court.

So that gives you -- so basically, between now and then, you guys have to figure it out what that...

Yes. Or they -- yes, that's exactly correct.

Okay. And I guess, I think from your comment, because you said that the income was down $2 million year-over-year in the first quarter and you had recognized $750,000 in March. So I guess, does that mean they were at $2.75 million, that kind of used to be what they paid quarterly?

That's what we recognized in the first quarter of '17. I will say, $1.9 million of it was cash, $800,000 was straight-line. So that's how you get to the $2.7 million from prior year.

Got it. Okay. And then, I know you're limited as to what you could probably say on Schlitterbahn. But the -- can you just talk a little bit about the collateral behind the loan, you said 2 parks in addition to the KC park, do those parks have debt on it? Or could you just take those? Or how would that go?

No. Those parks are -- we're the only obligation with regard to those parks. So they're free and clear other than the obligation to EPR. And as I said, historically, those parks have serviced the debt service related to our obligation. Have been -- have sufficient EBITDA to service the debt service for our obligation, so they've been very successful parks.

Okay. And where does that show up on the major tenant list? Does that -- or is it not part of the major tenant list at this point?

They are outside the top 10 at this time.

Okay. Got it. And then just last question. You mentioned not growing for growth's sake and just making sure that the appropriate investment returns are there. I think these levels should stock somewhere in the mid, high-7s in product cap rates. Where you think investment returns need to be for you to just feel a little bit more motivated to do deals?

Probably in the mid-8s, that -- an initial cash on cash yield with some growth, that kind of gives us that kind of 100 basis point spread with growth from there, Tony.

Is that not easy to get at this point?

It's -- we're able to on certain deals that we're either sourcing or that we're playing a bigger role other than capital. Like I said, there is a lot of product that's probably available in the low-8s. So again, we're getting close to that number. But again, we're being probably very judicious with our capital and not reaching for those deals.

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

Just going back to Schlitterbahn, is there an indication that the next tranche of sales tax revenue bonds will either be delayed or not approved by the state or local government?

Right now, we don't have any additional information on that, Nick. Again, that's -- those really work through our tenant. And so again, I think they are continuing to work to line up tenants to make those available for that. But we've had no indications, either for or against the fact that those are going to be impacted.

And when would the next approval typically be? Or when is it expected?

There's no formal approval. You go to the -- you -- once you have your tenants, you go and you present your package and your sales tax. You present a package of sales tax revenue generation and the corresponding bond level on that and you get approval of that assessment from both the local and the state officials. As far as our overall bonding capacity has already been established, now you're just bringing in individual projects and validating those against that original total.

Greg, you mentioned the opportunistic sales maybe within Recreation. Is that more pricing related or is it exposure to any concepts or tenants? How do you think about being opportunistic there?

I think, we're probably talking about, it's not some -- opportunistic on raising capital, good cap rate opportunities where the private market is at a significant -- or willing to pay a significant premium rather to what we're being valued at and our ability to recycle that capital relative to our existing public market cost of capital.

(Operator Instructions) Your next question comes from the line of Michael Carroll from RBC Capital Markets.

Greg, can you give us a little bit more color on what's going on with CLA right now at the entity level? What gives you confidence that they're going to be able to stabilize these properties? Did they get a new equity provider? Or has that ownership group changed at all?

As we indicated, I think, Michael, on our last call, that they're actively -- there were several groups that they were actively negotiating with, with regard to the operating entity. They continue -- it's our understanding that they are continuing to make progress. We set this timeframe up both with ourselves and with those parties, understanding that that was a reasonable period of time for them to either get a restructuring done in place and that we did not want to be a part of any long drawn-out bankruptcy. So they are -- they continue to work through their issues with a new partner on the operations side. My understanding is they're making progress. We hope to be able to update you more on that, like I said, by the end of the -- into the second quarter.

I think it's a good omen that they continue to make their payments, it tells you, I think, that they're making progress. So...

So what do they gain out of this transaction? I guess, first, is just going to the bankruptcy court and trying to figure it out there. I guess, does this extra time provide their ability to actually get agreement with you guys done?

