EPR Properties (EPR) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2014 EPR Properties’ Earnings Conference Call. My name is Jackie and I will be your operator for today. At this time, all participants are in a listen-only mode and we will be facilitating a question-and-answer session towards the end of today’s presentation. [Operator Instructions] I would now like to turn the conference over to Mr. David Brain, President and CEO. Please proceed.

Great. Thank you very much. Thank you all for joining us. It’s good to be with you again this afternoon for the EPR 2014 fourth quarter call. I will start by saying I need to inform you the conference call may include forward-looking statements defined in 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 conditions, results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause actual results to differ materially is contained in the company’s SEC filings, including the company’s report on Form 10-K for the year ending 2014. Alright. With that, I will say again, this is David Brain. Usually, I thank you all for joining us. It’s good to be with you. And I usually start the call with EPR headlines for the quarter or at this time each year for the year preceding, but today is a bit different. I am going to start with a single thought and that is that this will be the last EPR call on which I will have the pleasure of joining you at least as a presenter. I am today taking the opportunity to announce my retirement from the company. I have had the distinct privilege and pleasure to co-found and form over the last 18 years. It’s been a long ride, longer than I might have even envisioned in the beginning, but it has been a great ride. There has certainly been ups and downs, including the tech bubble shortly after our founding and a few years back the great recession, but overall, things have gone according to plan and exceedingly well. I have the pleasure of leading a highly talented team of people through the years that enabled us to deliver our shareholders a compound rate of return since our IPO of nearly 15% and consistent upper quartile shareholder returns in the net lease category for almost any horizon you could pick 5 years, 3 years, certainly last year 2014 with a 25% total shareholder return versus a peer average of about half that. Last year was notable not only for returns, but also because we set a high watermark for portfolio growth of over $600 million, achieved a total market cap of approximately $5 billion or an investment grade ratings from our bond – on our bonds from S&P to move from a split rated to a fully investment grade rated company issuer, and we turned the corner on revitalizing some of our lower yielding portfolio elements. In regard to this latter item, inarguably the most notable event of the year, we made a huge leap forward towards generating substantial productive income from our idle land inventory in the New York Catskills at the site of the former Concord Hotel, the project now called out Adelaar. With the recommendation of the casino citing board in New York for a full casino license at Adelaar, which will be the closest to New York City, this investment that we have been dragging with no return for the last 5 years even as we outperform peers can now be expected to become a high-performing portfolio element over the next several years. This property for the last 5 years has been the subject of great discussion and debate on this call and otherwise the vision and persistence has been rewarded. EPR Properties today is thoroughly well-positioned with a solid balance sheet, robust tenant and portfolio performance and an ascending growth profile that has doubled in the last 2 years. EPR Properties is a performance leader among net lease peers, a market leader in the categories in which we invest and a thought leader in pioneering and proving that focus specialty real estate investing based on knowledge and research can outperform a diversity premised portfolio. You know my friends, it seems there is never a good time to leave a party, but all good things even the best of things come to an end. With EPR Properties hugely positive position and prospects, I am confident in its future and comfortable in my departure. You should be too. The Board has named Greg – my friend Greg Silvers as my successor. I worked with Greg side-by-side for over 15 years and I am confident he is the right person to lead in-charge of EPR as it moves into the future. The company is in the hands of immensely talented team of people that have made me look good for quite some time. And I know we will continue to deliver the type of returns you have enjoyed and come to expect from us or even more. Now, I will turn it over to my friend Greg and then to my friend Mark. And again thank you all for this privilege.

