Good day and thank you for standing by. Welcome to the EPR Properties Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brian Moriarty, Vice President of Corporate Communications. You may go ahead.

Okay, great. Thank you. Thanks for joining us for today for our third quarter 2021 earnings call and webcast. Participants on today's call are Greg Silvers, President and CEO; Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. 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, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company's actual financial condition and the 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 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 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 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. Good morning, everyone, and thank you for joining us on today's third quarter 2021 earnings call and webcast. Third quarter was highly productive with our strong cash collection results and the meaningful steps we took to further solidify our balance sheet and strengthen our liquidity, we reinforced our position to pursue additional investment growth. We were pleased to report cash collections, which exceeded our expectations driven by the accelerated recovery across our experiential properties. We believe that increased vaccination levels and new protocols have translated to increased levels of confidence as people are again going out and seeking memorable experiences. Consumers are returning to the theater in a significant way, driven by highly appealing content as studios reestablish a rhythm of releasing major titles in theaters. Strong momentum has been established with the box office with pandemic era of record fee broken. This demand for the theater experience has also provided studios much greater clarity around the economic value that box office contributes. We look forward to seeing this momentum continue as studios have committed to exclusive theatrical releases and a strong slate of titles remain in 2021 and going into 2022. We are also continuing to see a sustained rebound across our non-theater experiential properties from Eat & Play to experiential lodging, the common attributes of value and drive to locations provide choice allowing consumers to spend a few hours or a few days outside the home. On the capital markets front, we were pleased to once again receive an investment-grade rating with a stable outlook from S&P, while Moody’s raised its investment-grade rating to a stable outlook in October recognizing our meaningful progress. Additionally, we further solidified our balance sheet as we completed a new $1 billion credit – revolving credit facility and $400 million…

Thanks, Greg. At the end of the third quarter, our total investments were approximately $6.5 billion with 358 properties in service and 96% occupied. During the quarter, our investment spending was $39.3 million, bringing the year-to-date total through September 30, to $107.9 million in each case entirely in our experiential portfolio. The spending included an acquisition, built-to-suit development and redevelopment projects. Our experiential portfolio comprises 284 properties with 43 operators and accounts for 91% of our total investments or approximately $5.9 billion of the $6.5 billion. And at the end of the quarter it was 95% occupied. Our education portfolio comprises 74 properties with eight operators and at the end of the quarter it was 100% occupied. Now, I'll update you on the operating status of our tenants. Q3 theater headlines were extremely positive. Q3 total box office was $1.37 billion. Major films were released, customers returned to theaters and box office results steadily improved. The first $100 million three day weekend in the pandemic era wasn’t until July. Since then, North American box office has exceeded $100 million for three day weekend five times. Shang-Chi and the Legend of the Ten Rings put an exclamation point on the quarter establishing an all time, four days Labor Day box office record at $94.7 million. Venom: Let There Be Carnage delivered the highest grossing opening three day weekend during the pandemic era at $90 million. Box office momentum continues as we roll into Q4. North American box office through this past weekend is $3 billion, compared to $2.1 billion for all of 2020. We believe Q4 performance will deliver around $2 billion. An instructive metric to evaluate box office recovery is to compare 2021 monthly grosses to the same month in 2019, which adjust for the seasonality of the film schedule.…

Thank you, Greg. Today I will discuss our financial performance for the quarter, provide an update on our capital markets activities and strong balance sheet and close by reviewing our increase in 2021 earnings guidance. FFOs adjusted for the quarter was $0.86 per share versus a loss of $0.16 in the prior year and AFFO for the quarter was $0.92 per share compared to $0.04 in the prior year. Total revenue for the quarter was $139.6 million versus $63.9 million in the prior year. This increase was due primarily to improved collections and revenue from certain tenants which continue to be recognized on a cash basis over previously receiving abatements, as well as less receivable write-offs than in prior year. I'll have more on collections later in my comments. Scheduled rent increases, as well as acquisitions and developments completed over the past year also contributed to the increase. This increase was partially offset primarily by property dispositions. Additionally, we have higher other income and other expense of $7.9 million and $5.2 million respectively, due primarily to the reopening of The Kartrite Resort & Indoor Waterpark after being closed due to COVID restrictions - COVID-19 restrictions, as well as the operations from two theater properties. Percentage rents for the quarter totaled $3.1 million versus $1.3 million in the prior year. This increase related to higher percentage rents from an early education tenant due to a restructured agreement, as well as stronger performance than expected at two attraction properties and one ski property. This was partially offset by the disposition of certain private schools in December of 2020. I would like to point out as I have in recent prior quarter, that we are defining percentage rents here as amounts due above base rents and not payments in lieu of base rent…

