EPR Properties (EPR) Q1 2022 Earnings Report, Transcript and Summary

Welcome to the Q1, 2022 EPR Properties Earnings Call. My name is Richard, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Brian Moriarty, Vice President, Corporate Communications. Mr. Moriarty, you may begin.

Okay. Thank you, Richard. Thanks for joining us today for our first 2022 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 first quarter 2022 earnings call and webcast. With our first quarter results, we delivered consistent progress as our portfolio continued to recover. Rent collections have normalized and we realized strong collections under our rent deferral agreements, broadly supported by healthy tenant performance. These collections add to our strong liquidity position. We were also pleased that Fitch recognized our stabilization and disciplined leverage by upgrading both the company and our unsecured debt in March. In reviewing our experiential portfolio, we are excited about the sustained demand we are seeing highlighted by our Eat & Play experiential lodging and ski properties. This may be best illustrated by our newest top Golf locations which have opened at some the top performing locations across the top golf network and our other Network and our other properties other than theaters performing at or above 2019 volumes. Fundamentally, these results continue to reinforce the long-term durability for out-of-home leisure, recreation and social experiences while supporting our focus on experiential real estate. Turning to our Theater portfolio, as box office continues to regain momentum and studios are reassured of the economic benefit of theatrical exhibition. We believe the debate around the impact of streaming will continue to moderate. It is becoming increasingly clear that theater exhibition has regained its distinction as the platform which maximizes revenues for studios. With the recent Netflix news, the streaming environment appears to be entering a period of rationalization. A recent study from Deloitte highlighted the intense competitive challenge faced by streaming services, and noted that social media has become a direct competitor for at home viewing time. We continue to believe that in the end, theater exhibition and at home streaming services should and will successfully coexist, as they have for many years. We are also excited to be executing on our investment pipeline on transactions with solid economics. In 2022, we are uniquely well positioned to execute on a defined set of opportunities armed with a strong balance sheet. We are confident in the acceleration of our investments spinning based upon the substantial progress we have made on a number of transactions that we expect to close in the second half of the year. We are reaffirming our investment guidance, noting that this year's deployment will have most of its impact on next year's earnings. Lastly, as we consider the strength of our portfolio performance results to date and expectations for the remainder of the year, we are pleased to be raising our earnings guidance for the year. Now I'll turn the call over to Greg Zimmerman who will discuss the business in more detail.

