Good day ladies and gentlemen and welcome to the EPR Properties fourth quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Brian Moriarty, VP of Corporate Communications. Please go ahead, sir.

Thank you operator and thanks to everyone for joining us today for our fourth quarter and year end 2016 earnings call. As always, I will 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 results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of these factors that could cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Now, I will turn the call over to the company President and CEO, Gregory Silvers.

Thank you Brian. Hello everyone and welcome to our fourth quarter and year end call. I would 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 are the company's CFO, Mark Peterson.

Good afternoon.

And CIO Jerry Earnest.

Good afternoon.

I will start with our year-end headlines and then pass the call to Jerry to discuss the business in greater detail. Now I will get started on today's headlines. Today's first headline, record year supports our differentiated investing model. As we noted in our press release, 2016 was the strongest year in the company's history in terms of revenue, earnings and investment spending. For the year, we delivered a 17% year over year increase in topline revenue along with an 8% year-over-year increase in our adjusted FFO per share. Additionally, our investment spending totaled over $800 million. As we consider the totality of the year, we are more confident than ever in our strategy, which focuses on select noncommodity real estate segments. Next, CNL Lifestyle transaction on track for closing. We continue to work with all parties to bring the transaction to a closing. CNL has sent out its proxy statement to shareholders and a special shareholder meeting has been set for March 24, 2017. It's anticipated that upon approval of the CNL shareholders, the transaction would close in the second quarter of 2017. Our third headline is significant capital recycling progress. During the year, we were able to make solid advancements in the quality of our portfolio through our ongoing strategic asset disposition and capital recycling program. As we stated previously, we are committed to this program as an integrated component of our asset management and portfolio optimization process. Jerry will have an update on our fourth quarter news here. Our fourth headline is monthly dividend increase. Subsequent to the end of the quarter, we were pleased to announce a 6.25% increase in our monthly common dividend for 2017. This equates to $4.08 annual dividend and represents our seventh consecutive year with a significant dividend increase. Our last headline is investing in life's enduring experiences. Whether it's entertainment, education or recreation, we are realizing the potential of experiential real estate. Supported by the transformation of the movie-going experience, in 2016 the U.S. box office exceeded expectations and had yet another record-setting year with revenues of approximately $11.4 billion. Our education segment continues to experience significant demand driven growth across each of our property types. This growth recognizes the enormous power of educational choice and the increasing focus parents have on both educational curriculum and environments. In our recreation segment, we have seen the centuries old game of golf evolve into a completely new experience with Topgolf. We also see how properties come alive and families come together when you simply add snow or water. These are experiences that make our lives memorable and why we believe we are well positioned in the experience economy. With that, I will turn it over to Jerry and then rejoin you for questions.

Thank you Greg. In the fourth quarter of 2016, we sustained strong investment spending of $278.1 million that exceeded our expectations. Total investment spending for the year reached $805 million, an all-time record for EPR Properties. The strong spending pace for both the fourth quarter and the full year 2016 reflects the continued momentum within each of our primary investment segments. Furthermore, we are excited for the anticipated completion of the $700 million investment in CNL's recreation assets. This is a transaction we have been working on for a long time that complements our portfolio nicely and accounts for more than half of our expected investment spending for 2017. In the entertainment segment, the theater box office set of new record for 2016 with ticket revenues of approximately $11.4 billion, a 2% increase over last year. The movies of 2016 were well received and continue to validate the strength and reliability of the industry. The year-over-year box office increase exceeded our relatively flat expectations at the beginning of 2016. 2017 will have a number of blockbuster sequels, including Star Wars, The Fast and the Furious and the continuation of the Marvel superhero franchises. Even with 2016's.outperformance, we remain optimistic for the 2017 film slate. However, as is typical for this time of the year, most pundits are forecasting box office equal to 2016's record year. For the quarter, investment spending in our entertainment segment totaled $67.8 million, consisting primarily of the acquisition of one theater and spending on three build-to-suit theaters, the redevelopment of 12 existing theaters and the investment in three build-to-suit family entertainment centers. We continue to see quality opportunities within the entertainment segment with the acceleration of exhibitor's migration to expanded amenity theaters. These opportunities involve the purchase and conversion of existing theaters as well as the…

