Hello, ladies and gentlemen. Welcome to the Second Quarter EPR Properties 2019 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Brian Moriarty.

Thank you, operator. Hi, everybody, and welcome. Thanks for joining us today for our second quarter 2019 earnings call. I'll start the call today by informing you that this call may include forward-looking statements as defined by the Private Securities Litigation Act 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'll turn the call over to company President and CEO, Greg Silvers.

Thank you, Brian, and good morning, everyone. Welcome to our second quarter 2019 earnings call. I'd like to remind everyone that slides are available to follow along via our website at www.eprkc.com. I'll get started with our quarterly headlines, discuss the business in greater detail, then turn the call over to the company's CFO, Mark Peterson, who will review the company's financial summary. Let's get started with our first headline. We had a productive quarter anchored by strong investment spending volume. We've established strong investment spending momentum for the first half of the year, with nearly $600 million deployed, highlighted by our 18-theater acquisition of Regal theaters. In addition to the volume, we continue to be very pleased with the quality of Entertainment and Recreation assets we're seeing. Our unique position as the leader in the experiential space, built over 20 years of forging relationships, continues to pay strong dividends as operators are focused on capturing the strong consumer demand for experiential assets. Our second headline: Enhanced portfolio credit profile. Over the past year, the credit profile of our portfolio has consistently strengthened. The recent announcement of Vail Resorts, anticipated acquisition of Peak Resorts and our earlier announcement of Six Flags acquiring certain operations of Premier Parks, both speak to our process of identifying high-quality assets that generate strong cash flows, which over time, are highly desired by the largest players in their respective industries. Our third headline: Experiential assets continue to perform. The consumer continues to demonstrate their desire for the experiences our assets deliver, whether it's the outstanding performance for our ski assets this season, as reflected by increased percentage rents, or the live-action Lion King's nearly $200 million opening weekend, consumers continue to spend their dollars on experiences that they can share with family, friends and colleagues.…

Thank you, Greg. I'd like to remind everyone on the call that our quarterly investor supplemental can be downloaded from our website. Now turning to the first slide; net income for the second quarter was $60.6 million or $0.79 per share compared to $85.5 million or $1.15 per share in the prior year. FFO was $93.4 million compared to $139 million in the prior year. Lastly, FFOs adjusted for the quarter was $105.2 million versus $141.8 million in the prior year and was $1.36 per share versus $1.87 per share in the prior year. During the second quarter of 2018, we recognized $47.3 million of prepayment fees related primarily to the payoff of a mortgage note by Och-Ziff real estate that was secured by ski properties. This large prepayment in the prior year skews the comparative quarterly results. If you exclude this income, our FFOs adjusted per share increased by almost 8% versus prior year. Before I walk through the key variances, I want to discuss 2 adjustments to FFO to come to FFO as adjusted. First, pursuant to tenet purchase options, we completed the sale of 4 public charter schools during the quarter for net proceeds of $46.7 million and recognized termination fees, including a gain on sale, of $6.5 million, which has been added to FFO to get to FFO as adjusted. These fees were higher than expected for the quarter, although most of this is -- most of this increase is timing-related versus that which we had expected in the second half of the year. I will have more on this later when I discuss our revised earnings guidance for the year. Second, transaction costs were $6.9 million for the quarter, and $4.8 million of this amount related to preopening expenses in connection with The Kartrite resort…

Thank you, Mark. Overall, this has been an incredible quarter for EPR as the company has materially grown its asset base, raised substantial equity capital at attractive prices and upgraded the quality of our top 10 customer list. Our balance sheet and our team are well positioned for growth, and we're excited by the substantial opportunities in front of us to continue to upgrade and grow our portfolio of experiential real estate assets. With that, why don't I turn it over for questions. Operator?

[Operator Instructions] Your first response is from Craig Mailman of KeyBanc Capital Markets. Please go ahead.

Good morning guys, one quick one on guidance. Mark, you'd mentioned that this quarter's lease term fees were a little higher because you pulled forward some. Kind of how do you see the balance trending in 3Q and 4Q?

Yes. We expect to collect fees in both quarters. It's always hard to predict the timing. I think we're good at predicting it for the year. We don't control exactly when they close quarter to quarter, but we do expect the terminations for the -- termination fees and prepayment fees for the year to be unchanged from what we guided to earlier.

Okay. And then just bigger picture, if you think back a year or two ago when the market went against you guys, it was harder to buy things. Och-Ziff clearly was a help to get that restarted. But as we're sitting here today, you guys are trading at your premium $10 NAV, you have a good investment pipeline. I acknowledge that you raised more than you thought you would in the quarter. But is there a -- and you want to balance it with dilution. But internally, kind of what's the discussion around overequitizing this year when the cost of equity is attractive and you have plenty of uncertainty on the horizon with the election and rates and trade to kind of bring that leverage towards the low end of your range to build capacity to head into next year?