Well, again, for us, it gave them relief from contentiously fighting motions on a periodic basis from us. Because as I said, as we talked about, we had turned our intention to be quite aggressive in the bankruptcy court to regain possession of our properties, the other -- the party that was looking at joining and investing into the operating company asked for time. We said we needed an agreement where we were going to get paid something during the process and we had an immediate access to our properties within a defined period of time. That -- we were able to successfully put that in place. So it removed some of those payments during the period of time and gave them a period of time to negotiate their deal. So in our situation, we felt it was a win all around for all the parties.

Okay. So best-case scenario within the next several months, you guys can have an agreement worked with them. Worst-case scenario, you could get the properties back within August or September?

Yes. And I mean, I think that's reasonable. Because again, even though it comes out of the jurisdiction of the bankruptcy court, you then have to regain possession. So when we looked at it, Michael, we thought even if we were slugging it out in bankruptcy, the earliest that we would probably get out of that was the end of July anyway. So with this agreement, we don't have to continually spend legal fees in that we've got an agreement that's approved by the court. So we know what our paths are. As Mark said, we're very hopeful that this restructuring path will be one. They continue to pay, indicating, as he said, they're making progress with that. And so we're hopeful that will be the path that it takes. But if not, we're also, and alternatively, as we've said before, shopping these with other operators so that we can make them productive for us one way or the other.

Your next question comes from the line of Craig Mailman from KeyBanc Capital Markets.

This is Laura Dickson here with Craig. Regarding the put option exercised by Endeavor Schools for the mortgage note agreement, it sounds like the revenue stream nets out, is that correct?

Yes. There might -- I think there is additional straight-line, I believe. But the cash payments are the same. It just switches geography.

Okay. Great. And then, for the comments about CinemaCon and Disney's commitment not to materially change the new run window, can you elaborate, is that essentially like they won't change the new run window or...

Yes. They said they're committed to the existing theatrical exhibition window. So they opened the State of The Union address with that commitment to, as you can imagine, very, very loud applause. And again, they also said that they felt that this issue is pretty much dead. So again, it was a nice opening to an issue that we felt was -- that was the direction it would head -- it was going to head because, as we've talked about, there really isn't -- not a demonstrable market for it.

Great. Okay, and then following up on the opportunistic dispositions, how much of the disposition guidance do you expect that would be and kind of what cap rates do you think you could achieve?

Again, what we're saying is, in the -- actually, in the range that we have provided, we've said it's really we've achieved the other assets and it's going to be charter school kind of exercise of buyouts. And for opportunistic, again, I think we know what our cost of capital is. We kind of talked about kind of mid-7s. So something that would be below that, that would be an effective recycling cost for us, Laura, because at that point, it's not -- we could issue equity to achieve that. So it would be below that number.

Okay. And just one more for me. For the -- just want an update on the CIO position and backfilling that position?

Yes, again, as we said, right now we're -- we intend to fill that, but we have very strong segment heads that run those businesses. We don't feel that there's any immediate rush to do that so that we can take our time and look at both internal and external candidates. So we feel like we've got the needs of the organization addressed and we're moving through that process, but as I said, there's no sense of urgency or emergency on that.

Your next question comes from the line of John Massocca from Ladenburg Thalmann.

So on their earnings call, AMC said they saw a positive $24 million impact in domestic adjusted EBITDA tied to reductions in rent related to lease modifications. Given that, have you seen any push from your theater tenants for rent reductions? Or is that kind of noise around upgrades...

I think that has more to do probably in the Carmike, their acquisitions of some of those, what they call their classic. We haven't -- we've not been dealing with that. It's, like I said, I think they mentioned that they were -- not this call but previously, talked about that they were going to move more aggressively in some of the theaters associated with that Carmike acquisition.

Okay. So it's not really tied to your property?

No, no.

And then kind of maybe a little more theoretically, what do you think drove Och-Ziff to sell these properties given the cost of prepaying the debt? And if it was that it was really strong potential return on what they got from Boyne, what was maybe the reasoning behind you guys not holding on to the assets at the time of purchase from CNL? Was it just Boyne wasn't really on the radar then? Or was it something else with regard to that transaction?