Thank you, Mark. As you’ve heard today, our recovery is nearly complete and we are focusing on return to growth. As we’ve stated, we have the team, the balance sheet and equally important the consumer demand to make that happen. We look forward to demonstrating these efforts in the coming quarters. With that, I will open it up for questions.

[Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc. Your line is open.

Hi, thanks. Good morning. First question, I just wanted to talk about acquisitions you talked about being in a position to begin deploying capital here and I think there has been focus on gaming when we think about investments for EPR here, but I am just curious, just around other potential acquisitions that you might be looking at and contemplating. I think you mentioned that everything sort of on the table outside of theaters. Can you just discuss sort of where you are seeing attractive investment returns and opportunities elsewhere and across the landscape of that?

Sure, Todd, and I’ll let Greg add some more to this. I think, one of the things that this quarter has to reflect is, if we look back in the third quarter, remember, this is also the period of time where the Delta variant very much reared its head. There were quite a bit of concerns about would we be back into shutdowns. I think we took a very conservative kind of view of that, what we had experienced. So, we probably kind of took the foot off the accelerator a little bit as we let that play out to kind of see clearly, as I said the consumer wasn’t as affected by that fortunately. We saw strong demand on that and I would anticipate that we would see our investment volumes growing as we move through upcoming quarters. But as to where those we are at, Greg, I look to you and you can give us some insight.

Yes, Greg. I agree the investment cadence will certainly start to pick up. We are seeing opportunities in experiential lodging for sure. We are seeing opportunities in attractions and Eat & Play and we are actually actively looking at projects in all of the verticals on our website other than theaters. And again, gaming does remain a focus for us.

Okay. And can you provide a little bit more detail around the joint venture acquisition that was – that you completed during the quarter, the experiential lodging property in Wisconsin? And the investment yield that you can share just a little bit more color on that investment?

Greg?

So, with respect to the joint venture, we partnered with an operator that has substantial experience in the RV Park business. So, we actually own it in the joint venture and they will manage it for us. We thought it was a great opportunity. The park has been around for 30 or 40 years and we felt like there were a lot of opportunities to improve it and we’ve already started to see the results of actions. We took ownership in Labor Day.

I would say from a yield standpoint, I think – we think just low rate type return, Todd.

Okay. It’s helpful. And Mark, the increase in percentage rent, I think you mentioned a couple of attraction tenants of a ski property perhaps, what’s the outlook for percentage rent throughout the balance of the year and do you expect percentage rents to continue to remain elevated in 2022?

Yes, you notice, we increased the midpoint of our guidance by $2.3 million and as you mentioned, partially that was from Q3 which was ski and attractions and then we expect in the fourth quarter to be attractions again, but also some Eat & Play tenants starting to pay percentage rents. So, we are encouraged really as the business picks up, we are seeing additional percentage rents that frankly we didn’t plan on previously, but it’s really evidence of the demand that these properties are seeing.

Okay. Alright. Thank you.

Thanks, Todd.

Our next question comes from the line of Katy McConnell from Citi. Your line is open.

Great. Thank you. And so now that you are approaching the target level for contractual cash revenues, how should we think about NOI growth upside from here? And maybe you can just discuss some of the key drivers as you think about next year?

I mean, I we’ve said, Katy, that and I’ll let Mark to comment, but I think we’ve said generally, it bumps. We are going to average somewhere 1% to 2%, call it, 1.5%. And then, the remaining amount of growth will be driven primarily by additional investment spending. But Mark, are those numbers consistent?

