Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2021 EPR Properties Earnings Conference Call. [Operator Instructions] Thank you. Now, I would like to welcome Mr. Brian Moriarty. Sir, please go ahead.

Thank you, operator. Thanks for joining us today for our fourth quarter and year end 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 will start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company’s actual financial condition and the 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 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 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 will turn the call over to the company 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 2021 earnings call and webcast. As we enter 2022, I am very proud of the significant and consistent progress we made throughout 2021. Our cash collections improved meaningfully as the year progressed and ended the year at the high-end of our expectations. Additionally, during the quarter, we took several important steps to further enhance our balance sheet. This progress has given us the flexibility and liquidity to pursue attractive opportunities and drive our growth strategy in the quarters ahead. Turning to our tenant industries, we were pleased by the significant resolve demonstrated during the year by theater exhibition. This was highlighted by the extraordinary performance of Spider-Man: No Way Home, which was released in December 2021. Notwithstanding the fact that the title was released during the heart of the spread of the Omicron variant, it has become the third highest grossee title of all time. Over the past 2 years, studios and content providers have experimented with various methods of film delivery. These include premium video on-demand and day-in-day presentation. However, the data is clear that neither of these alternatives is an economically viable replacement for exclusive theatrical release. If we look at streaming as a competitive threat, the data is also compelling. Recent 2021 Nielsen streaming statistics again affirmed that streaming services are primarily vehicles for series-based viewing as 85% of total minutes are spent with either acquired or original series. The reality is that theatrical exhibition will continue to play a major role in the movie release value creation as it maximizes revenues, creates brand awareness and downstream value for studios and is valued by the consumer as the recent Spider-Man success demonstrates. While there can be no assurance…

Thanks, Greg. At the end of the fourth quarter, our total investments were approximately $6.4 billion with 353 properties in service and 96% leased. During the quarter, our investment spending was $25.6 million, bringing the total in 2021 to $133.5 million. 100% of the spending was in our experiential portfolio and included an acquisition, build-to-suit development and redevelopment projects. Our experiential portfolio comprises 279 properties, with 41 operators and accounts for 91% of our total investments or approximately $5.8 billion and at the end of the quarter was 96% occupied. Our education portfolio comprises 74 properties with 8 operators and at the end of the quarter, was 100% occupied. Now, I will update you on the operating status of our tenants. Exhibition ended the year with momentum. Q4 total box office was $2.06 billion, bringing the total domestic box office in 2021 to $4.48 billion, a 113% increase over 2020. Through the past weekend, Spider-Man: No Way Home has grossed $771 million, becoming the third highest grossing domestic film of all time and only the fifth to exceed $700 million. The 2022 film slate is solid with a potential for 18 tentpole titles to gross $100 million or more, up from 11 in 2021. Uncharted significantly exceeded expectations, bringing in $51 million over President’s Day weekend. Sony has protected the 45-day window and its films have outperformed. Over the weekend, Tom Rothman, Sony’s CEO noted, on the heels of Venom: Let There Be Carnage, Ghostbusters: Afterlife and Spider-Man: No Way Home, Uncharted is yet another blow to theatrical naysayers and further proof of the efficacy of our model. The Batman opens in early March. The remainder of 2022 includes several highly anticipated sequels: Top Gun: Maverick, Jurassic World: Dominion, Aqua Man and the Lost Kingdom, Avatar 2 and John Wick…