Thank you Jerry. I would 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 fourth quarter increased to $52.2 million or $0.82 per share from $46.8 million or $0.78 per share in the prior year. FFO increased to $80.4 million or $1.25 per share from $71.3 million or $1.18 per share in the prior year. FFO as adjusted for the quarter increased to $80.7 million or $70.7 million in the prior year. It was $1.26 per share for the quarter versus $1.17 per share in the prior year, an increase of 8%. Before I walk through the key variances, I want to discuss certain of the adjustments to FFO to come to FFO as adjusted. First, we had two gains during the quarter that are backed out of FFO to come to FFO as adjusted. One is an insurance recovery gain we recorded related to the fire at one of our Metro ski areas, which I discussed on previous calls. This gain is included in other income in total $850,000 for the fourth quarter. The other gain excluded from FFO as adjusted for the quarter relates to the sale of two retail pad sites adjacent to one of our Texas theaters that Jerry discussed. The pads were sold for net proceeds of $3.2 million and a gain on sale of $1.4 million was recorded. Second, we recognized $3 million in transaction costs for the quarter that are excluded from FFO as adjusted. These costs related primarily to the CNL asset acquisition which will be classified as a business combination for GAAP and thus the transaction costs are expensed as incurred. Now let me walk through the key line item variances for…

Thank you Mark. As you can tell from our discussion today, we feel very good about 2007 and beyond. People are now recognizing the power of assets that are positioned to take advantage of the new experience economy. EPR has the balance sheet strength, the knowledge, the relationships and the people to seize this opportunity and we are working hard every day to make that a reality. With that, I will open it up for questions.

[Operator Instructions]. Our first question is from the line of Rob Stevenson of Janney. Your line is open.

Good afternoon guys. Greg, do you have any visibility into the operations of the Northstar California ski resort and the other assets that you are acquiring from CNL to how they did in the fourth quarter and sort of year-to-date?

I would tell you, from what we know that they are having at least as good a year as they had last year and maybe better. Believe it or not, Rob, they are experiencing the idea that you can get too much snow. Through last week, they had 553 inches, not that we monitor that but through last week they have got quite a bit of snow in the week leading up to Presidents' Day weekend, right before the road from Reno to Lake Tahoe was closed, just to too much snow. But our understanding is they are having at least as good year as last year.

Okay. And anything with the assets that Och-Ziff is acquiring because the whole deal is an all or none, right. Is that how are they looking in terms of their of the close?

It is. Performance by those assets are reflective of what we saw in ours, generally up to historical norms which would have reflected up kind of 25% over last year. So from where we were positioned last year, I think everybody feels very positive about the assets at this point.

Okay. And then you talked about earlier in the call about completing two Topgolfs, two new started, five under construction at the moment. How many more beyond the five that are under construction right now do you have to go in that agreement?

Yes. We said all along, it's a dollar value. But we thought it would be somewhere in the in the low to mid 30s. So you can see that with that five, that 25 takes us to 30. So we could have somewhere between two to four beyond what we have right now.

Okay. And you talk about the of the issue that you had with an early childhood operator. Anything to that that's sort of pervasive with those type of operators these days, in terms of -- or is this just a one off sort of isolated incident?

We believe it is. I mean, what we think is, again, that the ramp-up and stabilization that they experienced in certain markets hasn't been replicated in all market. So when you plan for it to act one way and it's taking a little longer, we think that we need to step back and maybe moderate their growth and get our hands on that. So we think we have, at least considered all that in our guidance but we don't think we are still very strong in the category and we don't think it's systemic.

Okay. Thanks guys.

