EPR Properties (EPR) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Entertainment Properties Trust Conference Call. My name is Stacy and I’ll be your conference moderator for today. [Operator instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today to Mr. David Brain, CEO.

Thank you, Stacey, and good afternoon and thanks all for joining us. This is David Brain. We'll start with our usual preface which is as follows: as we begin this afternoon, need to inform you this conference call may include forward-looking statements defined by the Private Securities Litigation Reform Act of '95, 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 the factors may cause actual results may differ materially from those forward-looking statements as contained in the Company's SEC filings including the Company's reported Form 10-K for the year ending December 31, 2011. All right, very good. Again, I want to say good afternoon to you all and thank you for joining us and making your investment of time with us. This is the earnings call for the fourth quarter and year end of 2011. This is David Brain the Company's CEO and with me to go through the news of the quarter as usual are Greg Silvers, the Company's Chief Operating Officer.

Good afternoon.

And Mark Peterson, our Chief Financial Officer.

Good afternoon.

Also, I'll just remind you, as usual we have slides for you to view for you to go along with the narrative here and they are available via our website at eprkc.com. I'll start with the headlines for Entertainment Properties Trust for the fourth Quarter of 2011. And they are as follows: number one, primary investment categories display mixed, but positive trending results; two, transaction pipeline fills to support 2012 investment guidance; three, capital costs improve again with new Syndicated Bank credit agreement; four, agreement signed for casino development at dormant Sullivan County, New York land and five, earnings performance exceeds guidance for 2011 and trends support increased dividends and earnings guidance for 2012. These headlines are consistent with our recent messages as we remain disciplined to make consistent progress on our strategy. Now turning to our first headline, which is, "Primary investment categories display mixed but positive trending results." Box office revenues, a key measure of our primary investment category, cinemas, only muddled through the fourth quarter of 2011 in quite flat fashion but have demonstrated a big upward kick in early 2012. The fourth quarter ended in just about the same position it ended the prior quarter, down about 3%. The good news is that early 2012 returns are quite positive with year-to-date box office up strong, double-digits about 20%. Our Ski portfolio was looking for a similar late kick to help with what has been an only acceptable seasonal performance. Due to warm weather conditions, our Ski portfolio tenant revenues are running about 20% behind last year's record year, but turning positive in the last couple of weeks. As you might remember, our Ski portfolio has been enjoying consecutive record years and growing its cash coverage of rent obligations to well over 2:1. As happens with seasonal and weather-related businesses not all years are records. Our Ski parks mitigate weather risk with robust snow-making capacity, fueled by controlled proprietary water supplies and with very strong pre-season annual pass sales. These have helped, but weather conditions have been such that revenues are below last year's and rent coverage will decrease but we expect it still to be positive. Our Charter Public School portfolio continues to perform with the strong enrollment increase as described last quarter for the 2011-12 school year and state funding has remained steady at the elementary or high school levels where we have our investments. As we have mentioned here and in other communications, it is very important to look beyond the headlines of education funding cuts to see just how disproportionally they are being made at higher education levels. Going to the second headline this afternoon: "Transaction pipeline fills to support 2012 investment guidance." It was a bit frustrating as we, throughout 2011, lowered our target investment spending due to delays and deferrals but that tide is clearly turning of late. We are currently -- we currently have a robust pipeline of largely signed investment opportunities for 2012. These are primarily build-to-suits which are about equally split between theaters and Charter Public schools. Further, we have signed investment opportunities in the metropolitan ski category and with some new operators, have proven out of home leisure and recreation properties. I'll leave it to Greg to provide you with more details on this, but I will tell that this position leads to present you with strong confidence in our 2012 investment guidance of $250 million to $300 million. Turning to our third headline: "Capital costs improve again with new syndicated bank credit agreement." Last quarter we reported to you a major milestone of progress in connection with our investment grade ratings received in 2010. We renegotiated our revolving credit agreement for the first time since receiving those credit ratings and substantially improved it and lowered our cost of capital. We compounded this success with a new syndicated 5-year term bank credit agreement largely negotiated and arranged in the fourth quarter and finalized at the outset of 2012. This nearly $250 million facility was priced at an all-time record low rate for the Company. Mark will detail this for you in a moment. Our fourth headline today is, "Agreement signed for casino development at dormant Sullivan County New York land." After several announcements of negotiation, I'm pleased to confirm as recently press released, that we have reached agreement with Empire Resorts for their lease of ground and infrastructure to support their investment in development of a racing, gaming and hospitality complex at the site of the former Concord Resort, which we own in the New York Catskills, 90 minutes outside of New York City. This is part of a master plan covering 1,500 acres that we expect will have many more positive announcements, developments over the coming months and even years. We are excited about the path of progress forming for this asset. And now turning to our last headline which is, "Earnings performance exceeds guidance in 2011 and trends support increased dividends in Earnings Guidance for 2012." I am very pleased to bring you news that for 2011 EPR produced $3.43 FFO as adjusted per common diluted share, which is above the guidance range, given our last call of $3.37 to $3.42. The even better news is that the cumulative effect of the positive foregoing report and that which you will hear from others on this call this afternoon is that EPR is in great shape and is prepared to increase both our dividend and our per share cash earnings FFO as adjusted guidance for 2012. First we expect to increase our annual common dividend by over 7% from $2.80 to $3.00 per share. Accordingly, we are declaring our first quarter dividend of $0.75 per share at this time. Second, we are increasing our FFO as adjusted guidance per diluted share from $3.44 to $3.64 to a range of $3.50 to $3.70, an increase of $0.06 or about 2% on the midpoint of these ranges. Overall, the midpoint of our new guidance of $3.60 represents an increase of $0.17 or 5% over our 2011 performance level. Now with that run down on the headlines, I will turn it over to Mark, Greg, rather, and Mark, and I will be back to join you before we go to questions.