Thank you, Greg. Today, I will discuss our financial performance for the quarter and year, provide an update on our capital markets activities and strong balance sheet and close by introducing our 2022 guidance. FFO as adjusted for the quarter was $1.08 per share versus $0.18 in the prior year and AFFO for the quarter was $1.11 per share compared to $0.23 in the prior year. Before I go through the variances, I want to call out three favorable items that benefited our results this quarter, each of which is about $1 million, and in total, represents about $0.04 per share. I will have more on each of these items in my comments, but they relate to deferred rent received from prior periods from cash basis customers and non-recurring benefits in both property operating expense and G&A expense. Note that after backing out these favorable items, our FFO as adjusted per share for the quarter was $1.04, which is still well-ahead of the high-end of our guidance. This better than expected performance is across a number of areas and is testament to the strength we are continuing to see in our customers’ businesses. Now, moving to the key variances, total revenue for the quarter was $154.9 million versus $93.4 million in the prior year. This increase was due primarily to improved collections and revenue from certain tenants, which continued to be recognized on a cash basis or were previously receiving abatements as well as certain receivable write-offs in the prior year. Scheduled rent increases as well as acquisitions and developments completed over the past year also contributed to the increase. This increase was partially offset by the impact of property dispositions. Additionally, we had higher other income and other expense of $8 million and $6.9 million respectively due to the…

Thank you, Mark. As you can see from both our results and guidance, our focus has turned from recovery to growth. I could not be prouder of our team and how they have met the many challenges of this pandemic, and we are now positioned to execute on our investment plan and drive shareholder value for this coming year and beyond. With that, why don’t I open it up for questions, operator?

Thank you, sir. [Operator Instructions] Your first question is from the line of Katy McConnell from Citi. Your line is now open.

Thanks. Good morning, everyone.

Good morning.

So just regarding the acquisition pipeline, could you discuss the breakdown of new acquisitions versus redevelopment spend that you’re getting within the range? And what are you assuming as far as timing of closing the deals throughout the year?

Again, I’ll let Greg comment. But I think historically, I would say, again, it’s probably what we’re looking at 50-50 now. I think, again, it’s probably going to be – we’re getting some progress on some things now, as Greg mentioned, under LOI that we’re progressing with. But it will probably be a little lower at the beginning, a little heavier at the end just as things kind of move to this way. But Greg, maybe...

Yes. I think the best way to think about it is we’re ramping up as we go into 2022. And I agree with that there’ll be a nice mix of development and acquisitions.

The good thing about that, Katy, is the development will not only contribute some this year, but will drive further growth into next year as it becomes online.

It’s Michael Bilerman here with Katy. I was just wondering as you think about funding all the transactions, and clearly, you have the cash that’s on the balance sheet. You talked about the free cash flow after paying the dividend. And you’re talking about your overall leverage profile, which gives you a pretty good runway, as you mentioned, not to have to issue debt or equity. I guess what are you thinking about once you spend all that capital? How are you thinking about your cost of capital? And where does your stock need to be trading for you to think about that as a replenishment of your capital base? Clearly, the stock is a 10% FFO yield. This is not at a level where you could issue accretively. And so I’m just trying to understand a little bit how aggressive you’re going to be about spending the capital you have before thinking about replenishing the well?

Yes. I think there is a couple of things, Michael, and I’ll let Mark comment on this. I think clearly, we think that discount of report and our ability to execute will hopefully help with our share price. Again, when we start to look at things on a 60-40 basis, as Greg said, these are things that if they are above in that 7% to 8% range, that if we can get our cost of capital into around 7%, that we think that we can accretively still deploy capital. We still have the ability also to increase our dispositions and recycle capital. So I think there is a lot of different levers that we can pull. Clearly, as you mentioned, our share price has been depressed. But as I said, we’ve been in this kind of recovery mode. We think that the proposition that we’re offering will be a great kind of value opportunity for people. People will recognize that. And hopefully, the share price will recover. That will allow us to get back into that cycle of driving forward. But the positive thing for us right now is the opportunities are there. We think they are attractively priced. And on any sort of normalized basis, we think they are accretive to what should be our normalized valuation. But Mark, maybe you have something to add?

Yes. No, I would agree with all that. We’re in the fortunate position, as you mentioned, Michael, that we have the cash on hand that’s basically earning nothing that can be redeployed. We also are generating significant positive excess cash flow beyond our dividend. If you think about the deferral collections we expect, plus this ongoing cash flow on a relatively low payout ratio. So cash on hand plus cash will generate, exit the dividend, really gives us a lot of flexibility as to whether we have to raise equity or not. We do have some equity in the plan just to maintain low leverage. But frankly, we can be pretty opportunistic about that within the range of our leverage as we look at our capital plan for 2022.