Thank you.

Thank you. Our next question is from Craig Mailman of KeyBanc. Your line is open.

Hi guys. Just a follow-up in the early education. How much say do you guys have in their kind of ramp plans? And are you guys doing anything on the credit enhancement side with the leases you already have to kind of feel more comfortable about your positioning?

What we can do is, Craig it's Greg, is control what we have and voice our opinion into that and say, you know our capital commitment, we can control that and I think that's something that I think they are very interested in listening to. As far as credit enhancement and there is not significant credit enhancement to get it involved in this, but we think, as I said, these are kind of across default portfolio. So we feel good about the category and about that the tenant. We just think that we have got, again, a belief in some tenant that they could grow faster than they could organizationally handle and we think we are having discussions with them to get our handle around that.

Okay. And this is Children's Learning Adventure?

You know, Craig, we don't comment on any specific tenant. But again as we are talking with them, we don't think that's beneficial for them or any of our tenants to speak to specifics of an identified tenant.

Okay. And then I guess bigger pictures, we think about some of the bumps you have had in the education segment versus the steadiness in some of the other aspects of the portfolio. Just kind of zeroing on the entertainment specifically, I guess it is about 60% of EBITDA in 2015, you are down about 50% in 2016. Just as you guys look to kind of manage the portfolio, what are your thoughts on the exposures that to you want to the different segments?

You know, we don't kind of manage it that way, Craig, honestly. Again, when you look at, like this year you will see the recreation exposure tick up because the CNL transaction, if that successfully closes. Again, if we find a large theater transaction, we will see that tick up. So again, what we are trying to do is execute on good quality transactions that deliver consistent reliable cash flows that equate to ever-increasing dividend. So those are the two things that we manage to and try to keep focus on.

Okay. And then the sales that were delayed into the first quarter. Relative to your internal budgeting, about how much did that bump 4Q results relative to your expectations?

Mark may want to jump in. It's relatively not that much of a delay. We have had some issues with, as you can imagine, getting some REA approvals and some things like that to get these transactions executed. But we still feel really good about where they are going to land. But I don't think Mark, you may want to say, is it meaningful?

I mean it's $0.01 or $0.02. If you consider all the sales, probably something along that, maybe to but not that big of a deal.

Okay. And then just one last one. Just curious on the investment pipeline. It looks like you guys need about $300 million to backfill to get to your investment spending guidance. Just curious as you guys look at the pipeline where you are today, do you feel like you guys have enough in the pipe to get there on sort of 2017 spend basis? I am just curious to see if you had any issues with kind of bid-ask spreads widening at all with sellers with the volatility in rates?

Right now, the best thing I can tell you is, for our spending right now we have names and projects against all of our schedule spending. So there is not a lot of speculative. That doesn't mean that times and things can't move on that. But my guess is, we feel very strongly about where we are at on the number for 2017 and hopefully that number can grow as we move through the year.

Great. Thanks guys.

Thank you.

Thank you. Our next question is from David Corak of FBR Capital Markets. Your line is open.

Hi. Good afternoon guys.

Hi David.

Looking at the collar you guys have on the CNL deal, you have kind of been, share price wise, towards the high end of that, obviously making it a little bit more creative. Do you guys still feel good about the accretion numbers you gave originally? Or is there any change there in assumptions? I would assume that would be reflected in the guidance, but just wanted to get some color on that.

I think it's within the range, if you go back and look at that presentation, kind of how we established in that. So I think those would still hold true. I think the only thing and it's has been de minimis, is we have a little bit of DSPP issuance, but it wasn't big enough that it would meaningfully change anything.

Okay. Thanks. And then for the $50 million of Imagine Schools that are now expected, I guess, in 2Q, is the plan to provide financing on those to the third party? Or are you guys going to be kind of rid of those completely as a period of disposition?

Rid of those completely, David. No finance.

