EPR Properties (EPR) Q4 2020 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen, and welcome to the Q4 2020 EPR Properties Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Brian Moriarty, Vice President, Corporate Communications.

Hi. Thank you everybody, and welcome. Thanks for joining us for today’s fourth quarter and year end 2020 earnings call. I’ll 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, instead, 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 those factors that could cause results to differ materially from those 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 several 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 today’s earnings release and supplemental information furnished in the SEC – 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. Good morning, everyone and thank you for joining us on today’s fourth quarter and year end call. We are happy to be with you as turned the calendar to 2021, and I sincerely hope that everyone is staying healthy and safe. Joining me on the call today are company CIO, Greg Zimmerman; and company CFO, Mark Peterson. I will start the call with an opening statement. Then turn the call over to Greg and Mark, who will provide more detail. For the overview, clearly 2020 was a year unlike any other we’ve experienced since the company was founded 1997. Early in the onset of the pandemic, we recognized the need to fortify the company’s balance sheet to maintain sufficient liquidity for the long-term. Key among early actions was to defer an anticipated gaming venue investment of approximately $1 billion along with deferring other uncommitted investment spending of approximately $600 million. Additionally, we had accessed our unsecured credit facility as a precautionary measure and suspended our monthly dividend to common shareholders. We determined that these actions were proven due to the extremely challenging environment in which our tenants have been operating. As we speak today, our liquidity remains in a strong position with cash on hand in excess of $500 million. This large reserve of cash reflects the fact that we have returned to normalcy. However, as we announced in our quarterly disclosure on January 7, we generated positive cash flow in the fourth quarter and anticipate this trend to continue. The recent paydown of our credit facility balance reflects this positive momentum and demonstrates our increased confidence. Throughout 2020, our team was focused on the many challenges brought on by the pandemic, including monitoring tenant performance, assisting and reopening plans and collaborating to develop plans that ensure long-term stability and success for both our tenants and EPR Properties. We have seen the success of this strategy with our non-theater tenants where approximately 94% are open and rent collections have improved materially. While our properties are still impacted by locally mandated closures and capacity restraints, performance and customer demand continue to improve, which we believe demonstrates our fundamental thesis of people’s desire for experiences. As Greg will discuss in more detail, our theater tenants are still primarily challenged with limited film product, which should subside as we progress through 2021. However, early indications from around the world indicate that when product is available in flowing, there is robust consumer demand. Overall, we are pleased with both the progress and trajectory of our recovery, as it is reflected in a continued increase in cash collections as we enter 2021. Throughout the year, we made continuous progress and as I’ve stated before, I’m very proud of how our team has responded to the substantial challenges that they have faced. Looking ahead, as we look forward in 2021, we’re encouraged by the accelerated rollout of vaccines. We recognize that the reopening in the U.S. will continue to be a phase process. Yet we also believe that as a society, we are more than ready to return to a sense of normalcy. We also continue to be encouraged by the resiliency displayed by many of our tenants and anticipate that theaters will follow a similar pattern when they open more widely and key titles are consistently released. As the country begins the recovery process, we look forward to getting back on the path to grow. This process requires continued improvement and stabilization of our cash collections, which will allow us to exit our existing debt covenant waivers. Upon achieving that goal, our focus will turn to reinstituting our common dividend and reinitiating our investment spending program. The timing of achieving these milestones highly dependent on a number of variables, including an effective vaccine deployment. However, as today’s results indicate our progress has measurably improved in the early months of 2021 and we are optimistic that our goals are achievable during the second half of 2021. With that, let me turn it over to Greg Zimmerman to a discussion of our portfolio and its performance. Greg?