Great. Thank you.

Thank you, Michael.

Thanks, Michael.

Your next question is from the line of Anthony Paolone from JPMorgan. Your line is now open.

Great. Thank you. First question is just I want to understand in the supplemental, your exposure to Regal bounced from about 8% to 13% in the quarter. So I was wondering what happened there and whether that was just the change in collections and then just any thoughts on that portfolio given the issues with the parent companies in the world?

Yes. And I’ll let Mark answer the bounce up. But it generally was just collections, but I’ll go into more detail. I think, Tony, again, yes, they do have with the recent judgment with Cineplex, I think every one in the industry thinks that will get settled, that they are there are two reasonable people that are reasonable companies that if anybody follows some of the news report, it doesn’t make any sense for them to drive that to a restructuring. So we think those issues will get settled. And as the industry recovers, they will both benefit from that settlement. So currently, right now, we think they are in discussions and making progress.

I would also add that we have a very good Regal portfolio.

Yes. The strength of our – we will make that. And both of those groups, Cineplex and Regal are tenants of ours so.

And just with respect to the percentage, it went from a little over 8% to about 13.7% with respect to Regal. Remember, Regal is on a cash basis. This is based on revenue recognized. And they were receiving some deferrals through third quarter and fourth quarter paid 100% of current contractual cash. So that was really the increase is a full quarter of normal payments, whereas in Q3, they are under some deferral agreement.

Okay. And then Mark, on that major tenant roster, I mean, given where the questions were in the quarter, is that pretty reflective of the rent that’s due at this point?

Yes. I mean you get a little bit of impact of percentage rents because this includes kind of all revenue in this calculation. So for example, Resorts World, which is our casino, is probably not that high an ongoing basis just because it had percentage rents. So there is a little bit of fluctuation. Remember, too, we’re going to have revenue recognition will increase from around 99% to closer to 100%. It was really 98-point-something percent to 100%. So we’re going to have some a little bit of change there. But I think for the most part, it reflects sort of normalcy, what I said, with the exception of sort of some percentage rents that kind of influence, particularly attractions and as I mentioned, casinos, our casino investment.

Okay. And then last question, just in terms of the cap rates on the deals that you’re looking at, you talked about 7% to 8%. Can you talk a little bit more, give some examples of where you need to go to get something closer to an 8%? What those contractual bumps may look like, what the underlying credit or product is, just to get a sense because it seems like a lot of your peers net lease are kind of trending more into things that are yielding 5% and 6%. And so we’d just love to understand a little bit more about what the product looks like with that cap rate range.

Yes. I think and I’ll let Greg Zimmerman comment on this. I think there is some of that is the difference between an acquisition, the lower end of that versus the development or redevelopment. I think the other thing that people don’t appreciate is, and I give a credit to Greg and his team, is a lot of these tenants we worked with through this pandemic. And we’ve built up a substantial amount of goodwill with how we dealt with them and how we help them in this business. And that’s paying off now in the opportunities that we’re seeing, that people are know who we are, how we work with them as tenants. And we’re benefiting from that. We’re getting paid back, and we’re getting an access and an opportunity to do deals. But Greg, I’ll let...

Yes. And I would add that we have several folks who come with different verticals that they invest in for us to help them. So I do believe that the relationships are important. And we’re certainly seeing the lower cap rate deals, but we feel like we have the opportunity to do the cap rate deals that we mentioned, and that’s filling our pipeline.

Okay, thank you.

Thank you, Tony.

Your next question is from the line of [indiscernible] from Bank of America. Your line is now open.

Hi, good morning. I know you guys mentioned the expectations for G&A to increase. And I’m just wondering if it’s fair to assume that growth will decelerate in 2023? And if you can talk about the specific items that will we expected to be more recurring going forward.