It's a good question, Craig. I mean, clearly, managing the balance sheet is one of our top priorities, so we're always kind of looking at it. And as Mark said, we took advantage of that and hit our DSPP practically every month within the quarter -- of the second quarter. So I think all of those things come into play for us. Again, we're not managing for the quarter-to-quarter performance but the long haul. And so all I would say is that it is a top of mind for us and -- the volatility that exists out there, and we're not afraid, when the situation warrants it, to issue more equity to put us in a position for that long play. And I think our second quarter demonstrated that.

Okay. And then just on the acquisition pipeline. I mean, what segments are you guys seeing better opportunities? In just generally, where are the yields kind of the most attractive here? And also could you just give us an update on casino opportunities?

Yes. I think it's still kind of consistently with what we've said in the Entertainment and Recreation area. I think -- or where we are seeing the best? I think mid-7s to mid-8s, around 8 at a midpoint is where those opportunities lie, and we think there is really good depth and quality that we're seeing. Additionally, as we talked about in gaming. We're continuing to explore that. We have nothing to announce. But as we move forward with that, we'll definitely keep the market apprised of it.

Thanks guys.

Thank you.

Your next response is from Nick Joseph with Citi. Please go ahead.

Thank you. Maybe just staying on gaming; did you bid on either the recent transactions Century Casino or JACKS Cincinnati?

Actually, we did not. I mean, I think the Century deal is probably a great deal for VICI, it's probably not an interesting transaction for us in rural Missouri. That's not necessarily a comment on those assets, but it really -- we're mindful of the message that we want to send. And the overall JACKS transaction I think was part of a larger group that was already in play well before we announced our intention to look at the space.

Excellent. And how do you think about game expertise just in the gaming sector in competing against other REITs who have been in the sector for longer?

Yes. I think it's -- we are aware of the fact that yes, if and when we move into that space, we'll have additional expertise, clearly on a couple of points. There are groups or people that we can hire on a consulting basis that will allow us to give us insight into that. And I would also point out, if for those of you who didn't -- didn't notice that we made an addition to our Board with Virginia Shanks, who has -- is a long-time veteran of the gaming business, well over 20 years, and knows everyone and all these properties. So we have a lot of resources that are available to us. But I think to your question, Nick, as we move and get into the space, you'll see us adding headcount to reflect our commitment to it.

Thank you.

Your next response is from Brian Hawthorne of RBC Capital Markets. Please go ahead.

One of my questions is answered. Vail has a history of wanting to own its own real estate. Do you think they'd want to EPR out?

Again, I -- you'd have to talk to Vail about that. I mean, we've had a history with them where we've been in a leased -- the Northstar asset has been leased by them for several, several years. So I don't know. They just entered into a leasing relationship in -- up at -- in Utah. So I don't know if that mindset is continuing, but I would direct you to talk to them as opposed to us speaking for them.

Sure. Okay. And then one quick one on gaming. Has the market changed at all or become more competitive given the recent transaction activity?

I don't know that we think it's become more competitive in the sense that it's truly -- it's no different than other net lease, it's a function of cost to capital, and you've got 3 players. And we're hoping to see if we can fund a transaction that makes sense to become the fourth player in that. But I don't think that I've seen it materially move to date.

Thank you.

Your next response is from Collin Mings of Raymond James. Please go ahead.

Thanks. Good morning everyone, First question from me. Can you just expand on the two attraction properties you acquired during the quarter?

I think what we did is we got two additional museum properties that were -- again, what we think is admissions and concessions business is not large, but again, taking advantage of that overall experiential market and driving deeper and wider into that space with long histories. But we'll -- as we roll out, we'll put more color on that.

Okay, fair enough. And then just going back to the prepared remarks, just given some of the negative headlines out there on the Cedar front, can you maybe just talk but if you're seeing any shift in the transaction market there specifically?

Not really. And like I said, I think it's a -- we still believe that this year is going to be a very solid year and meet or exceed last year's record year. I think it is just a different -- and we've talked about this, Collin. And when you go quarter to quarter in the theater business, it's very difficult to see any one quarter where we're at. Remember, we were down nearly 20% in the first quarter, and we sat here now down about 6%. So we always knew this was going to be a second half of the year building through the summer. So I think we'll hold judgment until we get to the end of the year but the resiliency of this has always been proven that when we deliver quality content that the audiences show up. And we've seen that, like I said, I referenced where there was the Lion King, and we'll see it again with the Fast and the Furious takeoff on Hobbs & Shaw this coming weekend. It'll -- when content is there, the audience will be there.