Okay. Great. And then you know, we have heard, you have kind of answered this on the previous question, but heard a lot about cap rate from some of your peers over the past couple of weeks, but just wondering if you could give some color on any movements since we were all together in November through your segments?

I mean I don't think we have seen significant movement yet. I mean there is no doubt that there is the tension about -- we are experiencing a newfound awareness of some of our asset types, meaning that all of a sudden, there is a lot of people looking at theaters. So there has been some involvement in that. But we haven't seen it move yet. Now, like I said, if we get into March and we see an interest rate rise, maybe we will see some corresponding movement. But remember, we are still on the build-to-suit. And even when we talk about acquisition, we probably haven't made an acquisition all year last year where it was an acquisition with a planned redevelopment into a high amenity theater. So we are actually working directly with the operators coordinating these things. So our impact has not been -- we haven't really felt that kind of auction impact that others may be seeing.

Okay. Great. Thanks for the color guys.

Thank you, David.

Thank you. Our next question is from Nick Joseph of Citigroup. Your line is open.

Thanks. Just wondering if your appetite for ski resorts has increased at all just given the performance of this year? And if you took a look at either Stowe Mountain or Intrawest Resorts?

What we said last year, Nick, is we wanted to keep our exposure kind of around that 10%. This takes us to that number. So I mean we feel really comfortable. We were presented those, I shouldn't say all of those opportunities, we were presented some of those opportunities and from just a portfolio management, we made a decision that has no reflection on whether or not those are good assets. But it was just from kind of managing that kind of weather-related exposure, we established a self-imposed discipline and we have kind of maintained that.

Thanks. And then just in terms of the theaters. You mentioned you think 2017 is going to be flat to 2016 in terms of box office, but maybe a little more optimistic than those estimates. How much flow through or what's the flow through for that for percentage rents, if box offices are up 5% relative to this past year?

You know, here is the interesting thing, Nick, just kind of looking at it, I would love to tell you there with that kind of direct relationship but the real relationship that's driving our percentage rent now is the amenitization of theaters. If you remember, in Jerry's comments he spoke to of the theaters that have been renovated for which have been open a year we are seeing a 40% increase in total revenues. That has far more impactful than it is to look at what a 2% or 3% box office increase. If we look at generally speaking, 2% to 3% box office, most of our leases have 2% increases in. So that that becomes a relative push. But where we are really seeing meaningful improvement and we saw it show up in our fourth quarter was really when we make these renovations and we see these what are exponentially large moves in revenue generation.

Thanks. Is there a multiplier effect then in terms of higher box office revenue, enough people will spend more at the movies if more people are going?

Absolutely. What we have really seen is, they are corresponding. When you go to a high amenity design, you see not only greater box office revenue but generally almost every one of these high amenity designs increases expanded food and beverage, at a minimum alcohol, which drives up the per cap spending affecting kind of the overall and generally are percentage rent or four wall deals, meaning that anything that's spent in the building, we participate in. So we really have been a big advocate. And as you have seen, our commitment and what Jerry talked about, we are 25% through and over the next 36 months we think half of our portfolio will be converted. So it is not only driving opportunity for us to deploy capital and extend term, but also really to potentially increased revenue streams for us through percentage rents.

Thanks.

Thank you.

Thank you. Our next question is from Dan Donlan of Ladenburg Thalmann. Your line is now open.

Thank you and good afternoon.

Hi Dan.

Hi. Greg, just sticking with the percentage rent conversation, is that pay off the topline, bottomline? How does that kind of come through?

It's gross. So generally it's just gross revenues.

Okay. And so going back to the question on the early education, we are just kind of curious if you can elaborate a little bit more as to what happened? Is it simply that you build these operations and is the rent coverage just not what you thought you would get to? Is the occupancy or the students or the children that are going to these just not at the levels that it was and therefore you are just not getting the same level of rents? I am just kind of curious as to what's -- a little bit more there.

