EPR Properties (EPR) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and welcome to the third quarter 2019 EPR Properties earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Mr. Brian Moriarty, Vice President of Corporate Communications. Sir, you may begin.

Thank you, operator. Hi, everyone, and welcome. Thanks for joining us today for our third quarter 2019 earnings call. I'll start the call today 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. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company’s performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in the company’s in today’s earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along today’s earnings release, supplemental and earnings call presentation are all available on the Investor Center page of the company’s website www.eprkc.com. Now, I'll turn the call over to the company’s President and CEO, Greg Silvers.

Thank you, Brian. With me on the call today are the company’s CFO, Mark Peterson and making his debut, our CIO, Greg Zimmerman. I'll start with our quarterly headlines and then pass the call to Greg to discuss the business in greater detail. Mark will then follow with a review of the company's financial summary. So, let's get started. Our first headline, strong quarter anchored by continued demand for experiential assets. Our focus on the experiential economy continues to sustain solid portfolio performance and consistent rent coverages. As evidenced by the third quarter box office results and the positive results that are attraction properties, the consumer continues to support our tenants and properties devoted to the experiential economy. This trend of increasing consumer demand for our tenant offerings should translate into opportunities to fuel our future growth. Our second headline record low bond yield and spread. During the quarter, we issued new 10-year senior notes in the largest size and at the lowest yield and spread in the company's history, and we completed the redemption of higher price senior notes that were due in 2022. As a result, we have lowered our cost of debt and significantly extended our average debt maturity. Our third headline, well-positioned balance sheet with ample capacity. In addition to our debt activity, we continue to raise common equity during the quarter, and we have nearly 120 million of unrestricted cash on hand at quarter end and nothing outstanding on our 1 billion line of credit. Clearly, we are well-positioned for growth. Our fourth headline, increasing earnings and investment spending guidance; consistent with the strong results year-to-date and our forecast for the remainder of the year, along with a robust pipeline of attractive opportunities in the experiential space. We are increasing our guidance for FFO as adjusted per share as well as investments spending. Mark will provide the detail on guidance in his comments. With that, I'll turn it over to Greg Zimmerman and then rejoin you after Mark's comments through questions.

Thanks, Greg. At the end of the third quarter, our total investments were nearly 7.2 billion with 416 properties and service that were 99% occupied. During the quarter, investment spending was 118.1 million, and our proceeds from dispositions were 294.4 million. Our company level rent coverage was 1.89 times, demonstrating the continuing strength and consistency of our portfolio. At quarter-end, our entertainment portfolio comprised approximately 3.4 billion of total investments with two properties under development, 195 properties and service and 26 operators. Our occupancy was 99% and our rent coverage was 1.76 times. Strong movie product continues to be the key driver of solid box office results. With the third quarter box office up by approximately 3% year-over-year. The momentum is anticipated to extend with the fourth quarter, expected to exceed 2018, which should drive 2019 box office