Thanks, Greg. At the end of the first quarter, our total investments were approximately $6.5 billion with 356 properties and service and 94.2% occupied. During the quarter, our investment spending was $22.8 million and it was entirely in our experiential portfolio, comprising built to suit development and redevelopment projects that were committed prior to the COVID-19 pandemic. For the year, our investment spending was $85.1 million. Our experiential portfolio comprises 281 properties with 43 operators is 93.8% occupied and accounts for 91% of our total investments or approximately $5.9 billion of the total $6.5 billion. We have three properties under development. Our education portfolio comprises 75 properties with 12 operators and at the end of the quarter it was 100% occupied. As the vaccine rollout accelerates, people are looking for safe and easily accessible ways to get out of their homes and come back together with friends. Our operators are working hard to offer entertainment experiences, which create memories and safe environments. We’re seeing that as consumers become increasingly confident in safety measures and restrictions are reduced, they’re returning to our properties. Now I’ll update you on the operating status of our tenants, our deferral agreements and our rent payment timelines. 60% of our theaters were open as of February 22. As we have previously noted, Cineworld made the decision to close all of its U.S., UK and Ireland theaters because of a lack of tent-pole films from Hollywood. Today, none of our 57 Regal theaters are open. Theaters continue to face significant headwinds from a lack of tent-pole films and compacity and concessions restrictions implemented by state and local governments. These challenges will slowly begin to abate during vaccination ramp up and with loosening restrictions throughout the country. Based on the current vaccination cadence, we believe major film releases and box office will begin to accelerate in the second half of 2021. The 2021 film slate was strong before the pandemic because a number of films scheduled for 2020 pushed to 2021, we believe the projected film slate will provide a strong content cadence for theaters to ramp up as vaccinations increase, normalcy returns and consumers feel more and more comfortable returning to the movies. 2021 tent-poles currently scheduled for release beginning in May and include Black Widow, the Fast & Furious 9, Top Gun: Maverick, Jungle Cruise, Death on the Nile, A Quiet Place Part II, No Time to Die, Ghostbusters: Afterlife and MI 7. Box office strength will continue into 2022 with Jurassic World: Dominion pushing to mid 2022. As demonstrated by consumer behavior in Asia and the Hollywood release schedule, we do not see evidence of structural changes in theater going habits as a result of the COVID-19 pandemic. In Asia, the consumer bounces back quickly. China’s box office continues to perform solidly even in weeks without products. During the Lunar New Year holiday, Detective Chinatown 3 opened with the highest grossing opening day $163 million and opening weekend $398 million in history, outpacing Avengers: Endgame. Over the Lunar New Year holiday, Detective Chinatown 3 and Hi, Mom each grossed over $620 million. In January Demon Slayer became Japan’s highest grossing movie ever. Further, as provided by the continued recovery and resilience of our other experiential tenants, which I’ll discuss in a moment. Customers still want to engage in entertaining, affordable out-of-home experiences. Once they know the operator is open and become comfortable with new protocols, we see that they are returning to experiential assets. We’re confident the same will hold true for theaters as vaccinations ramp up and normalcy returns. As we have said throughout the COVID-19 pandemic, the studios decision to push the vast majority of tent-poles to theatrical release in 2020 and 2022 is the best evidence of their commitment to the exhibition economic model. The economics are straightforward. Tent-pole films cost well over $100 million to produce, so the studios need theatrical release to maximize revenue for major pictures. The projected top 30 box office films scheduled for release beginning in February 2020, only six films were moved to non-theatrical release and one other Wonder Woman 1984 was released simultaneously to theaters and HBO Max. In uniquely trying times studios took the opportunity to test alternative delivery channels and for those with streaming services to add subscribers, even when in parts of the country, people could not leave their homes and theaters were either completely shut down or open with capacity and concessions restrictions these releases had limited success. After a couple of major tests with Wonder Woman 1984’s simultaneous theatrical and HBO Max release, and the release of Mulan, Trolls World Tour and Soul to premium video on demand or streaming video on demand. The studios withheld the vast majority of top films from digital-only distribution to preserve theatrical release in 2021. On its recent earnings call Disney reaffirmed, it will release Black Widow theatrically subject to opening cadence and consumer sentiment about going back to the movies, proving that all things being equal, Disney continues to see the enormous power of theatrical release for major motion pictures. Likewise, Paramount recently publicly confirmed that Top Gun: Maverick will be released theatrically in July, again, subject to vaccination rollout. In summary, despite the unique challenges presented by COVID-19, Hollywood continues to recognize that consumers still prefer to see movies on the big screen and don’t embrace PVoD as a viable value alternative. The decision to push theatrical release date for the vast majority of major films, even after a unique period of experimentation demonstrates that theatrical exhibition remains the preferred medium for consumers and the best format to deliver returns to the studios for major releases. I also want to update you on our other major customer groups. Approximately 94% of our non-theater operators are open or for seasonal businesses are closed in the normal course. These businesses continue operating with appropriate safety protocols to comply with state and local requirements. Performance remains fluid depending on the impact of COVID-19 in each locale. However, at a high level our operators are resilient and performance has generally exceeded their expectations