Thank you, David. Before getting started, I would like to thank David personally for his many years of dedication and leadership. David has been a friend to me and mentor for over 18 years and we here at EPR have all benefited from his leadership and guidance. I know David will continue to be very active and successful in the business community and we wish him well. As always you may find the slides that accompany this call via our website at eprkc.com. I will start with the headlines for the quarter and then provide an update on the portfolio. The first headline 2014 finished with record revenues and strong earnings outpacing guidance. Secondly, we achieved record levels of investments – investment spending. Third, Empire Resorts selected by the New York Gaming Facility Location Board. Fourth, annual dividend increased considerably. And fifth, 2015 earnings guidance increased. As indicated by the first headline this afternoon the year finished strong with record revenues that were up 12% over the prior year as we continue to benefit from healthy tenant industries. The strong revenue growth also translated into robust earnings growth. Our year end reported FFO as adjusted per share of $4.13 was an increase of about 6% over the prior year and exceeded our guidance. We feel very good about this result. When combined with our dividend yield and our multiple-expansion, we delivered a total shareholder return of about 25% for the year. Our second headline, achieved record level of investment spending reflects that our 2014 investment spending of over $600 million demonstrated our accelerating growth having grown investment spending levels by approximately 67% on average over the past 3 years. Additionally, these investments were across each of our three primary segments entertainment, education, recreation where we continue to see attractive opportunities. The third headline Empire Resorts selected by the New York Gaming Facility Location Board is a significant milestone towards activating and unlocking the potential for this property. Additionally, the Board further clarified that it would not consider opening up the Catskills/Hudson Valley region capital region to additional applications. This was an important statement as it mitigates any lingering concerns about fourth license being located in Orange County. Our next headline is annual dividend increased significantly. Subsequent to the end of the quarter we announced an increase in our monthly common dividend per share for 2015 that equates to a $3.63 annual dividend. This represents an increase in our dividend of more than 6% over the prior year as well at the fifth consecutive year with the dividend increase. Additionally based on recent share prices this dividend represents a yield of greater than 5.9%. Our last headline is 2015 earnings guidance increased. With our low leverage and sound balance sheet we are extremely well positioned and have the necessary financial flexibility to pursue high quality investments. Now I would like to spend a few minutes updating our portfolio. In the fourth quarter of 2014, we continued the positive momentum of the year with approximately $141 million of investment spending spread across our three investment segments. Additionally during the fourth quarter and also subsequent to year end, we have disposed of certain assets at prices above our basis creating opportunities to strengthen our portfolio and redeploy capital. In the entertainment segment, theater exhibition could not maintain the success of 2012 and 2013 both record box office years. For the year, box office revenues were down 5.5%, which was consistent with forecast at the beginning of the year. As we discussed at the beginning of last year, 2014 was not a particularly strong film content year and most of the experts predicted a slight pullback after consecutive record years. The good news however is that 2015 looks like an outstanding film year and we are off to an excellent start with two films setting opening weekend records for January and February respectively. With regard to our portfolio, although we do not have final year end numbers for all of our theaters, we expect overall coverage to remain in the 17 range despite the weaker box office. In 2015, we expect the deployment of the high amenity theater will continue as most of our build-to-suit opportunities are of this design. As we have discussed, these amenities have really struck a chord with the consumer and we continue to see positive results and increased revenue generation associated with these offerings. Accordingly, as these results drive operators to seek new growth opportunities from this format, EPR is well-positioned to be a partner in that growth. During the quarter, we funded approximately $17 million related to the purchase of a land parcel under a theater and adjacent retail as well as the build-to-suit construction of three theaters. Subsequent to the end of the quarter, we also completed the sale of a 16-screen theater in Los Angeles, California for net proceeds of $42.7 million and recognized a gain on sale of $23.7 million. This theater was one of the original theaters we acquired at our IPO and was in the final year of its lease term. Given the short remaining lease duration and the announcement of the construction of a competitive theater, we believed it to be an opportune time to realize the gain and redeploy the capital. In our recreation segment, the cold weather in the Midwest and Northeast coupled with lower gas prices have benefited our properties as overall ski coverage has improved to 1.85 versus last year’s coverage of approximately 1.7. Our TopGolf projects continue to create excitement with each new opening and their performance strengthens our master lease portfolio. Furthermore with the recent announcement of a strategic partnership with the golf channel for marketing and promotion, we expect TopGolf’s brand awareness and customer acceptance to only grow. During the fourth quarter, we had approximately $75 million of investment spending in our recreational segment related to the continued construction of the waterpark hotel at the Camelback Mountain Resort, which we anticipate will open in the spring as well as spending related to the build-to-suit construction of 14 TopGolf entertainment facilities. Also during the fourth quarter in conjunction with peak resorts successfully becoming a publicly traded company, we received approximately $76 million plus a $5 million fee related to the prepayment of three mortgage notes and the partial prepayment of a fourth mortgage. The majority of this payment or $43 million related to the prepayment of amounts related to property at Mt. Snow that is being prepared for future residential development. As this property did not directly relate to ski operations nor was it a development opportunity that was a strategic fit for us or we would want to fund, we structured the original mortgage note to be freely pre-payable of these amounts related to those parcels. With regard to the prepayment of the other three mortgages, we believe that the benefits that we would enjoy as a result of Peak’s equity infusion at their IPO, including stronger property level coverage, strengthening of our tenants balance sheet, and the $5 million prepayment fee outweighed the 2015 FFO impact of accommodating Peak’s request for prepayment. During our previous call, we announced that we have signed a letter of intent for the acquisition of a recreation resort for approximately $135 million. However, we remain very disciplined in our investing process and have not been able to reach agreement on a definitive purchase agreement and we do not anticipate that project being part of our investment spending. Nonetheless, we continue to see many opportunities for us to expand our portfolio in the recreation segment, including our continued relationship with TopGolf. With regard to our education portfolio, 2014 continued the theme of increasing opportunity within the public charter school segment, as the 2014/15 school year saw the introduction of over 500 schools from the previous year. These schools have a total enrollment of approximately 3 million students, a year-over-year increase of approximately 14%. In addition in 2014, we expanded both the number of locations and operators in our early childhood education centers and our private school enrollments exceeded our pro forma projections for their initial year. These trends strengthen our belief that investments in educational infrastructure create a consistent and reliable investment platform. During the fourth quarter, we invested approximately $48 million related to the build-to-suit construction of 18 public charter schools, 12 early childhood education centers, and 3 private schools. We continue to see very strong demand for real estate financing solutions within the education space and believe that our build-to-suit program provides us a competitive advantage in sourcing transactions that strengthen both our portfolio quality and investment returns. With regard to the Adelaar casino and resort project located in Sullivan County, New York as we reported previously, on December 7, 2014, our tenant, a wholly-owned subsidiary of Empire Resorts was selected in a unanimous vote by the New York State Gaming Facility Location Board to apply to the New York State Gaming Commission for a gaming facility license on our site. We are extremely pleased with this result being the only application selected for the Catskills region. However, the details of the project beyond what has been previously publicly disclosed remains subject to the license application process. As we have communicated previously, we anticipate upon conclusion of this process we will have a special call to discuss all the particulars of this investment. Our overall occupancy remains strong at 99%. As we discussed in our last call, our current investment spending guidance remains at $500 million to $550 million. Importantly, given our large composition of investments related to build-to-suit projects, approximately 50% of this estimated investment spending is related to projects that have closed in 2014, but will carryover into 2015. Given this large amount of carryover, we are confident about our ability to deliver this level of spending and our strong balance sheet supports our plan. With that, I will turn it over to Mark for a discussion of the financials and I will rejoin you for questions.