close to the 2018 all-time high. The fourth quarter opened strongly with the Joker's record-breaking opening weekend to be followed by a strong film slate including Star Wars, The Rise of Skywalker, Frozen 2, and Jumanji, The Next Level. Our entertainment investment spending totaled 10.9 million in the third quarter, consisting primarily of development and redevelopment projects across our portfolio of theaters, entertainment retail centers and family entertainment centers. At quarter-end, our recreation portfolio comprised approximately 2.3 billion of total investments, 83 properties in service and 19 operators. Our occupancy was 100% and our rent coverage was approximately 2.28 times. The operators in our attractions portfolio, which is part of our recreation segment have delivered solid results this season with visits and revenue through the August trailing 12 months period, up approximately 4% and 7% respectively, versus the trailing three-year average. Investment spending in our recreation segment totaled approximately 89.6 million, which included 68.7 million of new mortgage loans for recreational properties, 6.6 million on the Kartrite Waterpark Hotel, and the balance consisting primarily of build-to-suit developments of golf entertainment complexes and attractions. The primary new investment was a $64.2 million mortgage loan, as opposed to the traditional REIT hotel operating structure, secured by the recently opened Margaritaville Nashville Hotel in the heart of Nashville's SoBro district, one of the country's hottest experiential destinations within walking distance of Bridgestone arena, the Ryman Auditorium and the National Convention Center. On the disposition front, on July 1st as previously announced, we received payment info on our $189.8 million Schlitterbahn mortgage note. This pay-off was facilitated by CEDAR Fair's purchase of two of the Schlitterbahn Group’s Texas Water Parks for $261 million, including both the operating business and the real estate. Also, in the third quarter, Vail Resorts closed on their previously announced acquisition of Peak Resorts. Vail operates our Northstar California Resort and as reflected in our supplemental, with the addition of the six Peak Resorts investments, Vail is now our fifth largest customer. At quarter-end, our Education portfolio comprised approximately $1.3 billion of total investments, 137 properties in service and 55 operators. Our occupancy was 98% and our rent coverage was 1.51 times. We continue to make excellent progress on the transition of our CLA schools to Crème de la Crème. Through the end of October, we have successfully transferred 17 of our 21 properties to Crème and they anticipate taking over the remaining four CLA schools during the fourth quarter. Investment spending in our education segment totaled approximately $17.6 million primarily consisting of acquisitions built to suit developments and redevelopments of public charter schools, private schools and early childhood education centers. During the quarter, we received a $104 million in disposition proceeds related to the sale of four operating charter schools, one early childhood education center and the pay-off of a mortgage note secured by a charter school. These proceeds included $11.3 million of termination fees and $1.8 million of prepayment fees. The transactions reflect the strength of a municipal time market available to charter schools. The consumer continues to evident strong demand for experiences. We have a deep pipeline of opportunities to expand our already broad-based portfolio of the experiential assets. We continue to shift our focus from non-experiential areas of business toward experiential properties, and asset class that we have been successfully investing in for over 20 years and one that will be the primary growth forever going forward. With that, I turn it over to Mark for discussion of the financials.