Thank you, David. The fourth quarter delivered solid operating results as we continued to lay the foundation for a stronger performance in 2012. I would like to spend a minute discussing our portfolio performance and then talk about our achievements for the fourth quarter, as well as discuss our expectations for 2012. With regard to our theater portfolio, the box office finished down approximately 3% for the year. We had anticipated a flat year, however, several of the holiday films failed to garner the audience that was forecast, and as a result Hollywood failed to close the gap. Encouragingly, 2012 has started very robust compared to last year, with year-to-date performance up approximately 20%. As we've indicated last year, the first quarter does not define the year for box office; however, it is far easier to have a good year, when we're not climbing out of a hole like last year's first quarter performance. Additionally, we are pleased to inform you that we have commenced or will commence shortly, 8 to 10 build-to-suit theater projects for 2012 with a total investment of $80 million to $100 million. We spoke many time about the delays associated with these projects, however, we're pleased that our exhibitor partners continue to want to grow their portfolios and continue to look to EPR to supply their capital needs. Several of these projects will include innovative food and beverage concepts as well as premium offerings to recognize and capture diverse customer segments. Along with the excitement for these projects, we're likewise pleased to have several new exhibitors included in our build-to-suit program, which we believe will drive continued growth in the future. The mild winter that many parts of the country have experience is negatively impacting our ski properties. To date, the revenues at our properties are down approximately 20%; however, we do not anticipate any issues with our properties. As you will recall, our rent for 2011's off season was escrowed from the results of last year's ski operation and likewise our tenant continues to be current with their rent and on pace this year for replenishing the escrow for 2012's off season. These results are reflective of the coverages that these properties enjoy. Additionally, the performance of our properties has been improving as the weather has improved, at least from the perspective of a ski park operator, and we hope this trend will continue for the remainder of the season. Our entertainment Retail Centers continue to perform well, with overall occupancy at 97%. The Company continued to invest in public charter school space, with total investment in the quarter of $13.2 million, comprised mainly of build-to-suit projects. Additionally, we expect to execute commitments in the first quarter for an additional $40 million of investment for 2012 and we anticipate that this number will continue to grow throughout the year. Furthermore, in December it was announced that the nationally public charter school enrollment had surpassed the key milestone of 2 million students in the school year 2011-2012. This overall increase in student enrollment for this academic year is 13% and continues to validate the point that school choice, as demonstrated by public charter schools, continues to gain parental support. As a company, we have met this continued growth in the public charter school sector with expanded underwriting resources and relationships to identify quality schools that successfully combine strong academics, sound financial management, solid business operations and superior facilities. We are confident that this combination meets the needs of the students, the parents, the communities and the investors of our company. Our capital spending for the quarter was approximately $31 million, down from the number we anticipated. As we indicated in our previous call, our capital plan for 2011 was impacted by the time and considerations of our tenants and our unwillingness to pursue deals that failed to meet our investment criteria. Last year we saw a significant number of theatre transactions priced into the 7% to 8% cap range, and while we're pleased that investors are recognizing the value of a theatre investment, not all of these were good theatres or worthy of the price paid. As we've said before, not all theatres are equal, and some level of discernment is necessary to achieve the long-lasting investment profile that we desire. As a result, we were unsuccessful in several standing inventory transactions, and while that impacted our investment spending, we believe that we're better served to maintain our discipline. As we indicated previously, we're happy with the theatres that we are developing, all with 15- to 20-year terms and cap rates in the 9.5% to 10.25% range. Furthermore, we anticipate closing approximately $75 million of other entertainment and