Thanks, Greg. At the end of the first quarter, our total investments were approximately $6.5 billion with 355 properties in service and 96% leased. During the quarter, our investment spending was $24.4 million and including investments completed after quarter-end, our year-to-date spend through May 4 is $90.4 million. 100% of the spending was in our Experiential portfolio, and included two acquisitions, built-to-suit development and redevelopment projects. Our Experiential portfolio comprises 281 properties with 42 operators and accounts for 91% of our total investments, or approximately $5.9 billion and at the end of the quarter was 96% occupied. Our Education portfolio comprises 74 properties with eight operators and at the end of the quarter was 100% occupied. Now I'll update you on the operating status of our tenants. Exhibition's meaningful recovery continued in the first quarter. Q1 total box office was $1.33 billion, 55.7% of Q1 2019 box office. Consumers are returning to the movies. The Batman led all titles for Q1, grossing nearly $369 million to date. Spider-Man: No Way Home continued its record breaking performance in Q1 with over $804 million in box office to date. Uncharted, Sing 2 and Scream 2 all grossed over $80 million in the quarter. Sonic: The Hedgehog 2 provided a strong start to Q2, grossing over $161 million to lead second quarter box office. As we move further into 2022 and box office continues its recovery, we are focused on the number of films produced by studios for wide release. During Q1, 129 films were released theatrically compared to 302 in Q1 2019. As the consumer is consistently proving with Spider-Man, the Batman and Sonic: the Hedgehog, we don't have a demand issue we have a supply issue. We firmly believe box office numbers will continue to improve as studios recognize this demand and increase the product flowing to theatrical release. The 2022 film slate is solid, with a potential for 17 tentpole titles to grossed $100 million or more for the year, up from 11 in 2021. The remainder of the Q2 slate includes Dr. Strange in the Multiverse of Madness, which opens tomorrow, Lightyear, Top Gun Maverick and Jurassic World Dominion. Q3 and Q4 will have the highly anticipated sequel, Avatar: The Way of Water, Black Adam, with Dwayne Johnson and two Marvel Universe films, Thor: Love and Thunder and Black Panther: Wakanda Forever. Turning now to an update on our other major customer groups, we continue to see positive trends across all segments of our drive-to value-oriented destinations. In Q1, we saw continued good performance across Eat & Play throughout the country, with strong attendance and revenue growth. The bulk of our attractions were closed seasonally in Q1, those that were open had solid results. As we roll into Q2, attractions in the southern and western part of the country are beginning to open, and we anticipate continued strong demand in 2022. Membership in our fitness assets continued to improve in Q1, up significantly over Q1 2021. We're happy with the progress. Across our Experiential Lodging portfolio, ADR and revenue growth continued to grow in Q1. In our RV resorts, we are seeing ADR growth and strong reservations heading into the summer season. In our ski portfolio, early season weather challenges were mostly offset in the second half of the season. Staffing issues did impact a number of locations. Nonetheless, overall, revenue grew across our portfolio, in part because of season pass sales. We continue to benefit from our focus on value-oriented drive-to-ski destinations. Our Education portfolio continues to perform well. We have five vacant theaters. We have executed contracts of sale for two and are in advanced negotiations for two others. We continue to market the fifth theater with multiple expressions of interest. Finally, and most importantly, we are laser-focused on growing the business through investments. We are seeing increasing investment opportunities throughout most of our verticals, including Eat & Play, experiential lodging, fitness and wellness and attractions. Our pipeline continues to build. As noted on our last call, during the first quarter, we acquired a movement climbing, yoga and fitness in Lincoln Park in Chicago for $19.9 million. In addition, we acquired the site for the new Topgolf in King of Prussia, Pennsylvania and a build-to-suit project, which will commence construction later in 2022. After the end of the quarter, we acquired the Kagen Palms RV Resort in Breaux Bridge, Louisiana, between Lafayette and Baton Rouge, in a joint venture with Northgate Resorts, a premier RV resort operator. EPR's ownership interest is 85%, and our overall investment exceeds $60 million. Kagen Palms is our third RV resort investments. We're bullish on the resilient RV and RV resort space, which is supported by long-term demand drivers. The median age of new RV owners is 41, and ownership comprises Millennials, Gen X, Boomers and Gen Z. We're also particularly excited to further develop our relationship with Northgate Resorts as we look to grow our RV resort portfolio. We're making substantial progress on our investment pipeline. To date, in 2022, we have funded $90.5 million for acquisitions and new development projects and expect to fund an additional approximately $50 million on announced projects during the balance of 2022. Since restarting our investment spending, we have made significant progress on definitive agreements for additional investments in multiple experiential verticals. The opportunities include acquisitions, build-to-suits and redevelopment investments consistent with our historical approach. Cap rates remain in the 7% to 8% range and should create compelling long-term value. With our increased visibility and expanded investment pipeline, we're maintaining our 2022 investment spending guidance range of $500 million to $700 million, and we expect that our closing in fundings will ramp as we enter the second half of the year. We're excited about our accelerating investment progress as we move through 2022. Consumers continue to engage in experiential activities and operators are growing. With our broad unparalleled experience and network and experiential real estate, we're ideally positioned to take advantage of these growth opportunities. I now turn it over to Mark for a discussion of the financials.