Thank you, Greg. I’ll begin today by discussing our financial performance for the quarter. FFO as adjusted for the quarter was a $1.46 per share versus a $1.58 per share in the prior year. During the third quarter of 2018, we recognized $20 million in prepayment fees related to the pay-off of a mortgage note that was secured by key properties. If you exclude this income, our FFO as adjusted per share for the quarter increased by about 10% versus prior year. Note that FFO as adjusted per share amounts for both periods include the impact of education related lease termination fees, which I’ll discuss later in my comments. Total revenue for the quarter, increased by about 18%, when you exclude the $20 million of prepayment fees from the prior year, that I just discussed. This revenue increase was driven primarily by revenue from new investments and that of dispositions. Percentage rents and participating interest for the quarter totaled $3.6 million versus $2.7 million in the prior year. As previously reported, we received payments in four of our mortgage notes receivable totaling a $189.8 million related to the Schlitterbahn Water Parks on July 1st and during the quarter, we also received $17.8 million related to the early pay-off of mortgage notes secured by charter school, which as anticipated, included a prepayment fee of $1.8 million. Note, also that the KartriteResort Indoor Water Park opened during the second quarter and continues to be operated under the traditional REIT lodging structure, which impacts other income included in total revenue as well as other expense. Finally, about $7.5 million of the revenue increase relates to the adoption of the new leased accounting standard, which is offset by higher property operating expense as I have discussed on previous calls. The income tax benefit of $0.6 million versus income tax expense of $0.5 million in the prior year, related primarily to the deferred benefit resulting from the operations of the Kartrite. Additionally, transaction costs were $6 million for the quarter and related primarily to the transfer of nine CLAs to Crème. As a reminder, deferred taxes and transaction cost are excluded from FFO as adjusted. Severance expense was $1.5 million for the quarter and 1.9 million year-to-date. This expense was result of a shift in resources from non-experiential areas of our business toward experiential properties. Finally, during the quarter we also completed property sales for net proceeds totaling 86.8 million and recognize the combine gain on sale of these properties of 14.3 million. Included in the property sales were three charter school property sold pursuant to tenant purchase options for net proceeds of 59.4 million and the related termination fees totaling 11.3 million included in gain on sale have been added to FFO to get to FFOs adjusted. These fees were higher than anticipated as an operator of one larger public charter school elected to exercise his option that was not in our plan. I'll have more on both are expected disposition and termination fee levels later when I discuss a revised guidance. Now, let's move to our balance sheet and capital markets activities. Our debt to adjusted EBITDA ratio was 5.2 times a quarter. Our net debt to gross assets was 40% on a book basis, and 32% on a market basis at September 30th. At quarter-end, we had total outstanding debt of 3.1 billion, all of which is either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.3%. During the quarter, we issued 500 million of new 10-year unsecured notes at a coupon of 3.75% and redeemed all 350 million of our 5.75% senior unsecured notes at the make whole cost. Strong investor demand allowed us to upsize the amount on the notes beyond our original plan as we took advantage of a very attractive coupon, the lowest in the company's history. Additionally, we paid in full a secured mortgage notes payable totaling 18.6 million and fixed the interest rate on our only remaining secured debt of 25 million for a period of five years at 1.39%, which was lower than the previous variable rate. We are pleased now have a weighted average debt maturity of approximately seven years and no debt maturities until 2023. We think extending our average debt duration as well as fixing variable interest rate debt and today's low interest rate environment makes a lot of sense. Also, during the quarter, we once again took advantage of the market support of our experiential strategy and issued approximately 52 million in common equity on our direct share purchase plan as well as another 17 million subsequent quarter end at a combined average price of $76.59. This brings our year-to-date issuance under this plan to approximately 306 million. The decision to take on the additional long-term debt proceeds versus using our line of credit, as well as raising incremental equity, both of which were not in our previous plan had the impact of reducing near-term earnings. However, with low leverage 116 million of unrestricted cash in the bank at quarter and nothing outstanding on our $1 billion line of credit, and no near-term debt maturities. Our balance sheet is now even better positioned to fund our growing pipeline of opportunities as we finish the year and move into 2020. Based on the results to date and our expectation for the fourth quarter, we are raising our guidance for 2019 FFOs adjusted per share to arrange a 5.44 to 5.52 from a range of 5.32 to 5.48, and raising our guidance toward the upper end for investment spending to a range of 775 million to 825 million from a range of 700 million to 850 million. We are also increasing our expected disposition proceeds for 2019 to a range of 400 million to 475 million from a range of 300 million to 400 million. Guidance can be found on page 30 of our supplemental. There you will also see that we are raising our guidance for 2019 termination and prepayment fees related to education properties by a total of 8.2 million to what we have earned through 930. Note that this means that we are expecting no additional such fees in the fourth quarter. Note that overall, our guidance for the full year 2019 FFO as adjusted per share is increasing by $0.08 at the midpoint, which is to reflect $0.10 more in education related fees and $0.03 more related to the strength of our core business offset by $0.02 that's related to the impact of additional capital raising activities, and $0.03 related to higher dispositions than previously expected. Finally, note that when you exclude the non-education related prepayment fees of 71.3 million, we receive for the full year 2018 or $0.93 per share. The midpoint of our increased FFO as adjusted per share guides for 2019 and 548 reflects about 6% growth. Now with that, I'll turn it back over to Greg for his closing remarks.