Got it. I understand that from kind of an operational standpoint, but just in terms of the transaction market, I guess your point there is that it really hasn't caused any sort of movement in terms of cap rates or buyer appetite or anything like that out there?

No. I think it's still a competitive market. I think the theater space is widely accepted by almost all of our net lease, kind of, peers, and I think, it's still very much in demand by kind of all net lease. And you talk about whether it's the mall guys, the strip guys, and go back and read their comments, the Entertainment and Recreation segments are what is driving business and our relationships forged -- as I said, forged over 20 years with those tenants, I think, will bode well for us as we move forward.

Okay, I appreciate the color. Thank you. Thanks, again.

[Operator Instructions] You have a response from the line of John Massocca of Ladenburg Thalmann. Please go ahead.

Good morning. So what kind of ranges for the performance at Kartrite are you baking into guidance? And do you have any color on how the property has performed maybe from like a contribution to AFFO in both 2Q '19 and maybe just the general performance in July?

Morning, John. We don't want to comment on a specific asset. I -- what I can tell you is, as we haven't changed guidance, that this is performing as we anticipated. We put this -- we put the numbers out there. We knew it was a ramping story. It's a marketing story, especially in the first part of the year. I mean, when we opened -- originally, we didn't even open, pursuant to the management recommendation, all the capacity of the hotel because getting the operational efficiencies out and understanding how to operate that property was key. So I think we don't see contribution. And in fact, in part of our plan, we see drag in what is in '19. But that's consistent with how we planned it. What we hope that means is that this can be really a story about 2020.

Is it may be contributing to kind of the size of the difference between the low and high end of guidance a little bit though?

There's no doubt that, that is the volatility that we have to account for. And so we try to accurately reflect what the best information that we have, understanding that this is a ramping environment. But as I said, we went into this year knowing that The Kartrite was going to be a 2020 story not a 2019 story.

Yes. I think there's really 3 things that contribute to the other wire, as Greg said, as you just went over Kartrite's part of it because it is ramping up. Termination fees have a range, and percentage rents have a range. So we have that level of range to accommodate really those 3 primary things.

Okay. And then maybe switching over to theaters. What was the cap rate on the Regal portfolio?

We don't disclose cap rates on any transaction, but I think we could say it was consistent with the range that we have said we bought theaters before.

Okay. And given Regal has been marketing, at least from my understanding, a couple of portfolios. What made this particular tranche of assets attractive versus other theater assets that might be out there for sale?

Again, for us, it was well presented. We've had a long-standing relationship with Regal. Their coverage was, too, over above on the portfolio. We structured this as a master lease across this 18-theater portfolio. We like the exposure. The portfolio that we put together with them has exposure, California, Texas, Florida, which is the demographic areas that we really like. So I think if you looked at it, you would see we kind of shaped this transaction to feel like we wanted this group of properties. Again, if you compared it with some other things they did, this has the highest concentration of California properties, it has the demographic profile that we like. And I think you would see that we were meaningful. Whether they went and did a different portfolio, I think we had a hand in how that went off.

Okay. And then on kind of the built-to-suit side. Are your tenants continuing to see kind of the same returns for moving to a high amenity to your format as they were getting, say, 12 or 24 months ago? Or has maybe some of the kind of additional competition in that market scaled back returns a little bit from conversions?

Yes. It's really a function -- it's a function of what mover that you are in the market. And what we've talked about is those returns are still very strong and very high, if you're a first mover. And they work to probably 20-plus percent returns through the fourth mover in a market. So again, it's not so much -- the competition is at what point are you making that relative to your competition in that market.

So generally speaking, how much kind of runway is there for additional convergence maybe within your own portfolio or even kind of just nationally?

I mean, if you think overall that nationally, we're still less than 50% conversions. We're slightly above that in ours. I think what you're going to see is the evolution of starting -- some of the theater operators are starting to look at their very, very high-performing theaters and start to get in front of letting someone else with a lower quality kind of to do a conversion and take share away from them. So we're starting to have more discussions. I would have told you 12 or 18 months ago; we were talking about we have some theaters that are so high performing it's difficult to deal with. But at least now, we're engaging in conversations with operators about their trying to be proactive and get in front of that and drive that consumer experience even in some of their highest-performing theaters.

Very helpful. That's it for me.

Thank you.

Thank you. I'm showing no further questions in the queue at this time. I would like to turn the conference back over to Greg Silvers.

Well, thank you, everyone, for your interest this morning, and we look forward to talking to you next quarter. Thank you.

Thank you.

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