Thank you, Greg. I would like to remind everyone on the call that our quarterly investor supplemental can be downloaded from our website. Before I get into our results, I would just like to echo Greg’s comments and thank David for all of his contributions to EPR over many years. He will most certainly be missed. Now, turning to the first slide, FFO for the fourth quarter increased to $63.5 million from $63.3 million in the prior year. FFO per share was $1.10 this quarter compared to a $1.23 in the prior quarter. FFO as adjusted for the quarter increased to $65.1 million versus $49.6 million in the prior year and was a $1.13 per share for the quarter versus $0.97 in the prior year, an increase of 16%. Moving to the next slide, there is one item that occurred during the quarter that I would like to discuss before reviewing the other variances versus the prior year. As Greg mentioned, in conjunction with the successful IPO of Peak Resorts, we received $76.2 million in early December representing full prepayment of three mortgage notes receivable and partial prepayment of an additional mortgage note receivable. We also received a prepayment fee of $5 million, which is included in mortgage and other financing income for the quarter. This fee net of the reduced income subsequent to the payoff increased FFO as adjusted per share by a little over $0.07. We also extended the maturity dates of Peak’s remaining mortgage notes totaling $93.6 million at year end to December 2034. Additionally $301,000 of prepaid mortgage fees were written off, which is included in cost associated with loan refinancing or payoff for the quarter. Now, let me walk through the key line item variances for the quarter versus the prior year. Our total revenue increased 17% compared to the prior year to another record quarterly amount of $104.7 million. Within the revenue category, rental revenue increased by $10 million versus the prior year to $75.9 million and resulted primarily from new investments. Percentage rents for the quarter included in rental revenue were $363,000 versus $372,000 in the prior year. Mortgage and other financing income was $24.1 million for the quarter, an increase of $5.5 million versus prior year. This increase was due primarily to the prepayment fee of $5 million received from Peak that I discussed previously. Also during the quarter, we recognized $800,000 in participating interest from Peak related to prior ski season as we resolved differences related to the calculation. These increases along with the increase associated with additional real estate lending activities was offset by the impact of the sale of four public charter schools earlier in the year for approximately $46 million. On the expense side, our property operating expense increased by $548,000 versus the prior year due primarily to higher bad debt expense. G&A expense increased slightly to $6.3 million for the quarter compared to $6.1 million in the prior year due primarily to higher payroll-related expenses including severance pay of approximately $350,000 net and stock grant amortization. This was offset by lower annual incentive compensation. Our net interest expense for the quarter decreased by $617,000 to $20 million, this decrease resulted from an increase in our interest capitalized on construction projects and a lower weighted average interest rate. This was partially offset by more outstanding borrowings during the quarter. Transaction costs were $1.1 million for both the fourth quarter of ‘14 and 2013 and related to terminated transactions. $879,000 gain on sale recognized this quarter related to the sale of our remaining two winery and vineyard properties during the quarter for net proceeds of $8 million. We still hold two notes related to previously sold winery and vineyard properties that totaled $5 million at December 31. The sale of these assets, the pay down of the Peak mortgage notes, the sale of the four public charter schools earlier in the year and the theater sale that occurred subsequent to year end discussed by Greg all had substantial gains are evidence that we continued to seek and execute asset recycling opportunities where it makes good economic sense. Finally, income tax expense for the quarter primarily relates to the Canadian tax law change that I have discussed on previous calls. $184,000 of this expense is the non-cash deferred income tax that was excluded from FFO as adjusted. The remainder is current tax expense. Subsequent to year end, the Canada revenue agency proposed certain changes to our 2010 and 2011 tax returns due to an audit of those years. We are challenging their assessment, but believe it is concluded for accounting guidelines to book in 2015 an additional current tax reserve of approximate $1.5 million which has been included in our 2015 FFO as adjusted per share guidance. And this is expected to be booked in Q1. We expect to record approximately $6.5 million in additional deferred tax expense in Q1 also related to this audit. But remember deferred tax adjustments are excluded from FFO as adjusted. Now turning to our full year results in the next slide. Our total revenue increased 12% versus the prior year to approximately $385 million and FFO was up 11% to $220 million for the year compared to the prior year. FFO as adjusted per share increased about 6% versus the prior year to $4.13 from $3.90. Both of these increases are strong particularly when you consider the short-term impact of asset recycling I discussed earlier. I want to take a minute to point out that as we continually look – seek to enhance our transparency, we have added actual and service