Yes. So we have hired quite a few employees this year. We’ve increased our headcount as we kind of ramp-up for growth. And if you can if we look at our guidance this year at the midpoint of $50.5 million versus 2021 at $44.4 million, it’s an increase of about $6 million. About $1.5 million of that is stock grant amortization just due to higher awards. And then we have about $3.4 million is really salaries and benefits. We did have to – we did have raises this year, like I said, new people. Higher incentive comp is expected based on performance. We do have higher professional fees for ESG in our plan. And we also have kind of travel and so forth, other G&A items returning to normalcy. So I think – frankly, I think we’ve added or have planned to add most of the people. And so I think we will – we’re leveraging G&A relative to total revenue this year as a percentage lower than ‘21. But you’ll continue to see that leverage a bit as we move into ‘23 as revenue grow, and you won’t see G&A grow as much. But I think that number that new number is fairly sticky in terms of – given the fact that people and salaries and stock amortization. I don’t necessarily see that going down going forward. But I think the percentage of revenue will go down as we further leverage our G&A.

Okay, great. Thank you. And I was also wondering if you could go over the intended portfolio allocation. I’m kind of talking about Page 20 from the supplement. I believe you noted private schools performing a lot better in 4Q. What about this? And perhaps early childhood education still does not appeal to your business and eat and play and experiential still kind of where you see the fastest growth?

Yes. I would say, we’ve been consistent in the fact that we were not really growing our education. We’re focusing on experiential. So that business is performing well. Again, I think what we’ve seen is the market has taken out a lot of capacity in early childhood education. And so, as people are returning to work, we are seeing a substantial recovery in those and demand, but as we have said pre-pandemic and throughout the pandemic, our focus is on experiential. And those are the categories, save for theaters, that we’re going to be growing. And that’s will be reflective of our investment spending guidance are in experiential categories, not in education and not in theaters.

Okay, great. That’s helpful. Thank you.

Thank you.

Your next question is from the line of Todd Thomas from KeyBanc Capital. Your line is now open.

Hi, thanks. Good morning. First question, just wanted to go back to Regal. So what is Regal’s normalized exposure within the portfolio? It sounds like 14% is not the right number or is it? I was a little confused by the comments.

I think that’s in the range of normal. If you go back to pre-pandemic, that’s, I think, a similar type number. I think one of the things I should add that could impact that schedule is deferral collections from cash-based customers. We are not budgeting those, but that can move the number up, should we collect more than kind of their current contractual, which is all we are contemplating, but I think that number kind of overall is sort of representative given that we were close to 100% revenue – close to 100% revenue recognition as a whole and had full payment from Regal during the quarter.

Okay. And then I think there was a comment that the Regal assets, the Regal locations are strong, above average. Where are Regal rents or sales relative to market across the portfolio? Or is there another way to provide some additional context around that comment?

Again, what we said is we think they are above-average regal assets. I think we’ve commented when we did a revision with AMC, we did that because those – Mark knows rents were more out of market rents given the fact that they were long lived and most of those assets have been in existence for more than 20 years are on our books. And we felt we didn’t need to do that with Regal or with Cinemark. So I think while we don’t talk about a specific tenant, I think I’ll let Greg add color with the fact that we feel like we – our Regal portfolio is, as I said, a better-than-average portfolio relative to the market. And it’s reflective of the fact that as fourth quarter, we’re back to 100% of payment on that, but Greg?

Yes. I think that covers it.

Okay. Are there any restrictions or obviously, it’s sort of fluid and the outcome is uncertain. But are there any restrictions or anything that would maybe that would prevent [indiscernible] from maybe transferring obligations to another operator in the way of sort of assuming leases or pursuing a spin or an IPO of the legal entity or anything like that? Are there any restrictions or impediments to something like that happening as it pertains to EPR?