Sure. And let me tell you, again we were in discussions, but let me tell you what we believe to be the case, is that that all of these education and the early ed is not dissimilar from some of the other eds that we are into. There is a ramp-up period where you reach full enrollment and often we will have some free rent period to establish it, an opportunity for them to get up to a level of stabilization. And what we have seen is that the period to achieve that ramp-up has not always been the same as we have underwritten. We had examples where we have actually achieved that and it looked very, very like that was a model that worked and now we are showing in certain geographies that's not the same. So we think that there is a need to create more runway to establish that. As I said, we still believe in the concept. We still believe in the power of early ed. It's just as you are changing the model and consumer preference, it may take a little longer and this could be reflective of when they open relative to when people are making decisions on that. So there is a lot of factors that go into it but we think it still is an ideal for creating opportunity for them to get to stabilization.

Right. Okay. So there is still no one stopped paying rent. It's just that they are just not giving you as much rent as you had anticipated? I am just trying to figure out how that works.

Yes. Like I said, I don't want to comment on any particular client. I can tell you that all of our clients were fully paid over this reporting period that we are talking about. So this is really about trying to figure out what we think is the right option for those. We have made our best estimates on what we think those are and we have included that in our guidance and we consider that as we as we maintain that guidance. So again, overall, we feel that this is, at this point, a unique tenant issue that we need to address, not a segment issue. We wanted to dimensionalize it for you guys so that we could say there is no tenant here that's very big, either last year or in our plan this year. So you know, for us, this is about, there was some announcements out there, Dan, you had referenced some things. So we felt we needed to address and be proactive in addressing it and let people understand that this is an area that we are dealing with. We think we have got a handle on it. We think it's not a huge issue in any way to affect us but we wanted to be proactive and as transparent as we could.

Well, I definitely appreciate that. Some of your peers maybe wouldn't have been so forthright admitting they are having issues with certain folks. So very much appreciate on our end. Moving on to your development pipeline for 2017 and what you plan to deliver. The first quarter is up by about $80 million. The second quarter is down by about $38 million. But then the third quarter is up almost $150 million. So I was just kind of curious, is that the typical seasonality to these announcements whereas in the fourth quarter, you are still kind of figuring out what you are going to do and that's why we saw the ramp-up in third-quarter 2017 happen so quickly? Is it just specific to maybe a handful of different projects? I was just curious. If you can give a little more detail on this third quarter being up as strongly as it is, relative to last quarter's expectation?

Yes. There is a couple of things that drive third quarter that drives. As we identified projects, both in terms of schools and education and honestly in theaters. Theaters want to open into the holiday season, which is the third quarter and schools, that's generally the opening time of schools. So that period always becomes a bigger period for us. And as we identify projects and kind of schedule them out, we generally have more activity historically in that third quarter. This, I think what we have done is, as I said earlier, we have names by everything. So we been able to, as we move forward, to now put names on projects. So now it's just a matter of getting them through the pipeline, getting them approved, getting them documented and getting them started as opposed to having a significant speculative component where you sprinkle it in trying to guess when it will be. We now have more definitiveness to it.

Okay. And then is there anything within recreation, that's $85 million in the first quarter? Is that just a couple of different projects? Is there a large project that you are expecting? Just curious for some granularity.

There is a couple of different projects on that, Dan, but the main one, you remember we are going to start our waterpark hotel, the major start of that. If we anticipate that opening in kind of spring of 2019, that's about 18 to 22 month period. So you will be starting to really gun up in the third quarter and fourth quarter for that.

Okay. I appreciate it. Thank you.

Thank you. [Operator Instructions]. Our next question is from the line of Anthony Paolone of JPM. Your line is open.

Yes. Hi. Thanks. Greg, first question is, I think on your mortgage notes, the $100 million that you extended in the fourth quarter, is that the one that's at 7.25% for 25 years? Am I looking at that right?

Yes. That's correct. That's new early ed deal.