recreational assets by the end of the first quarter. With regard to the Concord development, in December we executed an option agreement with an affiliate of Empire Resorts, where Empire has the right to lease certain land owned by us in Sullivan County, New York, for the development of a regional destination casino resort, hotel, and harness racetrack. The option agreement defines the land parcel and the economic terms of the lease, which the parties expect to be executed, following the satisfaction of certain conditions, including site plan approval from local authorities and the finalization of the master development agreement. I'm pleased to report to you that we are making progress on satisfying all of these conditions. With regard to annual capital spending, we're affirming our previously stated capital spending guidance of $250 million to $300 million. And with a robust start to the year, we're highly confident in meeting those targets. 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. Turning to the first slide, FFO for the quarter increased to $42.6 million or $0.91 per share from $40.4 million or $0.86 per share in the prior year. FFO as adjusted per share for the quarter increased from $0.86 in the prior year to $0.90 in the current period, an increase of about 5%. Now let me walk through the rest of the quarter's results and explain the key variances from the prior year. Our total revenue increased 4% compared to the prior year to $277.6 million. Within the revenue category, rental revenue increased by $1.2 million versus the prior to $57.8 million and resulted primarily from new investments as well as base run increases on our existing properties, offset by a decline in rental revenue from our vineyard and winery tenants as we exit that business. Percentage rents for the quarter included in rental revenue were $0.5 million versus $0.3 million in the prior year. Percentage rents included in rental revenue for the year were $1.6 million versus $1.7 million in the prior year. Other income increased by $1.4 million, primarily due to seasonal revenue sale of grapes from certain of our vineyard properties which are being operated through a taxable REIT subsidiary. Mortgage and other financing income was $14 million for the quarter, up $0.6 million from last year. This increase is due to additional investments in public charter school properties, metro ski areas and Schlitterbahn Water Parks during the year. I would also like to point out that the end of the last we had 3 newly developed charter school properties classified as direct financing leases. During the fourth quarter of 2011, the initial lease terms on these properties were amended from 25 to 20 years, which changed the classification of these leases to operating. Therefore, $21 million was re-classed on the balance sheet from investment and a direct financing lease in rental properties and the income from these properties is included in rental revenue versus financing income subsequent to the end of the third quarter. Now on the expense side, our property operating expense decreased by approximately $1.9 million versus the prior year due to lower bad expense primarily associated with our vineyard and winery tenants. This lower bad debt expense in part relates to $0.9 million we collected this quarter on a previously reserved receivable from a winery tenant. Other expense was $2.2 million for the quarter, an increase of approximately $1.8 million over last year. This increase is primarily due to costs recognized related to the sale of grapes and other expenses as certain of our vineyard and winery properties, which are being operated through a taxable REIT subsidiary. G&A expense increased approximately $600,000 versus last year to approximately $5 million for the quarter due primarily to higher payroll expenses, including stock grant amortization, as well as increases in professional fees and costs associated with our investor relations efforts. The gain associated with loan payoff related to the $9.2 million capital lease obligation we had previously recorded in connection with our Sullivan County, New York land investment. We were able to negotiate a $390,000 lower payoff of this obligation and thus, recorded a gain for that amount. Note that this gain has been excluded from FFO as adjusted. Our net interest expense for the quarter decreased by $1.6 million to $17.7 million. This decrease resulted primarily from a decrease in our outstanding borrowings as well as a lower-weighted average interest rate versus last year. Finally, discontinued operations for the quarter included a gain of $1.2 million and related to Toronto Dundas Square as we continue to settle reserves established related to the purchase and sell of that investment. Note that this gain has been excluded from FFO and FFO as adjusted. Now turning to our full year results