totals for the quarter to Page 20 of the supplemental that provides future investment spending estimates for build to suit projects in process. In the third quarter supplemental we anticipated $111.9 million would go into service during the fourth quarter of 2014. We actually placed $92.3 million in service during the fourth quarter and the variance was due to an unanticipated delay in the completion of our private school in Brooklyn. This school is now anticipated to be put in service during the second quarter of 2015 for approximately $36 million. Offsetting this was the TopGolf facility in Tampa that went into service during the fourth quarter and was originally anticipated to go into service in the first quarter of 2015 for $15.7 million. Turning to next slide I would now like to review some of the company’s key credit ratios. As you can see our coverage ratios for the year are strong with fixed charge coverage at 2.9 times, debt service coverage at 3.3 times and interest coverage at 3.7 times. We increased our monthly common dividend by 8% in 2014. And our FFO as adjusted payout ratio was 83%. Our previously announced common share dividend for 2015 represents another strong annualized increase of over 6%. Our debt to adjusted EBITDA was 4.5 times for the quarter annualized and our debt to gross assets ratio was 39% at December 31. As you can tell by these metrics our balance sheet is in great shape to fund our strong pipeline. Let’s turn to next slide, I will provide a capital markets and liquidity update. At quarter end we had total outstanding debt of $1.6 billion up – but about $132 million of this debt is either fixed-rate debt or debt that has been fixed through interest rate swaps with the blending coupon of approximately 5.4%. We had $62 million outstanding at quarter end on our $535 million line of credit and we had $3.3 million of cash on hand. We are in excellent shape with respect to debt maturities. As of December 31, we have scheduled balloon maturities of less than $100 million in each of the next 2 years. Turning to next slide we are increasing our guidance for 2015 FFO as adjusted per share to $4.32 to $4.42 from $4.30 to $4.40 and maintaining our guidance for investment spending of $500 million to $550 million. Note that, FFO as adjusted for 2015 excludes the $18 million to $19 million charge we expect to take in Q1 related to David’s retirement. We think it is helpful to investors to also share some key assumptions contained in our 2015 guidance. As Greg mentioned in December, Empire Resorts, our expected casino tenant for Adelaar received a favorable determination of the New York State gaming facility location board to allow them to apply for gaming facility license. With this decision, the development of this casino resort project has become increasingly more probable. Because of that, we are required by accounting rules to begin capitalizing interest and certain costs on portions of this project. We anticipate capitalized interest related to this project to be approximately $7.5 million for 2015. As you may recall, we are currently receiving monthly non-refundable lease option payments for Empire Resorts, which by the end of this month are expected to total $4.5 million. These payments are expected to continue at $375,000 per month until 120 days after Empire Resorts is approved for a gaming facility license. We are deferring these payments and expect to recognize in the income in the future as part of lease accounting. While we anticipate a lease agreement being signed by Empire in 2015, we do not at this time anticipate recording any lease related income until years subsequent to 2015. As Greg mentioned, we planned to have a separate call to announce the details of this project at the conclusion of the license application process. This guidance also reflects the asset recycling I discussed previously and we removed the estimated earnings impact of the recreation resort investment that did not close as Greg discussed. We have also updated the timing of other projects. Please remember, because the vast majority of our expected investment spending relates to build-to-suit projects that generally have 9-month to 12-month build cycles or longer, it is important to understand that most of the earnings impact related to our investment spending is in the year following the actual spending report. Therefore, new build-to-suit projects that we may add to investment spending over the course of the year are not expected to meaningfully impact FFO per share results in 2015. Additionally, as I discussed last quarter, we expect G&A expense to be approximately $32 million for 2015. Finally, while we do not typically give quarterly guidance, I did want to give guidance for FFO as adjusted per share for the first quarter of 2015 as the timing of our earnings is often misunderstood. First, as I have indicated in previous years, G&A is generally higher in Q1 by approximately $500,000 in the full year divided by 4. Second, combined percentage rents and participating interests are generally much lower in the first half of the year versus the latter half. For Q1, we expect about $250,000 in such income, which is about the same as we receive in Q1 of ‘14. Third in Q1, we expect to record the additional 1.5 of current tax expense related to the prior year Canadian income tax what I discussed earlier. Thus putting all this together, our guidance for Q1 FFO as adjusted per share is $0.98 to $1.02, which at the midpoint represents an expected increase of over 6% versus the prior year. Now, with that, I will turn it back over to Greg for his closing remarks.