Thank you, Greg. Today, I will discuss our financial performance for the quarter, provide an update on our strong balance sheet and close with updated 2022 earnings guidance. We had another strong quarter that exceeded our expectations. FFO as adjusted for the quarter was $1.10 per share versus $0.48 in the prior year, and AFFO for the quarter was $1.16 per share compared to $0.52 in the prior year. Now moving to the key variances. Total revenue for the quarter was $157.5 million versus $111.8 million in the prior year. This increase was due primarily to improved collections from certain tenants, which continue to be recognized in revenue on a cash basis or had previously received abatements. Scheduled rent increases as well as acquisitions and development completed over the past year also contributed to the increase. This increase was partially offset by the impact of property dispositions. I would like to take a moment to summarize deferral collections during the quarter. We collected $10.2 million of deferred rent and interest from accrual basis tenants and borrowers that reduced receivables, leaving a balance on our books at March 31 of $17.4 million. We expect to collect approximately $15 million of the remaining $17.4 million over the balance of 2022. Additionally, during the quarter, we collected $1.6 million in deferral repayments from cash basis customers that were recognized as revenue when received and which were not included in our guidance. At March 31, we had approximately $123 million of deferred rent and interest owed to us not on the books. This amount is due over the next five years. Revenue from these customers will continue to be recognized when the cash is received. Note that through March 31, we have collected a total of approximately $91 million of rent and interest from customers that was deferred as a result of the impact of the COVID-19 pandemic. This amount is a real testament to the strength of our customers' recovery. We had other income and other expense of $8.6 million and $5.5 million, respectively, mostly due to the reopening of the Cartwright Resort Indoor Water Park during 2021, after being closed due to COVID-19 restrictions, as well as from two theater properties that we operate. We were encouraged to see the Cartwright Resort outperform our expectations during the first quarter, driven by higher-than-expected revenue. Also included in other income for the quarter was a $552,000 gain on insurance recovery that has been excluded from FFO as adjusted. Percentage rent for the quarter totaled $3.4 million versus $2 million in the prior year. The increase versus prior year related to higher percentage rents from our gaming and golf entertainment tenants as well as from one cultural tenant. This was partially offset by less percentage rent from an early education tenant based on a restructured lease, which has higher base rents in 2022. I would like to note that percentage rents for the quarter exceeded our expectations by about $1.2 million, due primarily to some true-ups from the prior year related to two tenants. Property operating expense for the quarter decreased by $1.4 million compared to prior year, primarily due to fewer vacancies resulting from dispositions and re-leasing. G&A expense for the quarter increased by $1.9 million compared to prior year and was due primarily to an increase in payroll and benefit costs, including stock grant amortization as well as professional fees and travel expense. Interest expense net for the quarter decreased by $5.9 million compared to prior year due to reduced borrowings and lower borrowing costs due to the termination of our bank covenant waiver. In addition to the repayment of our term loan during the third quarter of '21, we had no balance on our revolving credit facility throughout the quarter. Transaction costs increased by $1.7 million compared to prior year as we reaccelerate our investments. This expense is excluded from FFO as adjusted. During the quarter, we recognized a credit loss benefit of $0.3 million versus $2.8 million in the prior year. The primary reason for the higher benefit in the prior year was due to favorable expectations in the third-party model that reduced the allowance that was established back in 2020 related to the economic disruption caused by COVID-19. The benefit for both periods is excluded from FFO as adjusted. During the quarter, we recognized an impairment charge of $4.4 million related to one property that was recently vacated and that we intend to sell. This charge is also excluded from FFO as adjusted. Finally, equity and loss from joint ventures decreased by $1.3 million compared to prior year. This was due to increased revenues at two experiential lodging properties in St. Petersburg, Florida, that are performing well and was partially offset by the expected off-season losses recognized at our experiential lodging property in Moores, Wisconsin, which was acquired in August of last year. Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, coverage ratios have returned to strong levels, with fixed charge coverage at 3.2 times, and both interest and debt service coverage ratios at 3.7 times. Our net debt to adjusted EBITDA was 5.1 times and our net debt to gross assets was 38% on a book basis at March 31. Lastly, our common dividend continues to be very well covered with an AFFO payout ratio for the quarter of 67%. Now let's move to our balance sheet and capital markets activities. We are pleased that during the quarter, Fitch upgraded our corporate and unsecured ratings to investment grade with a stable outlook. That now gives us investment-grade ratings on our unsecured debt across all three rating agencies. At quarter end, we had total outstanding debt of $2.8 billion, all of which is either fixed-rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.3%. Additionally, our weighted average debt maturity is six years, with no scheduled debt maturities until 2024. We had nearly $324 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. As you can see, our balance sheet is very well positioned to fund our investment opportunities. We are pleased to be increasing guidance for 2022 FFO as adjusted per share to a range of $4.39 to $4.55, from a range of $4.30 to $4.50, representing an increase of 45% at the midpoint over prior year. We are confirming our guidance on investment spending of $500 million to $700 million and disposition proceeds of zero to $10 million. Before concluding, I would like to give some additional details regarding 2022 guidance. Consistent with what we have done previously, we are not including any future collections of deferrals from cash basis customers in our guidance. Such amounts will be booked as additional revenue when received over the last nine months of 2022. However, we will continue to report each quarter on the amount of such collections as well as the collections from accrual basis customers. As I mentioned previously, during the first quarter, we recognized $3.4 million in percentage rents, which included certain amounts related to the prior year that were not anticipated. Therefore, we are raising our guidance range by $1 million on both ends and now expect percentage rent to be in a range of $9 million to $13 million for 2022. Also, consistent with the historical timing of percentage rents, we continue to expect such amounts to be weighted to the back half of the year, with approximately 50% anticipated in the fourth quarter and only about $1 million anticipated in the second quarter. We've also increased our expected G&A expense guidance by $1 million to a range of $50 million to $53 million, with about half of that increase due to higher-than-expected non-cash stock grant amortization. We expect that our convertible preferred shares outstanding will continue to be dilutive to FFO as adjusted per share results for each of the remaining quarters in 2022 as they were in Q1 of '22. Guidance details can be found on Page 23 of our supplemental. Lastly, I'd like to comment on our capital plan for 2022. We are in the enviable position in this turbulent market of having over $320 million of cash on hand at quarter end, nothing drawn on our $1 billion line of credit and no scheduled debt maturities until 2024. Furthermore, as we have experienced the last several quarters, we expect to collect more than 100% of contractual cash revenue over the remainder of the year due to ongoing deferral collections. And combined with our conservative AFFO payout ratio, we expect to continue to generate significant excess cash flow to fund new investments. This means we can be opportunistic as to when and how we access additional capital. Now with that, I'll turn it back over to Greg for his closing remarks.