Again, I’m not aware that there are – I think other than the fact that we have a full center world guarantee on our assets, I think it would be it’s very hard for them to execute that without continuing with that obligation.

Okay. And then if I could, just in terms of the acquisitions, I was just curious, Mark, if you could help us understand what sort of the range of FFO contribution looks like in ‘22 within the guidance from investments? It sounds like there is some developments and redevelopments that will have a bigger impact perhaps in ‘23 relative to ‘22 as they come online, just curious if you can talk about the FFO impact that’s embedded in the ‘22 guidance from investments?

The good news is the way we have got this kind of laid in with 50-50, a bit back-weighted. We have equity in the plan in a pretty conservative way that’s somewhat opportunistic and somewhat optional. It’s not as big as you might think. I think it’s probably in the order of $0.10 a share or something like that in terms of the impact of acquisitions and development. Development has some impact and that we are – obviously, you are going to be capitalizing interest. So, there is some cap rates. It’s not the full cap rate. And we will get the benefit or the full benefit of that in ‘23, obviously. But so it’s partial. I mean it’s not as significant as you might think in terms of our plan.

And I would add, Todd, that’s always impacted by timing. And do deals close earlier or later, that always drives a lot of that discussion.

Sure. Okay. That’s helpful. And I guess the cash on the balance sheet, almost $290 million, should we assume that cash is used first to fund investments and then the revolver is used later in the year?

Sure. Yes, exactly. If you kind of run through it, $300 million of cash, $600 million of acquisitions, $140 million of positive cash flow, have some equity issuance and very little draws on the line. So, no new debt, very little draws on the line really gets us to our capital plan for the year. And I also should mention that $0.10, there is some annualization too in that from projects. We don’t have significant spending in ‘21. But some of that does annualize as in that $0.10 as well. So, it’s kind of a combination of the new investments plus some annualization. But no, the capital plan is really pretty straightforward when we have this much cash on hand and this much positive cash flow being generated, like I said, really gives us a lot of flexibility as to how we do that. But it’s primarily off the cash and excess cash and a little bit of draws on the line and then we do have some equity. But like I said, very opportunistic in terms of how we will do that.

Okay. Great. Alright. Thank you.

Your next question is from the line of Ki Bin Kim from Truist. Your line is open.

Thanks. Maybe just an accounting question first. You mentioned in your opening remarks that the FFO AA would be $1.04 if you took out one-time items. Are you also excluding the higher than normalized percentage rent in that $1.04, or if you took out the percentage rent, would it actually be closer to $1 or maybe a little bit less?

I am not taking out the percentage rent in that calculation because that will recur effectively next year as well. So in fact, percentage rents on an apples-to-apples basis will go up. You got to pull out the early childhood that moves the minimum rent, if you kind of do the math. So no, it does not back out percentage rents. It backs out the three items I mentioned, cash basis deferral collections of $1 million, there is about $1 million in property operating expenses and then about $1 million in G&A is what the $0.04 is.

Okay. And just given some of those one-time item type of noise, would you be able to provide us some brackets around what we should expect in earnings for like 1Q without acquisitions, I guess deferring run rate?

Yes. So, if you look at first quarter, we really have kind of some offsetting things going on. You have the $0.04 that won’t repeat itself. So, that $1.08 is more like $1.04. But then on the flip side, we have some annualization going on with respect to some of our revenues and some annualization of projects from this year plus some support. So, probably it will probably be in the neighborhood of this year’s adjusted – this quarter’s adjusted number, which was $1.04. We expect Q1 to be fairly similar to that as you have those kind of offsetting things going on for Q1. The thing that could take it up, it could be a deferral collections from cash basis customers, which we don’t budget.

Okay. That’s helpful. Thank you. And in your comments, you mentioned $140 million of cash flow. I was just curious, did you mean cash flow after dividends and just what’s truly retained?

Correct.

Okay. And just last question for me on Regal. Can you just talk about what the – you said you got full rent payment in 4Q. What does that coverage ratio look like for that tenant? We are just trying to understand the downside case here. So, if the coverage ratio is good, then obviously, the downside is kind of safe – safer?