Thank you, Mark. Before we go to questions, I’d simply like to say that we are very pleased with how the fourth quarter and the year turned out and we expect to continue to reliably deliver attractive returns with strong investment fundamentals and appreciate the trust that you placed in us. With that, I will turn it over to the operator for questions.

[Operator Instructions] And your first question comes from the line of Craig Mailman with KeyBanc Capital. Please proceed.

Hi, guys. I just want to first tell David good luck and congratulate Greg on the promotion. And maybe just staying on that topic just it seems a little sudden just could you give us some background on kind of David maybe your thoughts on timing here. Was this always planned and whether the Board did sort of an external search before naming Greg CEO?

Craig, thank you, I guess. And I will just tell you, it’s kind of time with both my family life and my enthusiasm with the business as it’s moved into 18 years and I have done 70 of these calls and sometimes it’s good to do something new and been able to make the shareholders our first priority a bunch of money. We have made some money here. And I think this is it, with regard to the search, I think the Board has – we have a very good feeling about the performance of the company and the continuity is the high priority and they are in, I think the Board reached a decision all that I can’t tell you exactly how that went down, because I was not a part of all that.

Okay. And then maybe just moving over to guidance, Mark there is a bunch of moving parts here and the range went up by $0.02, but is it kind of accurate to say that had it not been for the cap interest on Adelaar that may not have been the case given the taxes, the resort acquisition kind falling out a bit?