Yes. I mean, in part we’ll get to a 100% revenue recognition, right, which will drive earnings next year. We will also – we did have some of our managed properties closed for a good portion of the season. So we are hopeful of those get a full season to operate those will also improve in performance in 2022. So, I think we’ve got some tailwinds heading into 2022, as far as year-over-year growth.

Okay. Great. And then, could you just update us on the pipeline of dispositions that you are assuming to selling guidance in the balance of the year and does that account for any of the theater access that that you’ve been marketing or any other categories did you pick here?

Yes, I think it’s primarily theater access, but I’ll let Greg.

Yes, and I’ll let Mark talk about what’s in the budget for the rest of the year, but we have, as I mentioned in the – in my script, we have five theaters left to sell that theaters are only vacancies, three are under contract and two are substantial expressions of interest. We anticipate that several of those should close this year, but they could roll into Q1 of next year.

Yes. Our guidance went up for dispositions kind of at the midpoint by $53 million and $48 million of it was the ski properties, I would call the remainder of it some things moving around. But Greg also mentioned the theater property that’s sold in Q4 for $6.8 million. So it’s really the primary drivers of the increase. In Q4, we have in addition to the ski properties we sold and the theater that we’ve already sold, there could be other smaller sales and we got a range for that that some of which relates to non-theater properties.

And think those are mostly landfills, right, Mark?

Yes. Maybe one of them.

Yes.

Got it. Okay. Thank you.

Thank you. Next.

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

Good morning, guys. Excuse me. Mark, or one of the Gregs, how are you guys thinking about sort of where you guys are versus September or October 2019, whichever you own the best data for on a sort of same-store cash revenue run basis today. I mean, you renegotiated some of the leases with your tenants. You’ve sold some stuff. But excluding deferrals and all the other sort of stuff that would be in there, I mean, how much is revenue in the door down today on the same properties versus 2019? And how much of that gap are you likely to make up over the coming quarters?

I think what we’ve said on the same properties, we went into this and said, we thought we would be down about 5%. I think we actually get that number or maybe slightly less than 5%. So, Rob, I think the guidance that we gave the market early on has proven correct. I think most of that is permanent candidly. And we would be – I’d be remised if I told you I think we can make that up those are renegotiated leases. I do think, at 5% though, we are as we talked about we are sitting on the lot of liquidity. Our ability to make that up, I think as we start to drive investment volumes is pretty apparent. But I’ll let Greg or Mark add anything they’d like to.

No, I think that’s right. I mean, we’ve already mentioned we’ve had some portfolio changes in 2019. We sold Charter School at the end of 2019, some private schools, we sold some theaters, et cetera. So we are sitting as we said on a quite a bit of liquidity. But when you talk about store-over-store, the 5% is the number we’ve been – I guess, as Greg said had estimated and that’s what has come true and 4% of that’s really the AMC deal that we disclosed quite a while ago. So, nothing has changed in that regard.

Okay. So, ex AMC, it’s not down very much at all.

That’s correct.

And reflecting – and the deferrals for the most part there were some forgiveness and we’re collecting those over time and you are seeing that in our cash flow numbers.

Okay. And then, the other question is, a number of people both at triple net space and the overall retail space have been doing – have been going back and reevaluating their theaters for less parking, trying to carve out some outparcels. A couple of them have looked at them as potential multi-family development sites, given how pricing multi-family land has gotten in the cost there, et cetera. When you look at your theater portfolio, is there any material amount of outparcels to carve out, properties that would make for a higher and better use at this point as you are going through and trying to figure out your theater exposure going forward? Anything to sort of mine there of any materiality?

I think, it’s a good question, Rob. I think the point to point out is, we’ve been doing that all along. I mean, if you look at most of our – when you look at our portfolio where we have restaurants or where we’ve mined and sold outparcels, we did a deal a couple of years ago on multi-family outside Chicago. So, we continue all the time to look at ways to create value working with our tenants. Greg, I don’t see that stopping.

No, it won’t stop at all. And I think the – in terms of the repositioning, we’ve sold some of these vacant AMCs for multi-family. We sold some for industrial. So where there is demand, we pay attention to that.