Again, John, what we talked about when we did that transaction was our commitment to maintain our exposure to ski at about 10%. So actually, holding that would have taken us significantly above that. So we knew they were good assets. Again, I don't want to speak for Och-Ziff, but I'm assuming that Boyne, as part of their acquisition, they actually paid our prepayment penalty as well as a return to Och-Ziff on this. So I think what it really talks about is the growing recognition of the strength of the ski industry with what you've seen with what Vail is doing and what the KSL entity is doing, there's really a recognition of the value of those assets, and they are trading at much -- at least the operating side are trading at a much higher multiples. And so when Boyne made an offer to buy these assets back, so they were the tenant, when they made the offer to buy those, you can see kind of, again, when you talk about paying off the loan, paying off the prepayment penalty, paying a profit to Och-Ziff and still making sense for them to do, it really speaks to kind of the quality of the properties, how we underwrote it and the successful execution of that transaction.

Understood. And then kind of the -- a little bit of housekeeping. The -- did I hear correctly that you incurred $250,000 in taxes related to CLA in 1Q? And what amount of time did that cover?

We had $650,000 worth of expenses in...

Property taxes.

Yes, property taxes related to CLA.

Okay, so $650,000. And what period of time was that over? Was that 2 months or the full quarter?

Well, we think the annual carrying cost on an annual basis is about $1.5 million, so it's a little disproportionately high in the first quarter. It's about $1.5 million annually.

Okay. And that goes away with the new agreement you've reached, at least until July?

Yes. Yes, we have some expenses in the second quarter until -- and kind of making it through to that July date, but then we expect that to go away.

Your next question comes from the line of Ki Bin Kim.

So when you look at the lay of the land and where you can deploy capital, how does upgrading the movie theaters fall into that? I was looking at your capital spending plan slide on your supplemental and it doesn't seem like there's much for this year. So I was just curious if you could provide some color on that?

Again, that -- it's still something we would do because, again, it's a double benefit in the sense that we get paid for our capital that came in, and we also get an extension of the lease term. So there's -- that's a good benefit. I think what we're seeing is though that some -- at least like AMC right now is turning its focus, if you follow their call, more on their Carmike portfolio as kind of low-hanging fruit and they've redirected more of their capital to those properties. We're confident, it'll come back once they get -- they finish dealing with those, but they felt like they needed to respond to those properties and turn those around. But we're still actively doing it with our other operators. We're looking at with Regal. Regal is just going through a -- they were just acquired. So they're going through their process and understanding what -- Cineworld is understanding what they bought and where they want to go. So I wouldn't take this first quarter as an indication. I think we've got a couple of things that are going on, but our operators are still committed to this amenetization and we feel that there's real benefit to us to be part of that.

Okay. And some of those numbers that you gave out earlier in the call on the CLA kind of came out fast and heavy.

Okay.

So -- I know there's going to be a transcript later, but just for the sake of time, can you just kind of put it in simple terms, like, what was the revenue again that you were collecting beginning of the year up until now each month and after July 31, that goes to 0, right? And what was the gross asset value in the -- at cost of those assets?

Okay, for those, we were receiving for the -- for March, April and May, we have received $750,000 per month. And for June and July, we are scheduled to receive $1 million per month. So that is that 5-month agreement that we agreed to for the assets. Of those 21 assets, that are in -- of those 21 assets, we think it's about $250 million of gross value associated with those assets.

Okay. And those tenants, how much equity approximately do they actually have in those 21 assets?

Well, as it stands right now, in bankruptcy court, that's a matter of dispute. So again, probably not real good for us to comment on that right now. What I can tell you is, they're working with somebody to put additional equity and operational capability into it and as we've said, we think that they're making progress on there and hopefully, we will have a solution that will put this issue to bed, hopefully, by the -- or we'll at least know directionally which way we're going.

Okay. And just last question, going back to the water park operator. Was the original plan in underwriting to get the STAR bonds to reduce your -- eventually as an exit for your investment? Or was that just not really in the plate of options?

No. That was considered -- not necessarily new, but it was also considered an additional collateral support. I mean, we had the properties that would support the amount of interest that we were charging, but it also allowed for kind of multiple avenues of reducing that. And so while, again -- those STAR bonds, there're also large land parcels out there, so it's not simply just to the STAR bonds, you also have -- we have a mortgage on a vast amount of acreage out there that underlies the tenants that would go wound to those STAR bonds. So there're multiple avenues of collateral there, but it underwrote with just the support of the Texas parks.

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

Well, we appreciate -- thank you, we appreciate your time and attention, and we look forward to seeing you all at NAREIT and talking to you again on our next quarter call. Thank you.

Thank you.

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