Maybe it helps if I kind of reconcile for you a little bit that $0.02. So, you are right, the recreation resort falloff that was $0.04 decrease. And then we did have the two sales both the Peak pay-down, which was sale of resorts and the theater subsequent to the end of the year. Both of those as we stated were at substantial gains, but from our run rate perspective, that’s about a $0.07 hit, even though we think it was the right thing to do for the business. And then you are right, the tax is about $0.03, so that all adds up to those three things about $0.14 when you conclude the sales and we are going to see the tax and then we have a the Adelaar $0.13 roughly, which is the $7.5 million and then other timing and so forth. All that combined to the $0.02 increase. Biggest piece is again the sales wilderness falling out and tax on the negative side and then Adelaar activation and the fact that, that’s becoming probable in terms of capitalizing the interest.

Okay. And then it is helpful to give the guidance, can you just give us a sense of maybe what the mortgage and financing income would be on sort of a run-rate basis when you strip out the $5 million and it sounds like there is another $800,000 in there related to that, does that come out as well plus the Peak Resort just the repayment of that?

Right. So, you take out $76 million of mortgages roughly at 10.33% rate, not roughly that is the rate. I think it happened December 17 if you kind of strip that out in the quarter and you are right, you pull off the 800,000 percentage rents, which isn’t repetitive. And obviously the prepayment fee was a one-time item. I think if you do those things, you can kind of nail down Peak and the rest is sort of status quo with respect to Schlitterbahn etcetera.

Alright. And then just lastly can you maybe give a little bit of color of what happened at Wilderness on the decision to walk away?

Sure. I think as any of these times when you start to explore and you get to issues with regard to valuation and you go through your due diligence, there is yet to find a meeting of the minds and we weren’t able to do that. So, it’s not I would not say that, that project will never show back up again, but we just couldn’t reach agreement on the way we looked at it and the way they were looking at it.

Alright, great. Thank you guys.

Thank you.

And your next question comes from the line of Nick Joseph with Citigroup. Please proceed.

Hey, it’s Michael Bilerman in. David, I guess congratulations on your retirement and Greg to your ascension to CEO. So, I want to know David is did you negotiate with Kramer that Greg gets your quarterly spot on that money?

I don’t know, but they need a handsome face, so they may look different.

And that’s probably true, Michael. As you know I have a face for radio so we made David as a stand-in on that.

Right. So, I guess when I guess David you said it was time for maybe try something new, it sounds like at least from the 8-K you have a 3-year non-compete, so I don’t know if that’s something new completely different out of industry? And when did you approach the Board that you wanted to retire and for them to seek a new CEO or was it the other way round?

Michael, it’s just – it’s one of those things times that has been growing over time. And you just – we keep you on the same thing and it’s great, but my kids are more out of the house and there are some projects locally that we involved with, some are small real estate development, some are operating companies and it’s different things of that nature. So I don’t think there is an issue with regard to the non-compete and it’s just then you look for an opportunity and you look for a time and its never if the company is as I stressed, it’s in such great shape and we have a lot of momentum and wind of our back. And so it’s a nice time to view stocks running at an all-time high and it’s a good time to leave the party.

So how did the Board or what was in and I don’t know if the agreement has been signed or not because the 8-Ks has case it subject to an agreement, but just help us understand the full payment of severance in terms of effectively what would be under a change of control or termination not for cause, how did the – why is that if you are retiring nothing worth it, but I am just trying to better understand why there is a $19 million payment, $12 million cash and then $7 million in terms of accelerated investing in stock for a CEO that’s retiring?

I think Michael, it’s Greg, I think part of the deal is simply a reward for David being here from the beginning, leading this company through 18 years, achieving results that he spoke of earlier that were beneficial to everyone and the tenure of kind of being there at the beginning at the birth and carrying us through as David aptly pointed out different moments that it was the right thing to do by the Board they made that decision and I think everyone is supportive of that.

Okay, that’s helpful. And then just on the Mark you were going through the guidance changes that the $0.04 on that one deal that was a $135 million deal, so what were you assuming like because you’ve already...?

Really, what we take out on the last earnings minus we save effectively the cost of capital but not having to raise as much equity and debt going forward, so that $0.04 is kind of after cost of capital savings if you will.

You are receiving basically 200 basis point spread on that capital?

Yes. That’s sort of spread to the capital, correct.