Yes. Again, I think that, again, the coverage ratio on a year-over-year basis is hard to project, given the fact that fourth quarter was really – I think what’s important is both Regal and all the major exhibitors have indicated that in the fourth quarter, they were cash flow positive, which means they are above 10 for the quarter. I think as we move forward through this year and we have a better kind of metric where we don’t have total months that were totally left off, we will begin to start kind of getting back to some traditional coverage metrics. I just don’t think it’s really any way to apples-to-apples kind of compare those two right now, because the only quarter that where we really started turning the corner was in the fourth quarter.

And the box office will continue to get better.

Yes.

Got it. Thank you.

Thank you.

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

Guys, I know you are not generally in the market to buy, but have you been seeing any good performing theaters, at least, one of the top operators trade in the market yet? And if so where is pricing versus pre-pandemic, because obviously, there hasn’t been a lot, most of the stuff has been vacant that’s sold. So, it’s been tough, I think for a lot of NAV calculations to figure out what the 45% of your portfolio as theaters is worth these days. So, any – has there been any decent price discovery on recent transactions out there in the marketplace?

I think all we have really seen is other theater companies acquiring theaters. We haven’t seen a lot. Most, as you said, most kind of transactions are for alternative use. But Greg, I don’t know…

No. I mean I think you are right. I think the only thing we have really seen is AMC taking on new leases.

Yes.

Okay. And then how are you guys thinking about casino acquisitions at this point? And where are the returns you are looking at on deals in that space today versus the 7%, 8% cap rates that you are talking about on acquisitions in general?

Yes. It’s a good question. I think clearly, there has been a lot of activity and a lot of pricing compression in that area. I think most deals – I think most deals, especially of the larger size or sub that target for us. So, it may not make sense for us right now. I think candidly, as we move forward, we will be looking and we are still being contacted and looking at deals. But they will probably be smaller deals. I mean Rob, there is just not that many big assets out there remaining. So, there may be an opportunity for us to participate in some smaller deals on a regional basis, but we will just have to see as that develops. And it’s – there is no, right now, with the guidance that Greg provided and Mark elaborated on, there is no gaming asset as part of that.

Okay. Yes. Because I was wondering, especially now that you now have realty income playing in that space, what’s happening with cap rates there? How are you guys also thinking about the experiential lodging at this point? I mean is it an opportunity now given that the hotel REITs, although they have been performing better of late, have been sort of set back? And hotels haven’t been as front and center, stuff like apartments, industrial and things like that out there to make a play acquisition-wise in that space? How are you guys thinking about that at this point in the cycle?

Again, it’s interesting. As Greg said, we have had some really good kind of performance out of ours. But we look at that a little differently, and I mean, we have seen really good response in the RV space. You have seen us make investments there. So, that whole recreational lodging is a little bit more expansive for us, meaning where we are, yet we opened up our RV facility in Pigeon Forge, and we have had outstanding performance with what we did at Jellystone in Wisconsin. So, we continue to see in and around major attractions, i.e., national parks, things of that nature, that there is some real opportunity to come in, to buy those assets and to amenitize those to a higher level and really see performance jump in terms of both occupancy and daily rental rates. So, I think you will see us continue to look in that space and play in that space and find some unique opportunities. But whether it’s experiential in the RV or lodging, it still needs to have an experiential component for us. Just traditional lodging, we are not going to be a player in. It’s got to have an experiential tie-in.

Okay. And then one last one for Mark for me. Mark, how much of the revenue in 2022 essentially stays cash basis for whatever reason either COVID or whether or not you are keeping Regal there because of the some combination of the past COVID stuff and the ongoing litigation, etcetera? When we are thinking about 2022, how much of that is still going to be cash basis versus reverting back to sort of normal?