Thank you, Mark. We are pleased with the progress we've made to date. As we've discussed, the consumer is strongly supporting our properties, our tenants are strengthening and our earnings are increasing. We look forward to these trends continuing in the coming quarters. With that, why don't I open it up for questions? Richard?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question online comes from Mr. Nick Joseph from Citi. Please go ahead.

Thanks. You talked about the disruption with streaming. As you sit back and think about that, how do you think it either benefits theaters? Or is it more of an additional competition that streaming has seen from online that may just create more competition for consumers broadly?

Yeah. Nick. I think what we think about, and I'll let Greg chime in on this is streaming has really become effectively the competition for your in-home cable television. Again, their focus is developing series and kind of being a direct competitor to that. Now what the Deloitte study focused on was in that in-home environment, whether it's TikTok or other things, there is competitive pressure in there, where I think we're out of home entertainment, and I don't think there -- the question becomes are we staying in or are we going out? Where the competition does come to play is a little bit about what Greg talked about. Over the last two years, with so much focusing on streaming, there's been a lot of content development for that to the detriment of developing enough product for the theaters. We think that model is starting to change where we're getting more focused on content development for films. And as that begins to pick up, that will benefit the theater business. But it's less about the consumer competition as more as it is about the content competition.

Nick, I would also add, we believe that Netflix and some of the other streaming services will look to put movies first run in the theaters. Netflix announced last week that they bought Alejandro Inarratu's Bardo. He's the director from Birdman and The Revenant. And they're committed to a first run on that six months from now. So we expect that we'll see more first-run releases from the streaming services.

That’s very helpful. Thank you.

Thank you. Our next question on the line comes from RJ Milligan from Raymond James. Please go ahead.

Hey, good morning, guys. I just wanted to revisit the guidance here. It looks like percentage rents expectations went up a little bit, but so did G&A. And I'm just -- is the guidance increase just purely the deferred rent collections from the 1Q?

No. Really, we updated, as you said, G&A kind of offset percentage rents, and we increased our guidance to the midpoint by $0.07. So we said -- we gave original guidance that deferral collections are not in that. So we had $0.02 in the quarter, so that's part of it. But we're not putting any future deferral collections in our guidance. So it really is just the $0.02 of the $0.07 as related to deferral collections from cash basis customers. The other $0.05, the biggest chunk of that is probably about $0.04 of better performance anticipated at our TRS and JV properties, which are operating properties. We saw good performance in Q1, and expect that performance to continue throughout the remainder of the year. And then there's about $0.01 of just sort of smaller things. Revenue at our ERCs, entertainment retail centers, was a bit better as well. So that's really the $0.07 increase, $0.02 deferrals, $0.04 or so TRS and JVs and about another penny of sort of other areas that were above expectations.

RJ, I would add, I think, again, as Mark talked about, some of our properties, especially operating properties, we've talked about the Cartwright before, these were closed a lot of last year. So there's no doubt we had a level of conservatism that we built into that as we're coming into this year and kind of seen it's really never had a true full year operating season. So as we're seeing that performance kind of ramp to kind of what we thought it could be, our guidance is reflecting some of that strong performance.