Okay. How do you think about extending that amount of capital at that kind of return? I understand it's mortgage. So there maybe some equity behind that on the properties. But it's also lower than returns you typically get on your straight up fee investments?

Yes. For us, Tony, it was a kind of a balance. Again, we are looking at kind of what is the position we are relative to their position and what kind of security. But we also, I would tell you, have much better acceleration on those. So some of its about looking at the IRR to the entire deal as opposed to the initial cap rates and those have a far better kind of acceleration as far as leases than we see in some of our other deals. So there will be a significant growth factor in that deal.

Plus, our up and running schools have a strong history of performance. So we get a little bit little bit lower cap rate on those than we would build-to-suit.

Okay. So that note that you extended, it sounds like you did more post the quarter, that's similar to what you all have done for liability reasons on the ski assets where it's really a lease that's mortgaged?

Yes. It really is a lease, but it was done for different. They had some built-in capital gain issues that that they wanted to -- it made it feel more attractive to be a debt. So yes, these actually have escalated -- it's not what you would think of as your typical mortgage with one rate. These have escalations that make this -- getting it back to what we would think of closer into the mid-eights for a overall yield.

Okay. Understand. Then with regards to Imagine, I know a lot of the charter school operators will tend to access the bond market. Do they have access to that at this point? Or are they kind of out --

Look, it would be something very new. Remember, the bond market is typically for not-for-profits and Imagine just achieved not-for-profit status like last year. Yes, so they have not had the not-for-profit track record. But remember, when we sold these schools back to them, these were primarily non-occupied schools. So again, this is a little bit about them wanting to control their destiny of where they wanted. We wanted to set this up and not deal with the issue, but get cash on it, get them selling those properties, get them on a note that's amortizing on that so that we can continue to exit that exposure.

Tony, this is Jerry. We have had a couple of Imagine schools of our portfolio in prior years that have gone into bond deals. Again, it was the school getting the bond, not Imagine because the schools were not-for-profit. Imagine was the manager.

I see. Okay. So the note that you took back here, is it cash pay?

It is cash pay and amortizing.

And then, I may have miss these, did you give any updated EBITDAR coverage for either the ski, theaters or education?

No. I would tell you, what we did on the ski, Tony, it's a fair question, but the season isn't over. If we gave you a coverage number, it would be more inflated then it may be at the end of the -- because we still have part of the season to go. So what we referenced was, Jerry help me on this, was revenues up 24%, attendance up 28%. That's the kind of through Presidents' Day weekend. So again, it's a substantial amount of the season, but again, we could give you a coverage number and then if for some reason the season that we could see some degradation in that. So rather than try to give you, as I talked about earlier about transparency, rather try to give you a number that sounds better than it may end up in the end, we just gave references to, like I said, 24% and 28%. What we do believe is, again we are returning back to normal. This year is not an exceptional year. It's actually a return to what we would think as more closer to an average year, but coming off what was a bad year last year, the result, 24 %and 28% sounds great, but for us, that's a return to normalcy.

Okay. Great. And then just last one from me. Any update or colors to look out 2018 and large number of theater expirations?

Yes. Actually I think we will have some positive announcements in the near term on those. We are working with, again, the tenants on those to, as I said earlier, we are not getting any theaters back now. Everything is going to amenitization and extending. So we feel very confident in that and we are trying to take those off the table prior to getting anywhere close to their term.

What we typically have been doing is renewing the lease and then providing some tenant financing and getting paid for that.

And extending it for 10 years or so.

Five to 10 years. Yes.

Okay. Great. Thank you.

Thank you Tony.

Thank you. And that concludes the Q&A session for today. I would like to turn the call back over to Mr. Greg Silvers for any further remarks.

No further remarks. We thank you all for your time and attention. And again we look forward to talking to you in April for the first quarter call. So everyone, enjoy Fat Tuesday and the parties that are associated with that. Thank you.

Thank you.

Ladies and gentlemen, thank year-over-year for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a great day.