Okay, alright. Thank you.

Thank you, Michael.

And your next question comes from the line of Dan Altscher with FBR. Please proceed.

Hey. Thanks good afternoon everyone and again congratulations to both David and Greg. Maybe switching a second to Adelaar, I think we saw that maybe Coamo [indiscernible] you want to reopen the opportunity for one of the other regions to get a license, can you maybe just comment a little bit on that, is that maybe a delay overall for the gaming commission as they go through the actual license approvals?

I think the issue what you heard was yes in the perpetual or another region that however we don’t see that is impacting the Catskills region as we are actually now under the jurisdiction of the licensor board, not deciding board. So we have cleared that hurdle so what they are going to consider a gaming applicant for a site in another region it would be back into the location board. So we feel very comfortable that we are on the right glide path for obtaining the license.

Okay. And can you maybe just share a little bit of timing I guess from where the approval process is, has the license been submitted, what has to be done, what has not been done and maybe your expectations of when that approval might come about?

Sure. I would point you I mean the licensing board is actually a public board and they put forth some timeframes regarding that. I think we have all submitted all of the application material that we have been requested of. So again they put out up to some very long things, long-terms, but we don’t know when it seems to think that it will take that long. But I don’t want to give someone the impression that it’s we think this is an issue that will get resolved this year and it really – the question becomes when can you start construction. And I will tell you right now we are clearing vegetation and trees and be getting to look at infrastructure.

Okay, that’s helpful. I am going to watching the webcast on the facility location board and that was an exciting for us and then lot of folks watching…

It was as well for us, yes.

Yes, totally. Just a follow-up on Peak, Greg you went through some of the benefits as to why you I guess let Peak out if you will, can you just review those again because I mean I guess one just stronger equity at the sponsor, maybe that’s one of them, but can you just run through again what the rationale was and why they did business…?

Sure. Well I would say – what I said was stronger balance sheet, stronger property coverage and the $5 million prepayment fee. I think as that indicates with stronger coverage we had control of which projects we were releasing and which we were not. We think that that we had a good portfolio. We think we have a better portfolio now. Candidly they needed to be Dan a certain size in order to have a public float and so there is a trade-off there. If we want them to be successful in their IPO, then we needed to balance that and allow them to have a use of proceeds that made sense to grow to a certain size. With that being said, as we talked about when you think about $73 million of which $43 million of it was related to a development area. The other three prepayments that we let happen were very small properties. There was one in the Northeast, one in St. Louis, and one in Kansas City. So we felt good about choosing those properties. And as I said earlier I think it strengthens our overall portfolio and strengthens our tenant.

Alright. Thanks guys. I will let others take their turn. Bye-bye.

Thank you, Dan.

And your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hi, good afternoon guys and David I want to add my best wishes and Greg my congratulations, I am missing if you are really bored you can always come join us here on the sales side. Let me ask you guys real quick if I could on theaters. It looks like we are going to have a good year I mean the Academy Awards were pretty strong and it looks like the box office is going to be good. Would you see more percentage of rent coming from the theaters this year, will we hit more of the breakpoints than you typically hit?

I would tell you we think so. Yes, I am sorry Rich first of all, he said he want to go do something fine. So he is not going over to the dark side, but. I think we are hopeful that we will. I think there is an opportunity with some of these theaters, there is an opportunity with what we have seen with some of the higher amenity theaters where we are getting greater revenue per patron spends that we are excited about reaching some of those points that we think could begin to show benefits.

Okay. So maybe a bump in percentage rents for the year from the theaters?

I don’t think we are budgeting that, but we are hopeful of that occurrence.

Okay. And then it sounded like the high amenity theaters doing pretty well. And I know some of those take up extra space when you see a downsizing from a 24 screen say to a 14 screen. Do you have any theaters or any theaters leases coming due this year or maybe this year next year where you are worried about some of that downsizing in size from bigger screen to…?

Not really, I will tell you we used to talk about that as a concern almost every one of our theaters being very well located, everyone is taking the advantage because of the fact when you move to a high amenity theater that you have got an opportunity – because you take out the number – you lower the seat count. So actually having a bigger theater where you can preserve a greater number of seats works. So over the last 2 years or 3 years we just haven’t seen those theaters them come back to even want to downsize, they just want to rework it into an amenity theater. As far as expirations we have two lease expirations this year, but both are kind of top 100 theaters, so we don’t really see a lot, any opportunity in there.