That's very helpful. And my second question is on the pipeline for external growth. Obviously, not a lot done so far year-to-date, and you mentioned that the expectations are that it's going to continue to ramp in the back half of the year. Can you just talk about the pipeline, what do you expect the cadence to be even in the back half of the year? Do you expect it to be more fourth quarter weighted? And then what the potential hurdles might be to achieving that goal of $500 million to $700 million for the year.

And I'll let Greg kind of jump in. I would say it's probably fairly balanced in the second half of the year, probably a little more in the fourth quarter. I think the hurdles are again, just kind of getting deals kind of finalized. I think we feel confident that we have great visibility. We're in due diligence in negotiating agreements. So I don't think these are issues of kind of finalizing terms. It's getting it from beginning to end. And candidly, there's a lot of competition for third parties out there, meaning not competition in the deal, but to get through due diligence and things of these nature. Things are taking a little longer in the market as everyone is experiencing that. But Greg, maybe you have more color?

No, I think that's right, Greg. I think we are seeing a lot of competition for third parties that's slowing things down. I don't really think we're terribly concerned about the impact of inflation. I think most of our customers have already priced that in. So it's just one step at a time to get things done, and we do feel comfortable about it, RJ.

Great. Thank you very much, guys.

Thank you, RJ.

Thank you. Our next question on line comes from John Massocca from Ladenburg Thalmann. Please go ahead.

Good morning.

Good morning, John.

So maybe just touching on a little bit on the last answer to the question that was in previously. You talked a little bit about -- you kind of mentioned that you weren't seeing a ton of competition for investments. I guess maybe why is that, especially as it seems like pre-COVID-19, you were seeing a lot of net lease peers maybe kind of migrating to more experiential assets. Is that just a psychological thing with a lot of investors from the pandemic? Or is there something else maybe out there that's keeping some of that competition for investments at bay?

I would say, and I'll let Greg also comment. I think, first of all, we are seeing a real benefit of how we worked with existing tenants through COVID. Mark talked about we're getting repaid on these, and we're getting repaid sometimes faster than what actually contractually our tenants had agreed to. But the other huge benefit is people are wanting to do business with us. So there is a significant amount of this. It is with existing tenants that we are helping to grow their business. And I think the way Greg and his asset management team worked with these tenants and created a path that was both a success for us and a win for them is paying really big dividends now. But Greg?

Well, thank you for the compliment. Yes, I completely agree. I would also say that, John, we had visibility to people's pipelines during COVID. People still kept thinking about what they wanted to do next, even while they were shut down, and they started developing plans. We were working right alongside with them until the time was right to move forward. And I think we're seeing a lot of benefit from that. I think we also have pretty deep experience in the build-to-suit side of this and people recognize that we're able to deliver.

It's a great thing when relationships are such that they're not shopped because they appreciate doing business with us. And we're growing existing tenants. And I think it's really a great thing to be able to grow with your existing tenants, and they're just looking to you only to fund that need.

Okay. And then on the TRS and JV side of things, I know it's probably bespoke for each transaction. But what's the relative kind of general timeline or thought about moving those to a net lease structure eventually as operations kind of continue to stabilize here post the worst of the pandemic?

Again, we're -- again, we're going to take a look at all of those and kind of see. There's two sides of that. Some of that's not a bad thing from an inflation protection. Again, an inflation environment, we're probably enjoying the upside of that. So I think we're mindful about the size of that, and we'll always be thoughtful about that. But I think again, we will kind of evaluate those as they go forward. And hopefully, in the future, you'll see more updates on that. Right now, we're still in the acquisition mode of really trying to acquire what we think are high quality, very resilient properties. And then we think we've -- even in the JVs, we've got very strong structures that protect our interest and protect our shareholders. And then we'll look at migrating those as we get to more and stabilization because often at several -- most of these properties, we are improving. Greg, I don't know if you ---

No, I think that's right. And I think that obviously, we would prefer to be in a net lease structure. But if we need to get a quality asset through a joint venture structure, we're not afraid to do that. And to your point, Greg, yeah, most of these are redevelopments and improvements.

Is that going to maybe be typical as to how you invest in the experiential lodging sector, at least in kind of the near term here?

I wouldn't say that's -- yeah, I mean, I think what you'll see us do is some traditional straight-up net lease deals as well. I think it's, as you said, it's kind of bespoke and the nature of the deal. Does it have development or redevelopment needs? Is it -- do we think it stabilizes to a much higher level? So I don't think there's like a generality because I know some of the investments that we're looking at in the coming future will be in that area but will be traditional net lease. So I think there's no kind of linear straight line to draw.