in the next slide. For the year, our FFO increased to $150.3 million compared to last year of $128.1 million. FFO per share was $3.20 compared to $2.81 last year. While these measures now exclude impairment charges per NAREITs direction, each of them are also impacted by other charges primarily related to refinancing that have been discussed on this and previous conference calls. Excluding these charges, FFO as adjusted per share increased versus the prior year to $3.43 from $3.34, an increase of about 3%. Undoubtedly, our 2011 FFO as adjusted was negatively impacted by not being able to redeploy the $220 million of proceeds from selling Toronto Dundas Square as quickly as we had originally planned. However, as we deploy the rest of this capital during 2012, our FFO run rate will benefit from replacing one very large 6-cap asset with multiple new assets that yield 9% to 10%. Turning to the next slide, I would now like to turn to our discussion of some of the Company's key ratios. Please note that our supplemental summarizes these key ratios on Page 16. As you can see, our coverage ratios have strengthened significantly versus a year ago with interest coverage a 3.8x, fixed charge coverage at 2.8x and debt service coverage at 2.8x. Our AFFO per share for the quarter was $0.91 and our AFFO payout ratio was 77%. Our debt-to-adjusted-EBITDA ratio improved to 4.4x for the quarter versus 4.5x in the prior year. In addition, our debt-to-gross asset ratio was 38% at December 31. This ratio remains below the midpoint of our previously stated target range of 35% to 45% and provides us great flexibility in 2012. Let's turn to the next slide and I'll provide a capital markets and liquidity update. As previously announced, early in the fourth quarter, we expanded our revolving credit facility of $400 million, reduced the interest rate spread to LIBOR plus 160 basis points, 140 basis points reduction, and moved out the effective maturity to 2016. Turning to the next slide, last month we announced a new $240 million 5-year term loan facility which includes a $110 million accordion feature. Similar to the revolving credit facility, pricing is based on grid related to the Company's senior unsecured credit ratings which at closing was LIBOR plus 175 basis points. We also fixed the interest rate at closing for 4 years at 2.66% through interest rate swaps. Turning to the next slide, at quarter end we had total outstanding debt of $1.2 billion of which $921 million was fixed rate, long-term debt with a blended coupon of approximately 6.6%. We had $223 million outstanding on our revolving credit facility at year end, but this balance was reduced to 0 in early January with the closing of the term loan. As a result, we are in excellent shape from a liquidity perspective as we move into 2012. Turning to the next slide, we are increasing our guidance for FFO as adjusted per share from $3.50 to $3.70 from $3.44 to $3.64 that was previously announced. This increase in guidance reflects our latest expectations in terms of investment spending, timing and returns, as well as our recent financing activities. As Greg mentioned previously, we are maintaining our 2012 investment spending guidance at $250 million to $300 million. While we generally do not provide details by specific line items or by quarter, we think it is helpful to update a couple of assumptions contained in our revised 2012 Guidance. First, I had reported in our last call that we expected our $14.9 million unconsolidated JV investment in Atlantic EPR1 which earned a 15% preferred return in 2011 would be refunded to us and refinanced with mortgage debt at the JV level. However, we now expect that this investment will be converted to a mortgage note from us to the JV with interest at 9.5%. As a result, the negative impact to 2012 earnings per share is now expected to only be about $0.01 versus the $0.04 previously anticipated. And a substantial portion of the earnings from this investment will be reported going forward as mortgage financing income instead of JV income. Second, we now expect G&A expense to be approximately $23 million for 2012 with increases verse 2011 primarily related to payroll and benefits including additional personnel, as well as legal fees associated with our project in Sullivan County, New York. In addition, our G&A expense is expected to be approximately $700,000 higher in the first quarter than the full-year number divided by 4, primarily due to certain employee benefit expenses that are recognized in Q1, as in prior years. Note that due to the impact of G&A as well as other items, we expect the growth of FFO as adjusted per share versus the prior year to be 1% to 2% in the first quarter as compared to the 5% at the midpoint of our revised guidance that we expect for the full year. With that, I will turn it over to David for his closing remarks.