Thank you, Mark. As we've discussed today, the third quarter was very productive for EPR, whether that be from asset performance, investments or balance sheet management. We continue to position the company to take advantage of the many opportunities that the experiential economy is creating. With that, I'll open it up for questions. Sarah?

[Operator instructions] Your first question comes from the line of Craig Mailman from KeyBanc Capital Markets. Your line is open.

So, you guys are bringing down leverage here kind of bolstering capacity raising 2019 investment spending a bit. I mean, could you talk about I know you're not going to give guidance here for 20. But I mean, are you guys anticipating a ramp in investment spending in 2020 and that's what you're trying to kind of lower leverage here in anticipation that in case there's any market choppiness or can you give some insight into the I know you hit on a little bit but maybe a little bit more insight into what you're seeing on the opportunity front that prompted the extra capital raises?

Sure. And this is Greg Silvers. Since we have two Greg, we'll be probably kind of have to distinguish ourselves. But I think it's a little of both. I think one, I think we think the opportunity set is, is getting stronger. I think also just kind of prudent balance sheet management and understanding the way the 10 year is bounced around the day when we have a price that works for us and works for our tenants. It's prudent of us to take advantage of that and we're always looking forward as in the way that we're preparing for. I think, overall, I do believe that we've got a we've kind of, over the last couple of years change the dynamic to where we're kind of run rate up somewhere around that 700 to 800 maybe more millions of, of investment spending, and I think you're going to see that, at least coming out of forward. But Greg, I don't know if you anything to add to that?

No, I don't even think we have a robust pipeline and we need to be prepared.

I mean, given where the stock is, is there anything else baked into guidance for potential incremental capital raises to give you even more capacity?

At the midpoint, no. But in the range, we could decide to raise capital if we decided to, as we did this quarter, to kind of kind of create a war chest but no, our guidance doesn't assume any more equity issuance for me in the fourth quarter, beyond the 17 million we already did in the fourth quarter.

Got you. Okay and, Greg, the other Greg, maybe can you talk about kind of the areas where you're seeing the best opportunity flow among your kind of different segments?

Sure, I think we're seeing -- as Greg mentioned, I think we're seeing opportunities across all of our investment opportunities. We're still seeing opportunities and theaters, opportunities and family entertainment centers, experiential lodging, a lot of opportunities is as reflected in our, in our investment in Nashville, which is one of the one of the hottest experiential places in the country with 15.2 million visits a year. So those are the kind of opportunities we're looking for and we're seeing them.

And then on CLA, could you guys just talk about I know, it may be a little bit early, but just how those transition schools are doing in terms of retaining students?

Yes, this is Greg Silvers, I think you can interpret the rate at which we originally forecast that would be March of 2020 and we pulled that number back. I think that's a reflection of the success that this new operator enjoys in the fact that they wanted to accelerate it. So, I don't think that we don't report on individual kind of assets or tenants. But I think their actions are indicating that they're successful with this and want to get them under their umbrella faster and I think that bodes well for their performance.

I mean, when you guys recut the rents, I guess, could you give us a sense of where you thought pro forma coverages would come in versus maybe we're CLA original coverage kind of indicated on the 20 million?

Right. Remember, if you remember, correct our coverages on those properties were actually not bad that we just had a tenant that was setting structure from other properties that were own. So, I think we would think that those coverages would at least be where they were at before which was around the one five range if not increasing, with what we think is an operator that's not stressed as CLA was.

Great, thank you.

Thank you.

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

Thank you. Can you just walk through what makes the Margaritaville Nashville Hotel attractive from an experiential standpoint?

Sure. This is Greg Zimmerman. One thing we like about it is it has a lot of it has a lot of amenities. It's got the Margaritaville brand, it's got a rooftop bar. It is right in the heart of the sober district near Broadway in downtown Nashville. So, it's walkable to Ryman Auditorium, it's walkable to the Bridgestone Arena where the predators play in it's walkable to the convention center and Broadway Street. So, there are 15 million visits a year in Nashville 44 44% are for leisure travel and the average stay is all four nights. So, for us, it's exactly the kind of experiential lodging that we're looking to invest in.

And the other thing I would add, Nick is as, as we talked about, again, we got this into a fixed income and type investment, being a mortgage. So, our commitment to stay out of the variability of a of a hotel model, I think we've honored in the way that we've done this. We think that on an on an LTV basis, this asset is we're significantly on the lower end of the leverage relative to it. It's also where the serious Margaritaville station is actually broadcasting from this hotel. So again, it's got a lot of experiential lifestyle brand to it and we think that it's consistent kind of being in an entertainment district with directionally what we said the strategic focus of our efforts in this area are directed.

Thanks, that's helpful. And then maybe just on gaming to give an update on where you are in terms of entering that space. And then if you sit on any assets and authority in the pipeline currently today?