in the face of this lengthy pandemic. Furthermore, we are seeing the benefit of owning drive to value oriented destinations. I’ll now provide a brief update on each of our property types. The ski season is underway. All of our ski resorts are open and we’re pleased with results today. All of our top golf locations, all of our Andretti Karting locations and all of our family entertainment centers are open. One of our U.S. gyms are open. About 61% of our attractions had opened for normal operations prior to normal seasonal shutdowns. As we have indicated in past calls, a few of our attractions missed all or part of the season due to governmental health and sanitation measures and the financial feasibility of operating with reduced occupancy in a truncated season. All of our cultural operators are open. Except for the Kartrite Resort and Indoor Waterpark, all of our experiential lodging assets are open. Kartrite remain subject to New York States phased reopening plans, and we are planning for Kartrite reopening in summer 2021. Resorts World Catskills is open. Finally turning to our education portfolio. All of our early education centers are open. We are seeing a steady increase in demand monthly as COVID restrictions ease and parents returned to work. All of our private schools remain open, utilizing a combination of in-person, online and hybrid instruction models. Varying state and local requirements continue to influence each school’s instruction model. Volatility and reopening plans for public school systems has benefited private schools and we believe parents continue to see the value of private school instruction. We continue to progress in executing our strategy to reduce our overall education portfolio. In December, we sold six private schools and four early childhood education centers for net proceeds of $201 million. These assets were sold at cash and GAAP cap rates based on base rents of 8.1% and 9% respectively. Note that over the past two years, we also collected average annual percentage rents of $6.3 million from three of the private schools based on total tuition levels. However, these percentage rents were scheduled to expire over the next few years. Overall, the assets included in this sale were an excellent investment for us with an unlevered internal rate of return of 13% over the life of our ownership. Additionally, we sold four experiential properties and two vacant land parcels for net proceeds of around $23 million. Total disposition proceeds in the quarter were $224 million. During the quarter, we terminated all seven of our AMC transition leases and took back the properties. We are executing our plans for each location. In December, we completed the sale of one of the transition lease properties for an industrial use. We are in various stages of active negotiation to sell another five. We anticipate these will result in various uses, including industrial, multi-family, office, retail and theater reuse. We also took over management of two of our theaters, one of the transition lease properties in Columbus, Ohio, and the former Goodrich Savoy in Champaign, Illinois. We have retained a well-respected experienced theater management company to operate both locations on our behalf and both are open for business. I want to take a moment to update you on the status of our cash collections and deferral agreements. Cash collections have continued to improve in conjunction with reopenings. Tenants and borrowers paid 46% of pre-COVID contractual cash revenue for the fourth quarter versus 29% and 43% in the second and third quarters, respectively. As Mark will go over, we expect first quarter cash collections to significantly exceed fourth quarter collections. In January, we collected 66% and in February, collections are currently 64% in each case of pre-COVID contractual cash revenue. During the quarter, due to the continuing impact from COVID-19, we reserved the outstanding principal loan balance of $6.1 million and the unfunded commitment of $12.9 million for one of our attractions operators. Customers representing approximately 95% of our pre-COVID contractual cash revenue, which includes each of our top 20 customers are either paying their pre-COVID contract rent or interest or have deferral agreement in place. In those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions. However, there can be no assurance that additional permanent rent or interest payment reductions or other term modifications will not occur in future periods, in light of the continued adverse effect of the pandemic and financial condition of our customers, particularly with the ongoing uncertainty in the theater industry. As we’ve discussed, our exhibition partners have faced and continue to face serious headwinds. It goes without saying that the lack of product and reopening restrictions have weighed heavily on box office performance since early 2020, and continue to dramatically impact projected box office performance. Our goal has been to work diligently with all of our customers to structure appropriate deferral and repayment agreements, to facilitate their ability to reopen efficiently and help ensure their long-term health, while also protecting our positions and rights as landlord. We intended to help them through a period where they had significantly reduced or no cash flow, allowing them to ramp backup to stabilize cash flow. We individually tailored each deal, considering the variables impacting each business and improved our position through various arrangements. These agreements are generally structured with rent and mortgage payments commencing and ramping up through 2021 and in some cases after 2021. Repayment of deferred amounts typically commences in 2021, and depending on the deferred amount to allow our customers some breathing room, the deferral repayment period generally extends beyond 2021. The vast majority of our arrangements provide for repayment of all deferred rent. As we have stated previously, in a few cases, we have provided rent concessions, but we’ve generally received equal or greater value through additional lease term, additional collateral or other benefits. In most cases, our customers have paid and continue to pay third-party expenses, including ground rent taxes and insurance. Mark will provide additional color on the revenue recognition and cash collections, implications for the first quarter of 2021. I now turn it over to him for a discussion of the financials.