All right. Very good. Thank you, Mark. Thank you, Greg. We'll take your questions. We'll go to those questions now. Just to sum up, I think you've heard a good view of solid portfolio growth for 2012. We certainly, as Mark went through, got the balance sheet to support that growth. And our yield now with the dividend increase and that growth profile, we think should be a very attractive package to provide a very solid total shareholder return for the year. With all that said, I'll turn it over to questions. Stacey, are you there?

[Operator instructions] Your first question comes from the line of Anthony Paolone with JPMorgan.

My first question is on Concord. If I remember the press release and filings right, there was some option payments that they were going to give you to basically enter in to this option to ground lease the land. I was just wondering if you can lay out how much those are, when they'll get brought in to income and so forth? Or if they even get brought in to income?

This is Greg. Tony, I'll take the first part and then I'll leave the second to, well, I’ll maybe take part of that, both of that, all of that. The option payment was $750,000 which is for a 6-month option on the deal. The issue is that the option is refundable, if the option payment's refundable if we're not successful in negotiating the master development agreement, so we've not taken it into income pending that resolution of that condition.

It's a satisfaction on condition, yes.

And nowhere in our guidance did we include any of that income we kind of have in our guidance at least at the midpoint Concord at status quo.

It's important.

Okay. So that's not it.

That represents upside to the, to guidance.

Okay. And then what are some of those conditions that need to be satisfied in order to move this thing forward because I think I saw a press release today about Capelli [ph] still being in the mix or maybe it was a press report about how he's still trying to get his project done. And just wondering if you can give us a little more color on how this is planned out?

But I think the conditions are as such that Greg outlined kind of two-fold primarily. And that is getting the entitlements and the completion of the master development agreement. So that's the time to really start clearing that. Capelli [ph] and his agenda is really a whole separate matter. And we don't see that as necessarily an issue vis-a-vis proceeding.

And so under the time frame you're operating under at this point, is this something you anticipate coming to a conclusion the next few quarter or can this drag out further?

I think as room can imagine, Tony, it's Greg, in any sort of large scale kind of casino development like this is going to take a lot of entitlement and land play and approvals and I think you will see that process begin shortly and we'll continue. And as we're successfully, I mean you're going to have to have environmental approvals, you're going to have to have local township approvals and as we migrate through those, and those are all public events so you'll be able to follow that procession, and as we migrate through those, you'll begin to see that we're making the progress to get the project done. And as we go through those approvals, I think we will be presenting to the public bodies timelines for our development.

And that will be public record and we'll keep you apprised of that.

Okay. Another question for Greg. You alluded to some other entertainment-related concepts that were in your pipeline. Can you give us any additional color on that?

Yes, sure, Tony. I think as we've said we've done some, recently we've done some family entertainment centers, we've done some other kind of. I still think they're entertainment concepts that are driven by the admissions and concessions business that we're used to. I think we'll have some announcements, as we said, we anticipate closing those by the end of the first quarter, so I think over the next 2 to 3 weeks we'll have public announcements on who those transactions are with. But it's safe to say they're all in that kind of family entertainment space.