We don't talk about specific whether we're bidding or not, again, we continue to make progress in that area. We were just out at the G2E conference and had 17 or 18 meetings. So, I think, hopefully in the near-term will have something there's nothing and as Mark said, there's nothing in our guidance that would indicate that we have something planned. But it's - we're making efforts, people are very interested in talking to us. So hopefully that will translate into opportunities sooner rather than later.

Thank you.

The next question comes from the line of Tony Poland [ph] from JP Morgan. Your line is open.

Okay, thank you. Good morning. Just a clarifying question for mark the $0.03 of strength from the core business, is that just investment activity or is that like percentage rents like on the analyze side, like what is the $0.03?

It's a combination of a number of things. One of the things was Kartrite ramped a little better during the quarter than we had anticipated. So that was one of the major things behind that. But there's a number of things. It's kind of everything else besides what's indicated there but Kartrite was the main, the main kind of driver there.

Okay, it's some it is kind of organic, and some of it just being the dollars out the door and the investment income is that just trying to get?

Dollars off the door, we're pretty consistent. I mean, we're raising our guidance 25 million at the midpoint, so investment spending is slightly higher, but I just think we had better kind of performance kind of driven by Kartrite particularly some definite operating assets. It's a little better during the quarter than we had planned.

Okay. And then, as crush categories in education, it seems like there's almost three distinct, businesses within the category. What's the - you commented a couple times, I guess about the pivot towards more experiential assets. Like what - how should we think about just education as we look out the next, year or two, could there be more sales candidates in that bucket. Do you want to be in all three of those subcategories and how are you thinking about that?

Again, I think at this time, it's a fair question, Tony, I think we are - we've clearly said that the charter, especially the charter school opportunity is very competitive with the municipal bond market and we don't see the risk reward return for that. So again, right now we're seeing that naturally come down with the sales. I don't know that we're prepared to talk about anything about accelerating that but what we have said is, at least for the foreseeable future, we're not going to be devoting a lot of time or investment dollars in that area given that risk reward equation right now.

Okay, and so you're not giving the 2020 guidance, but this did turn out to be a pretty heavy year in terms of dispositions and paybacks on mortgages and such do you think this level of portfolio recycling is something you continue with into the future?

I think it's abnormally high this year if you look at the Schlitterbahn asset, that's an asset that we had owned for 14 years, I think given the noise around that, we were happy with the outcome, we'd always maintained that the value was there and what Cedar Fair paid kind of demonstrated that, but those if you go back and look, I think we kind of - our cost of capitals working now. So, it's not, we will probably be doing more dispositions in kind of portfolio improvement, but I don't think they're going to raise to near the level that we saw this year.

Okay. And can you walk through yields that you're achieving on the major types of investment markets can I go into?

Yes, I think consistent with what we've said yet most of our properties are trading or again, kind of mid sevens to low eights. As we've said on the coast, some of those kinds of are very thing that can get down to the low sevens or seven, and then we're seeing theater transactions that are trading below seven. So, in that space, given our cost of capital that creates a very attractive spread and given our relationships and Greg's work in this area, we've been able to harvest a lot of those opportunities and continue to be excited about those that are being presented to us.

You're build-to-suit at those same kinds of levels...

Generally, as always, they're generally going to be 50 to 100 basis points wide of that just to accommodate for the risk associated with kind of a build-to-suit.

Okay, great. Thank you.

Thank you, Tony.

Your next question comes from the line of Rob Stevenson from Janney. Your line is open.

Hi, good morning, guys. Original Greg, in terms of lodging, lodging deals going forward, the first ones I take where is the resort was it a JV Nashville's in a note is that likely to be one of those two type of structures likely to be how you approach lodging and I guess also possibly gaming going forward or is there a likelihood is there a value and is there a likelihood that you're going to wind up having this stuff on balance sheet as an ownership position at some point?

Sure. First of all, Rob, first is the only time I've been called the original OG. I'm going take advantage of that. But I actually think if you look at our portfolio, we have all three and if you look at what we did it like prognosis brings that's in a lease. If you look at what we did here in Nashville to mortgage if you look, I think what you will see us be either in the lease or the mortgage, our preference is to be in the lease. But there are there are certain times where for tax reasons or otherwise that may not be work, but what we want to be is in a fixed income like instrument as opposed to the variability of the hotel remodel. So, to go back, our preference will be to the lead to the triple net lease and be in that fashion. Occasionally, we may have mortgages. I doubt you'll see us a significant amount in the hotel REIT model.