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

Thank you, John.

Thank you. Our next question on line comes from Mr. Michael Carroll from RBC Capital Markets.

Yeah, thanks. Greg, I wanted to touch on your comments that you made earlier regarding theaters. How long will it take for studios if they have this renewed focus on theatrical releases? How long will that take to actually translate into additional tentpole films being put out to the market?

Again, and I'll let Greg Zimmerman comment, I think people are focusing on what I -- and Greg will have an opinion, it's not as much tentpole films. It's actually the smaller films that we need. The number of tentpole films are pretty good, and those were -- we were protected with those as things kind of went into the can and were held for -- during COVID. It's really the kind of $25 million to $75 million films. I think what we're going to see is a gradually ramping of that, and could that take kind of several years? It could. I think we feel like we're going to be -- we're going to have positive coverage this year from when we get through to the end of the year, and that number should, we believe, continue to grow. But I don't want to give people the impression it's the big titles. It's actually kind of some of the smaller stuff. Greg?

Yeah, I agree, Greg. I mean, we're going to have, Michael, probably 17, as I mentioned in my script, probably 17 films this year that exceed $100 million. Spider-Man was the third highest grossing film of all time. Dr. Strange presales are five times the presales of the original Dr. Strange. And some of the movement you're seeing in tentpole films being pushed to 2023 are just calendar issues where they don't want to release two tentpoles too close to each other. So I agree. The large theatrical releases are flowing. It's the smaller films that we want to see come back.

Okay. And then in the first quarter, it looked like if you look at the weekend sales, the ticket sales, rarely surpassed $100 million a weekend in pre-COVID, you're consistently exceeding that number and even touching $200 million plus. Is the difference there, is it -- is the smaller films? Or is it that they just didn't -- the way that the schedule worked out, there wasn't a lot of tentpole films going out this year yet?

It's a little bit of both, but I do think it is the amount of product in there. As Greg mentioned, if you look at the number of titles, if you only have so many titles playing, it's going to affect it. But I think clearly at the beginning of the year is not tentpole heavy. It never is. First quarter is not. We're moving into that period now kind of this -- Dr. Strange kind of kicks that off. So we'll see a steady flow of that as we work through the summer. But it is a little bit -- again, as we track and we've told people here, when you track the percent of box office and the percent of movies that are out, that's a far better tracking mechanism of saying where we're at relative to kind of overall performance because the consumer is showing up. We just need to get more product flow to them. But Greg?

I think also, Michael, a lot of these films performed very well on IMAX or other premium large-format screens. And people's viewing habits are changing, and they're going to the movies midweek more because they can get a good seat and reserve it at one of the big screens. So I think that has also helped.

Okay. And then can you talk a little bit about how well positioned your tenants are? I know, Greg, I think you were highlighting that they have -- they're going to have positive coverage. I mean are they making money today at these current levels?

Yeah. I mean the expectations of kind of where we're at and targeting this year, they should -- we think they should make money, and we would have positive coverage. It's not back to where it was. Again, we think that's going to take a little time as we talked about with more products. If you look beyond theaters though, I would tell you we are at or above where we were in 2019.

Well, and we -- our continuous -- our theaters continue to outperform. We continue to generate over 8% of the U.S. box office. So we have strong numbers.

And then just last one on this topic. How many -- and I know we kind of talked about this before, how many theater boxes actually closed down during the pandemic? Was that a significant number? And is your portfolio now better positioned to take more share just because there's less competition out there?

We -- and again, I'll let Greg comment. I think we probably would say, and we just had the conference for theater operators. I think we've probably seen about 10% kind of closures. I think we probably, if not for governmental assistance, we probably would have expected that to be closer to 20%. But there's no doubt our theaters are going to benefit from this because as Greg said, we have kind of a market-dominant portfolio. And so we think that process, that winning process will continue as people start to explore higher and better uses for their buildings. But we feel good about how our portfolio is positioned relative to competition.

Great. Thank you.

Thank you, Michael.

And I'm showing we have no further questions at this time. I will now turn the call over to Greg Silvers for closing remarks.

Well, we -- again, thank you for everyone's time. We're very proud of the accomplishments this quarter. We look to continue the trends that you saw, and we look forward to meeting many of you in the next month at NAREIT. So everyone, have a great day, and we look forward to talking to you next time. Thank you.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.