It’s a pretty high percentage. And just – and I will tell you why. We are not going to revert back to accrual accounting until we are comfortable with a number of things. Number one, we want to be conservative in the assessment and kind of be data driven. We want to see continued performance according to agreements, and payment of deferred rents and assessed ability to pay all rents. And with theaters, we want to see continued box office performance. So frankly, we are not in a hurry and there is quite a bit of a high accounting threshold to get back to accrual. So, if you think about AMC, Regal, we will continue to be on a cash basis. And some others, it’s probably around 35%, 40%, frankly. But again, we are getting – we expect to get paid 100% of current quarter’s cash amounts. And frankly, when we return to accrual, the impact is really a one-time benefit to record AR and straight line, and then we will have some straight line going forward. But frankly, AFFO is really unaffected because, as you know, straight line doesn’t affect AFFO. So, we are monitoring it. As I said, we need to see certain of these factors that I went through happen, but we are pretty – we are going to be pretty conservative in that assessment given that it’s really kind of a non-economic event and more of a kind of AFFO-neutral decision.

Okay. Thanks guys. I appreciate the time this morning.

Thanks Rob.

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

Yes. Thanks. Greg, congrats on the pending Chairman appointment, maybe can you talk about the pros of you being named Chair given your knowledge and expertise in the space versus the potential governance concerns of having a dual Chairman and CEO? How did the Board kind of weigh that debate?

I think it’s great – thank you, Michael. I think what is occurring is, if you have seen, we have several new Board members. Again, we have announced two. We have another retirement based upon our requirements next year. And we had a couple of new appointees a couple of years ago. So, I think that the decision was more on continuity and somebody who kind of been here. So, I think the other thing that we did with Virginia Shanks, Ginny Shanks as our lead Independent Director, we appointed a very strong lead Independent Director that I think the Board has tremendous confidence in. So, I think they feel comfortable with this approach. And I think that’s the direction that we are going, but that we feel we are well represented from – representing the shareholders from a lead Independent Director with Ginny and the continuity with myself.

Okay. And then is that and maybe it’s too early to say. Is that the longer term plan, or is the plan to kind of separate those roles again in the future as kind of more people and the Board kind of season and been there for a while?

Again, that’s something I am sure our Board will take up. I don’t know. Again, we will just have to see how this progresses and the comfortability with everyone with the situation. But I think the Board feels comfortable with it now.

Okay, great. And then I guess Mark, can you talk a little bit about the assets currently in how much they kind of generated in the fourth quarter and kind of what’s the expectations of those assets recovering as you move through 2022? And I mean in guidance, can you highlight what you have included in terms of how much of an uptick those assets are going to have next year?

We are really not guiding to that level, Michael. But I will say that given the fact that certain of those assets were closed for part of ‘21, we definitely expect an uptick. And if you think about Kartrite being closed, reopening. We did some renovations at our JV in St. Petersburg on those hotels. So, we expect to have – and they were closed due to COVID. So, we expect quite a bit of uptick if you compare ‘21 to ‘22 in the performance of our TRS. Like I say, Kartrite, you have got the JVs, the hotels in St. Petersburg. You also have Jellystone, which was purchased kind of in the off-season, and it will get a full run rate next year. So, we are not giving specific guidance. But I can tell you where that was – if you look at all that, that was a pretty big net negative in 2021. We expected that to be a positive in 2022. So, that is part of the increase year-over-year is better performance of those TRS properties.

Okay, great. And then on the percentage rents, I know you did a good job kind of highlighting what’s moving in and out of those. What are you including in guidance in terms of how many of those leases actually start paying percentage rents? And what’s the likelihood of some of those assets outperforming expectations, especially given the inflationary type of environment we are in, that you could see those trend even higher than where guidance is kind of currently implying?