Okay and then…

That would also apply for the casino space.

Yeah, I could bet where the casino place it would be in the net lease space, right restructuring.

Okay, this quarter the regal exposure went up. How comfortable are you in continue to increase the exposure over all to movie theaters and sort of do you guys have at this point, from a diversity standpoint, not specifically to AMC or Regal operator wise, but just how much you guys are sort of willing to do at the upper end in terms of theaters within the portfolio?

Again, like I said I think we’ve always said if we can find high quality theaters, we’d like that business that it’s been a very-very stable business for us for 22 years and last year we set an all-time record in Box Office. So I think, we like the space, it’s not as much exposure to AMC, Regal or Cinemart it’s about finding the right asset with really good coverage and often this involves theaters that have been recently renovated and so, if we like the trajectory, we like that exposure we’ll continue to invest in that space.

All right, and then last one from me, how many Topgolf did you start under construction, are there any more behind this in the pipeline?

I think, we have at most speak out term but a couple that are still.

Just the one in service, those are last.

Okay, so but as we’ve said we pretty much see almost every Topgolf opportunities. We are being not because of the opportunities are good, but because we are managing exposure a little more selective. I would think that we will have Topgolf in the future as part of that and that will continue. It probably won’t be as robust given the level where we had to make exposure. But we will selectively add new assets to our portfolio when we think the opportunity is really strong.

Okay, thanks guys.

Your next question comes from the line of Brian Hawthorne from RBC Capital Markets. Your line is open.

Hi, on the lease exploration schedule in Education the ones that are due the 12. Whatever million that’s due this year, is that all tied to CLA?

Yes.

Yeah, that’s the eight that are left as of quarter as we have taken that number down from 17 if you saw last quarter, down to eight and then since that time another 4 have been converted. So those are moving from kind of near-term leases, all the way to subsequent to 2038, so that’s exactly what that is. And so, those should by the end of the year that should be zero.

Okay, great. And then, with Topgolf we’re in public and 87 - your investment small piece of lands with them but is or potentially going public, I guess does that change your ability to invest in NIM at all?

Again, I think remember our limitation is a self-imposed limitation on an exposure. I think, so I think we’ll just have to evaluate whether or not they go public as probably not as big an issue in that. I mean clearly people will have a view to their profitability at that point but trust me, we have that view already because we get kind of those level of financial details so it’s really kind of managing exposure which we set kind of when they were the only participant in this type of space. What may change some of that is, as more operators get in there and there is more ease of transferring operations and different operator options, we may take a broader view of that.

Okay, thanks for taking my questions.

Your next question comes from the line of Joshua Dennerlein from Bank of America. Your line is open.

Good morning guys, just maybe one big picture from me. How comfortable are you with your tenant industry concentration level there I guess built appears pretty high?

I think generally speaking, we feel really good about the experiential sectors that we’re in. I mean, if you look, if you look in any metric, what we’re spending on these type of expenditures as oppose to traditional retailers doing nothing but accelerating, so as compared to some of our competitors who are more focused in the retail space, we actually think we’re more well-positioned and that the durability of that is going to only be become more valuable.

All right, thank you guys.

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

Good morning.

Good morning, John.

So, I think I commented a little bit already on the Margaritaville investment you made during the quarter, but maybe how much of the Margaritaville kind of underlying revenue is tied to kind of rooms. I'm just trying to think is there another like revenue driver there besides some of the traditional kind of lodging drivers that maybe it's kind of going to be underlying the interest payments do you guys?

Yes, I think there's a significant F&B component to this. Again, there's a roof top kind of bar lounge. Like I said, there's a lot of activity planned there. So, I think this is not at all positioned as kind of the traditional business traveller. This is tapping into what we think is an exciting and dynamic entertainment district and that there's not only a lot of activity in the actual lodging offering, but there is a lot of activity going in and around the area, which is kind of significantly driving demand for what we think is this experiential or lifestyle brand.