Okay. And then, Mark the Jellystone JV, is that unconsolidated?

Yes, it’s correct. We own 95%. But it’s unconsolidated and it just has to do with the accounting rules around major decisions that are kind of shared. So the accounting rules require that to be unconsolidated. So that will show up in the unconsolidated joint venture line item.

Okay. Thanks guys. Appreciate the time.

Thank you, Rob.

Thanks.

Our next question comes from the line of Michael Carroll from RBC Capital Markets. Your line is open.

Yes. Thanks. Can you just talk a little bit about how private market valuations changed for some of your targeted asset classes today versus pre-COVID levels? And is there a meaningful difference or how is this recovery kind of brought those valuation levels back to where they were previously?

I would say, again, it’s – it would be kind of – Mike, this is Greg, it would be kind of credit based. I think there is still a recovery in the theater space. But when you look at some of our kind of top tenants at Vail, at Top Golf, at Six Flag, they are meaningful kind of valuation, I mean, a lot of those assets could trade significantly into the low-single-digits. So, I think that’s an area when you parse our portfolio, there is significant valuation distinction in very many of those tenants and assets. So, Greg maybe you…

Yes, I would also add lodging.

No doubt, that’s recovered nicely.

And then, I guess, when you are looking at these types of investments, these are stabilized deals or are there any value-add types of investments that you can find that might have a better return profile? You have to look on the marketplace that you are really interested in.

I think it’s both. I mean, you heard Greg talk about the Jellystone deal. We think of it as very value add in a sense that we are already we have a property improvement plan when we – where we intend to invest and modernize. So, as we talked about and we could go in that’s kind of a low eight and make improvements and we think drive those up. You’ve heard us talk about some of our experiential lodging where we made significant improvements and are driving returns. So, I think it’s a little bit of both, Michael, that there are stabilized opportunities, but there is always going to be things that we think that we can buy at attractive prices now and then improve to higher returns.

Yes, I should mention – oh, sorry, I just want to add to that. One thing on the Jellystone venture we invested and I should mention is that, we do have secured debt on that at about $15 million at a 4%. So an attractive rate. So that’s we’ve gone in and invested 25 gross and more like a 11-ish net and the interest rate on that’s like 4%, just to round out that investment.

Okay. That makes sense. And then, on the gaming side, I know there was a big transaction that you are looking at pre-COVID that I think you are probably looking at now. And is there an update you can provide on that? I mean how is that progressing? Are you in the middle of due diligence right now?

Again, we can’t comment on any kind of deals. Generally, I would say, as many of you know the gaming space has gotten increasingly more competitive. Again, we’ve seen significant cap rate compression in that area. And we will see if that works for us. But we don’t comment on really any specific transactions.

Okay. Great. Thank you.

Thank you.

Thanks, Michael.

Our next question comes from the line of Kevin Kim from Truist. Your line is open.

Hi, this is Steven. A quick question first. Where were your leverage ratio be that was your FERC EBITDA ended a year on a abnormalized basis?

Yes. The good news is our leverage should be back in our range of 5% to 5.6, so I’ll call it, it will be – should be in the mid-5s in fourth quarter and our AFFO payout ratio will be in the low 70s. So we are kind of going to get back to normal as far as our leverage and of course as we further annualize next year, investment to 5, that will go down further.

And that’s including preferred?

That’s – no, that does not include preferred debt. Debt does not include preferred.

Okay. So, in terms of your capital deployment plans going forward, your stock price has rebounded nicely, but I would say, not quite good a point where a lot of deals would make sense in terms of yield spread investing. How do you think about that as a management team? And what other alternative funding mechanisms are you thinking about?

I think, Gibbon, first of all you have to realize, as Mark said, we are probably sitting on $200 million to $300 million of cash. So, again, deals look a lot with that much cash. With that being said, we are mindful of that. We made, as you said, we’ve made a nice recovery. We think there is still more to do with that as far as kind of driving our multiple up. So, as Greg said, we still have assets that we are selling. So, we still have the ability to recycle. But we believe that our recovery will continue as we demonstrate kind of the consistency and the reliability of these cash flows and combine with our existing cash and liquidity, I think we can begin to establish an investment cadence that will continue to drive down our cost of capital.