And are those build-to-suit or are those straight up acquisitions?

No, they're standing inventory that you'll see the announcements on.

Okay. And on your theater build-to-suits you mentioned some food and other premium offerings being put into the mix there. I mean how do you think about underwriting the success of those exhibits -- seems that you've done a lot of straight up theatres over the years, you would have that formula down pretty well and understand what those economics look like. But going off into something slightly different here on the premium side, how do you comfort with the underwriting there?

Well, it's a good point, Tony. First of all, we're not doing the initial one with anyone. So we've got some underwriting data points to underwrite the performance on how they've done. And as we've said, we have been measuring this for several years. AMC has done some conversions of some of our property, so we have good data on these expanded in-theatre dining concepts. So we think we've refined our underwriting to where we can properly underwrite this. And as I said initially, we're not doing any sort of initial deals with anyone. In fact, these are people who are several into their concepts, so we're pretty confident they know what they're doing, and we're confident we know how to underwrite it.

And, Tony, several of those concepts are already in our portfolio. We're just expanding our investment position in them.

OK. And last question for Mark. Looking at your debt maturity schedule, it looks like you have about $360 million of mortgage debt coming up over the next 3 years, and it looks like the blended rate is somewhere with a 6 in front of it. I was wondering where you think you'll refinance that out at if you had to go to the mortgage market today or is that something you think you'll continue to move to unsecured debt?

Yes. We've announced that we're moving and have made strides to move towards the unsecured debt model. So we'd envision those being refinanced with long-term unsecured debt. And as far as the rate, it's hard to say because, as you said, it's over a 3-year period. But today they'd probably be in the high sixes, so not too great of a difference from where those mortgages stand today. For example, the ones that mature in 2013 or 2012 are at about 6.5%, so.

I think the most indicative thing is where our public debt trades.

All right. If you did want to put mortgages on this again, is there a mortgage market at this point for this product type that would be able to refinance that, and at what rate would that be?

There is, it would likely be lower, because it's secured and that market is available, but we feel the flexibility of the unsecured debt model provides us is worth going the unsecured route. And frankly, we saw the CMBS market come and go while the unsecured debt market remained wide open, and that's appealing to us to have the more stable financing vehicle.

Your next question comes from the line of Greg Schweitzer with Citigroup.

I'm on with Mike Bilerman, as well. Just a question on the ski hills. How much do overall sales need to decrease across your ski exposure for the cash flow coverage to go down to 1x?

Well, I mean, as you can look at, they can reduce expenses accordingly, and I think we would have to see something to nearly, kind of, 30%, 35%.

And we don't have a perfect calculation of that, because we haven't really seen or experienced that, but as Greg says, these guys have shown themselves to be great managers, and we expect cost reductions on the way down and to keep the coverage positive. So, we don't -- this year as we finish we'll give you color on the next call, but we'll have more information on that of the full sensitivity on the downside.

Do you have a sense of what it is right now?

Oh, what I told you, what the coverage is? I think we have a sense that it's probably somewhere in the, I want to guess, 135 range, 135 or so, but it has been trending better here over the last couple of weeks. So we'll just have to see how the weather holds.

OK. And then could you comment on the St. Louis Imagine Schools on probation?

Yes. I mean, clearly we are disappointed with the academic performance that those schools have achieved and the resulting probation that they've been put on. However, we're working with all the constituent parties there to deliver a solution that we think meets both the needs of ourselves and our investors and of the student base there. As you know, we've had a structured transaction that provides for, if need be, substitution of properties and potentially substitution of operators. But I think overall, what we're trying to do is monitor the situation, work with all the parties, and see, kind of, what are the best options, both for ourselves and for the constituent parties.

Yes. Importantly, I don't think anybody's complaining about the facilities, and the enrollment isn't lacking. The enrollment has been good. There's not been a performance on the part of the operator, and it's possible that, that will change.

As you look toward that expectation, do you have any of that baked into guidance?

No, we have no expectation of a change in rent on those properties.