Thank you, Greg. Today, I will discuss our financial performance for the quarter and year, which continued to be impacted by disruption caused by COVID-19, provide an update on our balance sheet and strong liquidity position and close with some estimated forward information. FFO as adjusted for the quarter was $0.18 per share versus $1.26 in the prior year. And AFFO for the quarter was $0.23 per share compared to $1.25 in the prior year. Note that the operating results for the prior year included the public charter school portfolio, which was sold during the fourth quarter of 2019 and are included in discontinued operations. Total revenue from continuing operations for the quarter was $93.4 million versus $170.3 million in the prior year. This decrease was due to the accounting for the various agreements with customers as a result of the COVID-19 impact, similar to what we discussed last quarter. During the quarter, we wrote off $2.4 million receivables related to putting two additional customers on a cash basis of accounting, bringing the total for the year for such write-offs to $65.1 million, including $38 million of straight line rent. Additionally, due primarily to the Kartrite Resort and Indoor Waterpark remain closed due to COVID 19 restrictions, we had lower other income and lower other expense of $7.4 million and $8.7 million respectively. Percentage rents for the quarter totaled $3 million versus $6.4 million in the prior year. This decrease related primarily to the closure of properties due to COVID-19 restrictions. I would like to point out as I did last quarter, that we are defining percentage rents here as amounts due above fixed rent and not payments in lieu of fixed rent based on a percentage of revenue. Therefore, AMC and other theater tenants that were in the fourth quarter making cash payments based on a percentage of their revenue against contractual rents are recognized as minimum rent. Property operating expense of $16.4 million for the quarter was up slightly versus prior year, but was up about $2.5 million from last quarter due to increased vacancy, including the terminated AMC leases that Greg described. Transaction costs were $0.8 million for the quarter compared to $5.8 million in the prior year, the decrease is related primarily to lower costs incurred related to the transfer of Early Education properties to Crème de la Crème. Interest expense increased by $7.9 million from prior year to $42.8 million, this increase was primarily due to the precautionary measure we took last March to draw $750 million on our $1 billion revolving credit facility, which provided us with additional liquidity during this uncertain time. Due to stronger collections and significant liquidity, including $224 million in net proceeds received from property dispositions in the fourth quarter, we reduce the outstanding balance by $160 million to $590 million at year end. Subsequent to year end, we used a portion of our cash on hand to further reduce this balance by $500 million resulting in a current balance of $90 million on our revolver. As I noted last quarter, we are also paying higher rates of interest in our bank credit facilities, as well as our private placement notes during the covenant relief period. The next slide lays out fourth quarter results reflecting the impact of the receivable write-offs I discussed earlier. These write-offs totaled $0.03 per share for the quarter and $0.86 per share for the year. During the quarter, we had other items that were excluded from FFO as adjusted. Gain on sale of real estate was $49.9 million and gain on insurance recovery, which is included in other income was $0.8 million. We recognized a total of $22.8 million in impairment charges because of shortening our expected hold periods on four theaters, as we expect to sell each of these properties. In addition, we recognize net credit loss expense of $20.3 million that was due primarily to fully reserving the outstanding principal balance and unfunded commitment related to notes receivable from one borrower as Greg discussed. We also recognize severance expense of $2.9 million due to the retirement of an executive as previously announced. Our results for the full year, 2020 were clearly impacted by COVID-19 as FFO adjusted per share was $1.43 versus $5.44 in the prior year. And AFFO per share was $1.89 versus $5.44 in the prior year. Note again that the prior period results included the public charter school portfolio that was sold during 2019. And those results, including $24.1 million in termination fees are included in discontinued operations. As discussed last quarter, we have classified our tenants and borrowers into categories based on how we accounted for them in the context of our annualized pre-COVID contractual cash revenue level of $624 million, which consists of cash rent, including tenant reimbursements, and percentage rents and interest payments. This annualized cash revenue, excludes properties operated under a TRS structure. The changes of these classifications from last quarter were not very significant, but include a new category to reflect sold properties, most of which was previously classified under the first category titled no payment deferral. There was also a slight increase in the new vacancies category, primarily as a result of the terminated AMC leases. Now let’s move to our balance sheet and capital markets activities. Our debt to gross assets was 40% on a book basis at December 31. At year end, we had total outstanding debt of $3.7 billion of which $3.1 billion is fixed rate debt or debt that has been fixed through interest rates swaps with a blended coupon of approximately 4.6%. Additionally, our weighted average debt maturity is approximately five years and we have no scheduled debt maturities until 2022 when only our revolving credit facility matures. As previously announced, due to the continued pressure on near term quarterly results, as a result of the impact of COVID-19, during the quarter, we further amended our bank credit facilities and private placement notes to obtain an extension through the end of 2021 subject to certain conditions of the waivers of the same four covenants temporarily suspended in June. This amendment provides us additional time and flexibility to work with our customers during this period of uncertainty. Note that we can elect to get out of the covenant relief period early subject to certain conditions. And there was no change in the interest rate schedules from that agreed to previously. We believe we have sufficient liquidity to see us through the market disruption caused by COVID-19. We had over $1 billion of cash on hand at year end. Cash flow from operations was positive for the fourth quarter at approximately $6 million. And we expect our operating cash flow to be substantially higher as we move into 2021. This positive trajectory and our substantial liquidity gave us confidence in our decisions subsequent to year end, to pay down our $1 billion line of credit to $90 million while still maintaining about $500 million of cash on hand. In addition, subsequent to year end, we reduced the balance outstanding on our private placement notes by $23.8 million to $316.2 million as a result of certain property sales and in accordance with the recent amendment to those notes. There was no prepayment penalty on this pay down. As previously announced, due to the uncertainty created by the COVID-19 disruption, we are not providing forward earnings guidance. However, we would like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the first quarter of 2021, as well as our expected collections for the same period. Because there’ve been changes in the portfolio due to permanent rent reductions, acquisitions, and dispositions changes in the occupancy levels and other items, we are moving away from reporting against pre-COVID contractual cash revenue to current contractual cash revenue for purposes of our guidance and future reporting. This slide show a reconciliation of those amounts, which begins with pre-COVID contractual cash revenue, including percentage rents for both the quarter and annualized of $156 million and $624 million respectively, and then subtracts out pre-COVID percentage rents of $4 million and $15 million respectively. From there, we make the additional adjustments to the portfolio, I just described, to come to the current contractual cash revenue amount of $136 million for the first quarter and $545 million annualized. Note that both of these amounts are before the impact of any temporary abatements or deferrals. Accordingly, the expected range we expect to recognize in Q1 of 2021 is $98 million to $105 million or 72% to 77% of such contractual cash revenue. Additionally, the expected range we expect to collect in Q1 of 2021 is $87 million to $93 million or 64% to 68% of such contractual cash revenue. Differences from the full amount of contractual cash revenue relate to deferrals granted and the associated counting as well as abatements. Now with that, I’ll turn it back over to Greg for his closing remarks.