Thank you. That’s it for me.

Thanks.

Thanks, Gibbon.

[Operator Instructions] Our next question comes from the line of John Massocca from Ladenburg Thalmann. Your line is open.

Good morning.

Good morning, John.

Good morning, John.

So, just on the theater, I know you sold one subsequent to quarter end, but is there a market today for kind of theaters that are going to continue to be operated as theaters invite most to sales and the projection sales you have for kind of a re-use of the property?

I am going to say, John, ironically enough the one we sold will be a theater.

It’s vacant, but it’s going to be operated, right? I think it is correct.

Yes, correct. Just another operator will take it over.

I mean, I would say, we are starting to see the recovery of that business early on, you are correct. Most of our assets were sold for an alternative use. We thought it was important to kind of demonstrate that high quality real estate had a demand. I think now you are starting to see whether it is ours that we have, we are starting to get offers for existing. So, Netflix buy and operates the theater. You’ve seen AMC get back into the market and buy theaters for operations. So, I think you are starting to see that market saw and more liquidity being injected into it.

I would also say, John, we are agnostic. I mean, we take the theaters out to market and whoever wants to pay the highest price that’s who we go with.

Okay. And then, on the investment side, perhaps maybe on the experiential lodging and specifically assets similar to the one you acquired in the quarter which are kind of RV oriented type of experiential lodging. What’s the total addressable market there? I mean, how big could that maybe specific slice of the potential investment pie be for EPR?

Well, I mean, we’ll have to see the growth for us, but we think that that multi-billion dollar opportunity as far as if you think National Park, things of that nature, these are not – let’s be clear, this is not the kind of manufactured housing kind of things. These are truly experiential kind of RV parks. But we think, again, our first experience is with that both in terms of Wisconsin and in terms of Pigeon Forge have been incredibly positive. Greg and his team has built relationships with operators in that area. It’s an area for many years has not been amenitized. If you think about it, it was a lot of kind of concrete pads where people pull their RVs up and we are bringing a thought process where we are off kind of pollinating our ideas on some water park stays and some other amenities that we are able to kind of bring to the table, in fact, Greg and their team they are talking about digital check in and lots of different things that I think change that experience. And we’ve seen phenomenal growth in the recreational vehicle space through COVID and think that’s got some nice tailwinds. So we think that’s a kind of nice opportunity for us to add to the overall experiential flavor of our portfolio.

Okay. Understood. And then, one quick detail one on the guidance. Most of the pushes and pulls versus last quarter were pretty self-explanatory, but the decline of $0.04 in the managed properties and other, can you maybe provide some more color on what drove that versus what you are seeing in Q2?

Sure. John, this is Greg. A couple of things. One, we are managing some theaters. So, obviously, we’ve had ramp up through the summer and things are getting better as the box office has recovered. In St. Pete Beach, I think the biggest issue was the red tide hit Tampa Bay and it drove down a lot of our bookings. There was a recent storm that seems still washed that out, so we are hoping that that’s behind us for now. And then The Kartrite, it’s just a situation where we are ramping up. It was closed for over a year and we have a new venture in place. So, we are pleased with the progress. But it’s a ramp up.

And in New York restriction…

And New York, yes, it was significant, so, I mean, even when we opened, we weren’t able to open at capacity. And therefore, we’ve been gradually ramping it through. And to a smaller degree, the Jellystone investment is off season. That’s a new investment in the fourth quarter we’ll have – we expect a slight loss, because it’s not their season. So, that’s part of it too. It’s a new investment.

So part of that was by design. So we want to make some improvements. So that’s when you kind of buy it to make the improvement to this, into the operation.

Yes. And we also wanted to pick up Labor Day and the Cranberry festival. And so, we could really understand the nuts and bolts of the project heading into next year for sure.

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

Thanks, John.

There are no further questions at this time. Now I turn the call back over to Greg Silvers for closing remarks.

Well, thank you everyone for your time and attention. We look forward to talking to you at year end and everyone be safe and enjoy the upcoming holidays. Thank you.

Thank you.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.