No? OK. And then just one final one on the increase in guidance. Is it possible that you could just break it up and provide a little more clarity on the drivers of that $0.06?

Yes. Sure, if you think about it, the midpoint of our guidance was 355 previously, and now the midpoint is at 360. I think probably the biggest driver is kind of an investment spending, timing and character and term loan update, is the biggest chunk of it, and that's probably about $0.06. And then I called out 2 things in my comments that really, at the highest level, provide the remainder of the difference, that is a $0.03 improvement related to the Cantera JV or the Atlantic JV, $0.03 up and about a $0.03 down in G&A because we increased our guidance for G&A. So if you start with 354 and take the 2 items I called out and then the $0.06, think of that as investment spending term loan updates combined, that's how you get the $0.05 increase at the midpoint.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Craig Mailman here with Jordan. I just want to clarify on the Concord situation. So, you guys, the $750,000 could be potential upside, I mean, could there be any ground run payments this year? Or, would you guys basically need to get all the approvals before they would start paying you?

We're going to need to get the approval before the lease actually would commence so, that's one of the conditions before the actual commencement of the lease, so I think the, but the $750,000, it likewise could, that's not in ours, and could be earned if those conditions are satisfied.

But the timing of those approvals is such that if they are acquired during the year, the ground run could commence but at the same time we're not planning on it.

Right. Keep in mind, those $750,000 payments, we've gotten one for 6 months. But that will totally have the ability to do another one. There could be more than one $750,000 payment that we ultimately recognize in income.

You guys keep deferring that until all the approval is in place?

Yes, exactly

So that's a contingent income right now until those primary conditions are satisfied. That's right.

Right. And then, just to follow-up on Greg's question on the different components, you guys have talked about the $150 million of build-to-suits kind of starting at fourth quarter and it seems like it got pushed out a little bit now on the 1Q. Are we thinking about it right, that the timing's still the same? Or is the timing a bit delayed to what you had previously felt last quarter?

I think the timing's delayed, that's kind of what I tried to infer in my comment, is that several of these projects continue to get delayed and now we're excited about the fact that we're actually breaking ground on them, and so that we will see that delay stop. I think part of the issue for the theater side was, as we talked about it last year, was just a difficult year. I mean, we continue to make ground all throughout the year and gain back into it but then, as we said what it should have been fourth quarter, we thought we were going to close strong. Again, as David said, we kind of muddled, which made people somewhat hesitant. And so, it's good to get these projects started and that's what we're looking forward to in 2012.

And just to clarify, have you guys completed at least signing up the 8 to 10 build-to-suits and just waiting to break ground? Or are we still waiting on ... okay.

Yes, we have some degree of papers signed to either letter of intent or actually signed deals on all 8, somewhere between 8 and 10 on those, yes.

But those won't basically commence construction until probably Q2 is your feeling?

Well, things generally start in the spring. People don't, we've talked about this before, you don't go to the theater in February, They start in the spring. It's an open holiday.

But all completed during this year.

Yes, yes, but they will begin and will spend a substantial portion of the money out in 2012.

It’s Jordan. Separate question, just on the returns on the entertainment recreation properties, you're talking about closing here, did you say that they were in the same range as the build-to-suits? The 9.5 to 10.25?

Yes, that's correct.

OK. They are. And, are they -- did you give any color on what they are? Or are you just purposely sort of holding off?

No, no. What we said, was that they were kind of in the Family Entertainment space and as we said that we're closing those -- over the next, by the end of the first quarter, that we'll probably have some announcements in the next 2 to 4 weeks to specifically identify them.

Do you own product like this currently, similar to it?

Yes. We do actually. We have some product like that. If you look at what we've done with like Pinstripes, but there will also be some new concepts that we're going to approve.

Okay. Okay. Okay. So we'll hang tight on that. On the, lastly, the Peak deal. Can you maybe just put a little more color around that? Obviously, that space seems to be a little skinny from a credit support perspective this year. What are they doing with the money? Are they sort of buying low hoping to sell high or is it sort of a being optimistic or what?