Thank you, Mark. As you can see from our presentation today, the trends remain positive and we’re optimistic about the continued recovery as we progress throughout 2021. No one is happier than EPR to put 2020 behind us, and we look forward like many consumers to begin again, enjoying the experiences that our properties offer. With that, why don’t I open it up for questions?

[Operator Instructions] The first response is from Ki Bin Kim of Truist. Please go ahead.

Thanks and good morning. So first, good job on getting the collections up to 66%, obviously, implies that you’re getting a good degree of rents from your movie theater tenants. Could you just help us better understand what the collections trends are within theaters versus non-theaters?

Sure. In the fourth quarter, we reported 46% and theaters were about 21% and non-theaters were about 71%. In January and February, that’s moved significantly. Theaters are up to – in the 40%s, 49% for January and the other was 84%. So we’re seeing an increase in both categories, but particularly in the theater category.

Okay. And in regards to AMC, could you set some baseline expectations in terms of what we should expect for longer term and structures? I realized that in the second quarter you renegotiated a deal to lower AMCs branch by 21%. But I’m just curious, given all that’s happened with the past couple quarters, if that’s still realistic or if that has to be revisited?

Again, Ki Bin, we’ve not – as we said, we haven’t revisited those agreements and those agreements are still in place that we referenced before.

Got it. All right. Thank you.

Thank you. Your next response is from Anthony Paolone of JPMorgan.

Thanks. Good morning. Mark, I appreciate that bridge from the original $624 million. Just a couple of questions, in the new $545 million, how does that – how do we think about in the past, you’ve talked about maybe a 5% to 7% haircut when all is said and done. How much of that is dialed in to the $545 million at this point versus, what may happen in the future?

Yes. Sure. So that 5% to 7% we’ve been referencing based on that $609 million kind of a number without percentage rents there in. You see $24 million of permanent rent that’s about 4% of $609 million and then there’s another 1% that is now in vacancies. Remember we terminated, we gave a haircut on the transitional leases for AMC and now those are vacant. So there’s another 1% of cuts that are sitting in the 17%. So the 5%, to answer your question is in the $545 million, it’s what’s happened to date. It’s in two places on the schedule, permanent rent cuts 4% there, another 1% in vacancies. So that’s where we stand today. We’re 95% through our deferral agreements. And we feel good about where we are. We’ve talked about 5% to 7% but we’re through, like I said, 95% and feel pretty good about that. And then we’ll see if any other cuts are necessary, sitting here today, we think we’re in pretty good shape.

Okay. And then the OpEx piece I think was running give or take $60 million. How should we think about that against the $545 million? Is there any change on that side?

There’s a little bit of change as we sell properties, you saw a bit of an elevation in property operating expenses. It was kind of running around $14 million and then it went to $16 million here in the fourth quarter. As Greg Zimmerman mentioned, as we sell those properties that should come back down. So we think it’s kind of temporary inflated, but that kind of gives you a sense that, it’s a little bit high in the fourth quarter, but should come back down as we go into 2021.