Yes. We think the midpoint of $10 million, we really have seen performance kind of getting back to 2019 levels. So, if you look at percentage rents in ‘19, strip out the stuff that’s sold private schools, we had some bonds, so if you can kind of get rid of those and look at it, what we are budgeting this year, we are kind of getting back to those levels with a bit of an uptick in a couple of the assets that we feel confident, particularly the casino asset where it’s performing much better than it was even in 2019 in terms of percentage rent. So, I think there could be upside beyond what we have. That’s why we give a range. But that $10 million at the midpoint really does reflect kind of ‘19 levels with a little bit of an uptick, like I said, in the casino asset.

Okay, great. Thank you.

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

Good morning.

Good morning John.

Given if I heard correctly, you are assuming 100% collection of ongoing rent from cash basis tenants, what kind of general hypothetical credit loss, if any, is assumed in guidance?

We generally put about 1% just as a reserve. And so when I say 100%, there is still a little bit of ongoing deferrals with respect to small shop retail. And we do expect certain bad debt issues, but it’s minor. It’s kind of back to normal, if you will. And that’s why we are not guiding to 100%. It’s near 100%, but it’s probably like more like 99% when you think about how we budget that.

Okay. That’s helpful. And then I know you talked about the runway quite a bit for investment volume, but maybe just kind of longer term and now that we are in a more normalized collection environment, how are you thinking about leverage? Where is maybe the target range? And were you comfortable taking leverage? Has that changed at all maybe versus when we were talking in early 2020, just any thoughts there.

No. Really, we really operate consistent with investment-grade metrics at about 5.2 to 5.6 So, we are comfortably within that range we expect for 2022. And that’s the way kind of look back at the company, it’s kind of we have always run the company about that kind of mid to low-5s. And we expect that to continue to continue to maintain that type of leverage, which is, like I said, consistent with our investment-grade ratings that we get.

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

Thanks John.

Your last question is from the line of Katy McConnell from Citi. Your line is now open.

It’s Mike Bilerman again. Greg, in your opening comments, you talked about sort of box office in 2019 in that there will be no assurance that we will ever achieve those again. And you talked the difference about highly productive locations versus, I guess the average. I guess do you sort of see the industry evolving from a sort of total box office perspective? And how granular is the difference is going to be between feeder locations or geography relative to that 2019 base? I mean how disparate do you think results are going to emerge as we come out of this?

Yes. I think what we are trying to get to, Michael, is, let’s say, again, if that was 11%, if we get back in a couple of years over 9 years or 10 years how many theater locations have actually closed throughout this pandemic and what number of screens are we talking about. I mean we could find a scenario where the existing the theaters that remain are actually more productive on a lower box office. So, I think they have all made improvements in terms of expense margins and things of that nature, new ways to grow business. We continue to see F&B continuing to creep up and drive up. So, I think what I am trying to say is, I think we will see some theater closures from underperforming. We have seen that already with theaters being repurposed or taken out of commission. So, I think that what I was trying to say is we believe that the business is going to stabilize and still be a very productive business. It just needs to kind of play out and see how all those dynamics work. But Greg, maybe you have more…

And increasing ramp-up of product from Hollywood as well.

And how about just alternative uses within the theaters? I can recall pre-pandemic, we talked about corporate activities, live events and a range of different things that those screens can be used for. Do you have any initiatives going on that would be able to increase sort of the revenue production out of each box?

Yes. I think there is a lot of things going on. Especially if you look at things like Cinemark did with private events, things of that nature, that you are seeing already kind of ramp-up. And if you see what their kind of performance was, I think you are seeing a lot of new and exciting kind of things. We have talked to people about some of these things where you are seeing kind of the pop-up virtual museum type thing and how can they be incorporated into these spaces. So, I think you are seeing – you are going to continue to see a lot of innovation and people trying to incorporate those ideas.

Okay. Thanks.

Thank you, Mike.

There are no further questions. Presenters, please continue.

I just want to say thank you, everyone, and I appreciate your time. And we look forward to getting back to normal. And I look forward to spending time and talking with you as we continue to grow. Thanks, everyone.

Thank you.

And with that, this concludes today’s conference call. Thank you for attending. You may now disconnect.