I'm not sure what you mean with the money. Are you talking with regard to their IPO efforts?

No. You leant Peak another $9 million.

No. That was to buy a property. We bought the ground lease out from underneath one of the properties that we had.

It had nothing to do with operations.

Nothing to do with operations. Yes, that was just to solidify our position to buy-out a ground lease at one of sites.

Okay. But the credit support on that deal is a little bit better than it would have been?

Well, basically the ground lease payment that they were paying to a third party was equal to what we going to pay for the property. So it was a net, no change to what they were going to pay to us. So it was a net change but it improved our collateral position, Jordan.

Our next question comes from the line of Rich Moore with RBC Capital Markets.

I noticed that the Hollywood movie scene going over to China seems to be improving. There seems to be some deal that the Obama Administration reached to show more movies in China. Was that encouraging news for you guys or is there anything...

It was. That was recently, that was just announced with the Chinese President, Chinese Vice-President in the U.S. announced that they expanded the number of movies to 40 and he also had in the last 2 days an announcement by DreamWorks that they are doing a joint venture to include Shanghai Media Group as a joint venture partner for studio production. And as you will recall, Shanghai Media Group is the parent entity of Shanghai Film Group which is our Joint Venture partner in theater development in China.

So it's very encouraging. It seems, continues to be a very robust area and product enhancements, particularly international product. International product particularly American product, we think will be very successful or rather has been successful. And we'll continue to support the theaters in place and the development over there.

Okay. All right. Sounds good. So we could see more from you guys, you think, in China?

Yes. I think that's been not, obviously, a front-burner issue, but we have a beachhead there. We've been gathering data. We've been about hitting the term that we said we wanted to have to determine that data and we'll, we are going to make a determination on direction there and we'll be back to you with more information, hopefully.

Okay. All right. Sounds good. Then, on the relationship with Empire, is it just the ground lease? Is that how you guys envision this simply, that kind of relationships, I guess, with Empire?

That's the way the option agreement is drafted, is it's a ground lease. they would do the actual development of the, you're responsible for the financial development of the casino resort and hotel?.

Okay. Good. Got you. And then when I look at the selling of grapes it looks like selling grapes doesn't have much of a margin. Is that true?

It's getting better. It certainly it's not a mainstay of ours but to comment, it's better than we planned for worse. We did a little better. That's why a little upside and market seems to be better and improving.

Okay. Is that over or do we have more...

It's not an ongoing business. Obviously, we're exiting the wine business. We have some vineyards that needed to be harvest and we sold the grapes, but that's not an ongoing, obviously, operating business that we're in.

Right. That's a placeholder until look, yes until sale.

Until sale.

It's a necessity, not a desire.

Right. I got you. And then I also noticed that the actual revenue, the rental revenue for the vineyards crept up to a few hundred thousand dollars. Is that part of the whole transaction situation?

We actually had some percentage rents at one of our wineries. We had an operator in there at one of our wineries that paid us some percentage rents in the fourth quarter. So that's why that popped up.

Okay. All right. Good. And then on the financing side, you guys did a, I assume that was an unsecured term note? Is that right? Term loan?

Yes.

And then why that instead of a regular unsecured note? Was it just – obviously, the pricing was very good, was it just thee pricing?

The pricing's pretty good at 2.66%. Hard to turn away from that. Not something you could probably repeat in the unsecured public market but that was primarily; it also fit well into our maturity ladder.

Okay. All right. Good. But going forward, I assume you're going to look at some unsecured notes for these mortgages you were saying?

Yes, as we look to this year we have in our plan a unsecured bond offering.

And at this time I'd like to turn the call back over to Mr. Brain for closing remarks.

All right. Well, I want to thank everybody again for joining us. We're pleased to have the report we had for you this year. We always enjoy your contact of the Company and further questions but at this time we'll thank you for joining us and we'll look forward to talking to you down road.

Thank you.

Thank you.

Thank you.

We thank you for your participation in today's conference. This does conclude your presentation. You may not disconnect and have a great day.