Okay. And then just the last item around dispositions, the five theaters that it sounds like you have in the market for sale. Can you give us some sense as to maybe, what proceeds could be from those? And then also, anything else of size that you think you might look to sell this year?

Yes. And I’ll jump in on that. I think, what we can reference, the one that’s sold and I’ll ask Greg to comment. I think of the seven that we mentioned, we sold one, I think and Greg, correct me, if I’m wrong, that sold for a six cap for industrial use. And as Greg said, I think there’s the other – we have five of the other remaining six under a LOI or a contract. And we’ll see how those progresses throughout the year. Now the thing about it is, and I think that the positive reflection that we’ve seen is that we own quality real estate. And that there’s going to be a very demand for this, as Greg mentioned, whether that’s industrial, multi-family, different uses and they’re all not going to be six caps, but we think overall we’re going to have a good reuse of our properties. And that’s kind of what these have depth in and was part of Greg’s strategy and our asset management team. So again, I don’t think we were going to comment about the other ones. Other than to say that we have, they’re either under contract or under LOI. And that gave us the confidence to go ahead and terminate the AMC leases, but we will see how those play out. But Greg, do you have anything else to add to that?

Yes. Tony, the only other thing I would add is that in each of the instances we’ve had multiple offers to choose from. So it’s been pretty fulsome and we’re very pleased with the response and as Greg said, I think it really demonstrates the quality of our real estate.

Okay. And anything else from size this year, if you think to do?

None at this time that we’re talking about, I mean, we’re always looking as we did with our – with some of our education assets, but nothing to talk about now.

Okay. Thank you.

Thank you. Your next response is from Rob Stevenson of Janney. Please go ahead.

Good morning guys. Just to follow-up on the last question, is that six cap rate based on pre-COVID NOI or current NOI, what is that based on?

That was pre-COVID NOI. That’s based on the number that was part of that $609 million.

Okay. And then what does it look like just in terms of sort of rough dollar by value in terms of – what does it look like price wise to sell a theater for industrial use in general, versus where you could have sold that theater pre-COVID as a theater? I mean, is it basically pretty similar? Are you taking much of a hit you actually making more money because of the demand for industrial and infill locations? What does that sort of look like?

I would say, and using – and Greg, I’ll ask you to come in, but using kind of these first six, as an example, I would say, it’s really location dependent. I mean, again, I would say, industrials are probably clearly selling for above kind of theater cap rates. But I would say, if you blended it all, it’s probably at or near kind of where theaters were selling on a pre-COVID basis. Greg, maybe you have some thoughts.

No. I would agree. That would also say, I think multi-family in certain locations is strong right now as well. But generally, I agree with what you said. Yes.

Okay. And then you guys continue to sell the education segment down. How low does that exposure go? And if your has a guess as EPR in that business three, five years from now, is this just a temporary thing for source of capital? And where you could sell the assets and once the acquisitions start ramping back up again, it’s going to be a disproportionate amount of education or is education sort of winding down as a major investment for you guys?

Yes. I would say as a major investment. You’re correct. I mean, when we determined to focus on experiential, we announced that – we weren’t growing that area and then overtime, we could sell out of that. So I would say, there’s no rush to do it. I mean, this was a tenant exercise options to purchase these assets. So but I wouldn’t see us, those assets being any material, part of our portfolio as we look out over the medium to longer term.

Okay. And then the last one for me, as you in the board, Greg, think about, getting back to an acquisition environment, is there anything that – anything that’s occurred over the last year that would dampen the enthusiasm to move into the casino business in a significant way relative to where your desires, where call it, 13 months ago?

Rob, I would say, if anything, it’s kind of proven out our thesis. We talked about when we looked at the space that we liked the regional plays and the drive to destination. And I think if you see the trends and how that business has responded, I think we would still be very interested in that space.

Okay. Thanks guys. Appreciate it.

Thank you. Your next response is from Katy McConnell of Citi. Please go ahead.

Great. Thanks. Good morning. So as you look at the new vacancy component in the revenue bridge that you provided, what are your thoughts around back sell prospects and what rent adjustment can look like there based on any releasing progress you’ve made so far?

I think and Mark, and then I’ll let you comment. I think in that vacancy are the five properties that I just mentioned that we have under contract. So there’s going to be a significant amount of [indiscernible] part of capital recycling. There will be some releasing, but I do think right now the majority of that are properties that I think we are evaluating, whether we’re going to release that or kind of dispose of those assets. But Mark, maybe you have more color.

No, I’d agree. A lot of that vacancy increase was those terminated the leases. And I think as Greg said, five of those are under contract or LOI. So expect that really to result in sales and vacancies will go down because of properties will be sold.

Okay. Thanks. And then can you talk about how traffic and sales trended in 4Q relative to pre-COVID levels for the markets where your theaters have reopened so far? And how impactful do you think the reopening of New York theaters to be in that portfolio?