Okay. And then you comment John a little bit, but to the extent you can maybe provide some more color on the LTV on the loan, I mean, is it sub 50 or lower than that just kind of how you guys got comfortable maybe on the security of the end of the interest?

I think it's probably again; I think what we would say is that on a relative to appraisal that in that 55% to 65% range, we feel very comfortable in this space.

Okay, and then given the commentary on the on the severance charge, what are maybe some of the non-experiential assets or investment verticals you guys are moving away from?

I mean, what we've talked about John pretty openly is that we're spending less and less and not devoting resources to the charter school space. So, there is no doubt that our focus is more and has continued to trend more toward the experiential assets for the reasons I said earlier about whether it's broadening the diversity of our product or the durability of that product as we've seen, and you look like I said, a number of studies correlated to the economy that these assets actually outperform others. So, it's primarily in that in what I would say broadly the education space, but more specifically in the charter school space.

Okay, but the other two kind of sub verticals would still be giving investments or is education in general kind of being moved away?

Again, I think it's primarily in the charter school because even in the other two, those are long term leases. We don't I mean there is a lot of focus that we've had, like I said, in the charter school space, and that and the turnover in that and the termination fees and the, and the volatility that that brings, whereas in the other space, the other parts of our education, those are long term leases without that volatility. So, we still think that, and it's not nearly there's not a municipal bond market in those other two spaces. So, I would say it's right now focused in the charter school space.

Okay. Understood. And then I'm sorry if you guys already commented on this, but I know you talked about the education assets that are on kind of near term lease explorations, but maybe the three theatre assets, any potential there for releasing or how you guys feel about those assets going forward and also it's a relatively small number, but any commentary?

Yes, two of the three were already extended in the fourth quarter.

Okay, perfect. That's it for me. Thank you.

Thanks, John.

[Operator instructions] The next question comes from the line of Collin Mings from Raymond James. Your line is open.

Thanks. Good morning, everyone.

Good morning.

First one, just a big picture question. Greg, just you made a point in the past that just how focused you are on data. And I'm just curious, just recognizing the broader tailwinds for your experiential focus. Are there any subsets where maybe you've seen some weakness or do you - as you've done more due diligence on again, we've spoken the path a lot about potential areas of future growth that you may be decided to take a step back from engaging and just kind of curious if you've think this broader brush around experiential just it's a more nuanced trends you might be picking up on there?

Yes, today it's been - like I said really strong. I think what we're trying to and focus on as always in an economic, we're always trying to underwrite the downturn. So, trying to see how things are, how they operate, I think where we are, at least not concern but aware, and following is the higher price point activities. Again, if you think about the movies, they're almost counter cyclical, a lot of these things are low cost alternatives, and so we're very closely aware of where the various price points of the offerings that we have. And as you move up into higher points of kind of what the cost of the activity is that you see some more core correlation to economic downturn as opposed to counter cyclical.

Got it, okay, that's helpful color there. And I just want to go back to Rob's question earlier, just recognizing it was much smaller, but just curious what the other mortgage investment on the recreation front was during the quarter. And then just as you look at your pipeline, just how many other kinds of mortgage investment opportunities are currently in the pipeline and is there anything of the magnitude of Margaritaville?

The other mortgage investment was a fitness center in Kansas City, that we invested in Genesis Fitness Center and then as far as the mortgage versus--

I don't think there is a significant -- I mean, like I said, a lot of these are tax motivated as a way to manage that issue. But if you look at these mortgages. They often have escalators and everything else that kind of read like leases. But you can get a lot of tax efficiency by using that structure.

Like Greg said, we target leases, but we use mortgages in cases maybe there's a tax issue, but like you said, we tried to structure those just like leases. So, it's hard to predict the next but we certainly have done a lot more leases and we've done mortgages and expect that trend to continue, I think.

Okay, thank you. Thanks.

Thanks Collin.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Greg Silver's.

Well, again, thank you all for your time this morning. We appreciate you guys all tuning in and we look forward to seeing many of you at May REIT and talking to you again on our fourth quarter call. Thank you.

Thank you.

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