Good. Thanks Greg. And then the land in the – the land parcel I guess the parcel that you bought at one theater is that to add something else besides theater?

Actually it was a parcel that was related to a theater and the parcel became about that was a ground lease of a theater. And then it happened to have believe it or not a target on it. So when I say it’s a retail parcel it’s actually a target ground lease, but it was not subdivided. So when we wanted to buy the parcel underneath the theater we had to take the whole.

Okay, good, got it. Thanks. And then a couple of quickies if I could the Series C I assume is anti-dilutive is that the situation kind of like it was last year or is it dilutive…?

It is the FFO as adjusted as the income grows and our dividend grows it becomes more dilutive, it’s actually the way we project our earnings for next year from an FFO perspective. It’s kind of dilutive over the latter half of the year. And it was dilutive in the fourth quarter just because we had such high income because of the prepayment penalty.

Okay, good, got it Mark. And then last thing to jump in accounts payables is there anything interesting in there?

We have a lot of construction activity, so there was a significant amount of draws in accounts payable at the end of the year. That’s probably what stands out.

Okay, great. Thanks very much guys.

Thanks Rich.

And your next question comes from the line of Dan Donlan with Ladenburg. Please proceed.

Thank you and good afternoon and congratulations to everyone. Just had a quick question on the 2015 investment spending guidance $500 million to $550 million, is there any acquisition spending or any acquisitions in that because I think in the prospectus you had I think $39 million of LOIs for two ski resorts?

Yes, we did had – we do have some and as we have, if someone follows the news we didn’t discuss, but we have closed one ski opportunity which is the Wintergreen outside Charlottesville, Virginia. So there is some level of that in there, yes Dan.

Okay. But and so that’s – is that just one or the other – that’s just one of the acquisitions and there is still…?

Yes. That’s one and there are others.

Okay. And then as far is that the disclosure on – the additional disclosure that you guys provided what is the delta between the – and I am sorry if you went through this what’s the delta between the 92 that was in service in 2014 versus I think it was like $100 million from the – yes, what’s the delta between…?

It was $112 million versus $92 million. So that delta is due to a school, private school in Brooklyn that we are building has been, the in-service has been delayed a couple of quarters, so we thought it would go into the fourth quarter of ’14, it’s going to go more likely as second quarter of ‘15 that was $36 million. That was offset by a TopGolf facility that we thought would go in service in the first quarter of ‘15 that we actually put in service in the fourth quarter of ’14. So the net of that is what created that variance, so really two things that offset but the school is a little bit larger than the TopGolf facility.

Okay, I got part of that in the prepared remarks. So then just for modeling purposes then how should we think about these build-to-suits I mean when should we model them hitting, is it a fair assumption kind of the first day of the last months of every quarter or is it just so random, it’s we want to be conservative and push it maybe towards the back half of every quarter or the last month?

You are talking about within a quarter I mean we can’t answer that precisely, I would probably just use the mid-quarter approach.

Okay, alright. Thank you.

Thanks Dan.

And your next question comes from the line of Nick Joseph with Citigroup. Please proceed.

Hi, it’s Michael Bilerman. One other question just in terms of David coming off of the Board what was sort of the rationale there versus enlarging the Board date members arguably if Greg as CEO should have a seat on the Board why…?

Mike I think it’s a pretty well known common practice, but it’s not really good to have particularly immediately following a change the immediately exiting CEO on the Board is kind of like looking over your shoulder and so forth that’s a very common practice in Board composition today.

And then I guess Peter Brown coming back on the Board as a cofounder of the company that’s okay.

Peter Brown has been on the Board for 4.5, 5 years.

Yes, but it was 2 years even after he left – several years after he left AMC and number of years after an involvement here, so there was – there is hugely a point of separation there and it maybe I will be involved down the road, but at this time I don’t think that works really well.

Okay, thank you.

[Operator Instructions] Ladies and gentlemen, that concludes our question-and-answer session. With that I would like to hand the call back to Mr. David Brian for closing remarks.

Well, thank you and again thank you to everybody for joining us. It’s been an immense pleasure, it always is and the guys here are at your disposal and if anybody I am around also to talk to, so thanks very much again. We will see you down the road.

Thank you, guys.

Thank you.

Bye-bye.