Greg, do you want me to take.

Yes. Obviously, I think the trends both with New York reopening and with vaccinations ramping up are good. We’re feeling very positive that the release schedule will hold cautiously optimistic that Black Widow and Fast and Furious 9 will drop in May. And I think as we’ve said all along what we need is continued product and the ability for our exhibition partners to open – remain open without having to go into further lockdown. So we see a lot of positive trends, particularly when you look at what’s happened in China, I think people are – there’s a lot of pent up demand to get back and do things.

And I would add onto that and it’s just kind of an indication just because it’s time. I think if you look at kind of our expectations coming into the ski season and talking with our operators, I would say that across the board they’ve exceeded expectations as far as consumer demand coming back to the product. So it’s across all of our experience for properties when available to operate. The consumer is speaking with their feet and returning and in strong numbers.

And I would add to that Greg, very much impacted by the fact that we have drive to value destination. So we’re just not being negatively impacted by air travel constraints.

Okay. Thank you.

Thank you. Your next response is from Joshua Dennerlein with BoA. Please go ahead.

Hey, good morning, guys. I was looking at Page 29 of your supp, where you have minimum rent percentage rent, and I guess like rental revenues total there. Just wanted to clarify, is that minimum rent cash number or GAAP?

On Page 29, we’re reconciling GAAP revenue there.

GAAP revenue, okay. I guess, my question around this is related to how to think about that minimum rent going forward. Are we talking about drop there? And then how to kind of think about that percentage rent, I know you have a lot more percentage rent go forward with AMC restructuring. So just kind of trying to frame all that would be really helpful.

Well, the AMC was in percentage rent for their contract in fourth quarter, their contract moves away from percentage rent and more to fixed rent. So with respect to AMC, secondly, the rent that theaters are paying anyone that is on a percentage rent basis that’s not what we’re calling percentage rent here. We’re defining percentage rent here is amounts over base, right? So if they’re paying some portion of their minimum rent through kind of a variable arrangement based on sales, we’re not deeming that percentage rent. Now that said, percentage rent this year, I think was around 8 points – I think it was $6 million. I’ll get there real quick. Sorry, it was $8.6 million for this year as a whole. Next year we do expect percentage rents, but a lot of that $8.6 million in 2020 was driven by private schools. We had significant percentage rents, as Greg said, an average about over $6 million in the last two years. So that’ll drop. At the same time, we do have an early ed-tenant, that’s paying a base amount and then paying percentage rent over that base amount. So that’ll go up. So long story short, I think percentage rents it’s fairly similar, but for different reasons, I think there is potential upside for that – to that just because of – as certain of our attraction properties get back to normal, they could hit percentage rent limits, but it’s hard to say right now. So anyway, percentage rent, just keep in mind is over base amounts. And then, like I said, with respect to AMC, they’ve really transitioned – have transitioned per their agreement that we went over from a percentage rent or a variable rent basis to a fixed basis.

Okay. So it was a little bit different than what I was thinking.

Yes.

Appreciate that. I’ll turn the floor. Thanks.

Thank you. Your next response is from John Massocca of Ladenburg Thalmann. Please go ahead.

Good morning. Maybe building a little bit on that last comment. I mean, AMC paying their full contractual rents as a kind of current and 1Q 2021.

John, we don’t comment on any particular tenant. What we will say is that all of our tenants are paying in conformance with agreements that we’ve entered into and our cash collections reflect that.

Okay. And then you also kind of mentioned in the prepared remarks that you’d taken over operations at a couple of theaters. Can you maybe provide some color on why you decided to do that? And if there may be more of that going forward.

Again, and I’ll let Greg comment on this after. I think part of the issue was, when we began this, clearly there was more concern about some theater tenants and their ability to withstand the pressures of COVID. So we felt the need to create for lack of a better term of backstop, that we knew we had good properties and we knew that this business would return. So we felt the need to create the ability to operate our properties through management companies, if necessary. And so we have taken what we think are two good performers, and we’ve set that up to allow not only ourselves to understand that we can do this if necessary, but also to give confidence to investors that we are not in a position to where if the other companies are saying, you have to take my terms. No, we don’t. We have the capability and we have the resources for good properties to make these work. And so when we were negotiating with people and even to the transition leases, I mean, this – one of the theaters that we took over and Greg your comment is probably a top 100 theater in the country. And so we wanted to demonstrate that we’re going to approach this from a position of strength. And I think you will see that in our negotiations. But Greg, I don’t know if you have anything else to comment on that.

No, I think you covered it. I mean, obviously those theaters are strong in their markets and we’re learning a lot and we will also be able to make sure that we’re getting reasonable rents as they turn back into operating theaters and with someone else in the future.

Yes. And I think as Greg pointed out there, John, I think the long-term, our long-term objective would be, as we get back to normalcy, we’ll find somebody who’ll lease these properties, but it will not be at some draconian cut that people may think they had leveraged to do. We will get them back to what we think are very reasonable and respectable rent levels.

Very helpful. And then one last detailed one. In terms of the collection, I know that the guidance is based on the new kind of base rent number, but where the reported January and February collections also based on that number.

Yes. And I’ll let Mark comment on this. But the 66% and 64%, I think are apples to apples. What you saw the 46% at. Is that a fair statement, Mark?

Yes. The only change there is we adjusted for sales because obviously we had sold the spring portfolio, but we didn’t adjust for permanent red cuts and vacancy and so forth, like we did in the new contractual. So 68%, 66% and 64%, as Greg said are essentially on a pre-COVID basis. Only adjustment there was really for net activity, which is really the sales for the education portfolio primarily. And then the new basis is based on that 545 annualized or that quarterly amount is that 64% to 68% is based on the new basis.

So basically if we go through the walk to try to get what it would be on the new basis, it would just be take out that sales component, but everything else is…

Well, it’s effectively that bridge I showed so to get to the new basis – so let me be clear. 46% was pre-COVID, really didn’t have sales to deal with. But we then sold right at the end of the year, the spring portfolio, and we say, pre-COVID in the press release, and we say 66% and 64% it’s effectively pre-COVID nothing to do with permanent red cuts, nothing to do with vacancies is pre-COVID. So that’s consistent. When you move to the new, now we’re just talking about guidance now, and we give a range of 64% to 68%. That is now off that revised new contractual amounts that does take into account not only disposition activity, but the other things there, vacancy and so forth. So that’s really the bridge effectively, like I said, 66%, 64% old basis only adjusted for sales of properties. Whereas now we’re bridging to a new contractual, it doesn’t make sense for us to be quoting forever pre-COVID. If we’d given permanent rent cuts, if we kept saying pre-COVID, we’d never get to 100% because we gave permanent rent reductions. We want same thing with vacancies. We needed to take that into account going forward in our guidance and we’ll kind of have – that’s why we established this new kind of current contractual revenue.

Okay. Very helpful. That’s it for me. Thank you very much.

Thank you. The next response is from Todd Thomas with KeyBanc Capital. Please go ahead.

Hi. Thanks. Good morning. Just circling back to the theaters. I was just curious, how should we think about the risk of future rent reductions or deferrals in general for the theaters at this point? Do you think that that risk is largely off the table or is there still some potential risk there moving further into 2021?

Again, Todd, I think what I can say is, we’ve entered into agreements with most – well with all of our major theater tenants. And so, we feel pretty good about where we’re at now. Again, now you get into the crystal ball and how the rest of the year and vaccine deployment and how quickly it ramps up. I think the – we don’t know. I mean, what I can tell you is, where we sit right now. We feel pretty good about where we positioned ourselves with our major theater tenants and we’ll have to go from where we’re at. But Greg, I don’t know if you want to add anything to that.

No, I think you covered it, Greg.

Okay. And then, sorry if I missed this. But do you have any visibility on the reopening of your Regal theaters? Do you have a sense for what the timeline is like at this point for them to reopen that theaters?

I think Todd, it’s going to flow with product flow. As we see in the second and third quarter product start to flow, I mean, they’ve been fairly consistent with their comments that if there’s product they’re going to open up. I think they mentioned they could be open within two weeks when product begins to flow. So I think they just made the decision up to now that from a cost-effective standpoint, it’s cheaper for them to be closed without product and respond very quickly. So I think as Greg pointed out, we see that that product begin to flow in spring that’s consistent with kind of dates kind of affirming and hardening up. And I think you’ll see them kind of respond to that with opening schedule.

Okay. And then Mark, I think you said Kartrite scheduled to open this summer. I think previously the open, it was intended to be around April 1. Can you just provide an update there? Is there anything concrete at this point that you can share?

Greg Zimmerman, do you want to take that one? I think it’s moved from April to kind of more of a June type of a kind of early summer, but Greg I’ll let you comment on that.

Yes, that’s right. Probably June and it’s almost all related to the pace of the reopening schedule in New York State. So that’s what we’re planning on.

Okay. All right, great. Thank you.

Thanks.

I’m showing no further questions at this time. I would now like to turn the call back over to Greg Silvers.

Thank you all for joining us today. Again, as I said earlier, we’re really excited about putting 2020 behind us. We look at – we’re enthusiastic and optimistic about 2021. And we look forward to talking to you at, on our completion of our first quarter and talking about our results then. So everyone stay safe and healthy. Thank you. Bye-bye.

Thank you.

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